Posting for

Thursday, October 22, 1998

by: David Dickson

ddickson@firstam.com

and: Bert Rush

brush@firstam.com

ARKANSAS CLAIM/MEASURE OF DAMAGES/EASEMENTS

David Dickson (Memphis) writes:

We have been presented with a claim in Arkansas. Our agent apparently missed an easement-still investigating-on a rural residential property. The easement serves a 100 acre tract which has no road frontage. The owner of the benefitted parcel is seeking to develop 100 lots. Does any one disagree that though under this abbreviated statement of facts there is coverage on the owner's-value unencumbered/value with defect difference calculation (and) the issue of a surcharge is the insured's problem. I can see the reaction-$100,000+ owner's policy-20' access easement across the front yard-here's your check for $5000 (this a hypothetical figure of course)-Next week in comes the road gang with a dozer, site prep people laying out lots, etc., etc. Sorry this is your problem-If we set it up as an exception it would be their problem. Obviously I hadn't read the Overholtzer information before I started this.

Reply: Yes, I think I agree with you that where we have failed to take exception for a recorded easement then we (the title insurer) become liable for the insured owner's damages, measured by diminution in value of the property because of existence of the easement.

Diminution in value is usually equal to the value of the property with and without the easement--measured as of the time of discovery of the previously unknown easement. This is the holding of the Overholtzer case--discussed recently on LandSakes.

But in your case we have the complication that at about the same time existence of the offending easement comes to light, we also learn that the dominant tenement (benefitted property) intends to put in a 100 lot subdivision which will doubtless someday become home to undesireable rabble or relocating yuppies--whatever. So now the insured owner feels doubly damaged--not only is there an easement, there is also uncertain future use of the easement.

I think I'd ask an appraiser to estimate diminution in value as of the date of discovery of the easement--without regard to the proposed new use by the dominant tenement. If the insured is dissatisfied with the resulting opinion of damage, examine the missed easement carefully to see if it might be said that the proposed new use might be considered an overburdening of the easement. The pertinent question becomes: What were the intentions of the parties in creating the easement?

While a missed easement is, by itself, usually covered by title insurance--a neighbor's overburdening of an easement is not. Overburdening is akin to trespass--an offensive use not based on a claim of legal right. It would be for the insured to take care of.

But if it's not an apparent overburdening, I'd say you ought to include the proposed new use in your calculation of diminution in value--because it's not really "new" if it's within the apparent intent of the original parties in the creation of the easement.

If this makes you blanch, and if the policy amount on the insured owner's policy isn't terribly high, you may want to resolve a possible dispute with your insured owner by buying his/her property. While the insured may believe that a new subdivision next door is an absolute calamity, it's also possible the value of the insured property will be enhanced by the new character of the neighborhood. Maybe Taco Bell would be interested. (Whoops--forgot this is Arkansas. Make that McDonald's.)

Anyway, gotta go. There's a typhoon bearing down on Manila and we've been warned to unplug electrical equipment--so this is "dictated but not read."

Questions, comment, argument? Just press the "reply" button....