Washington Court of Appeals Determines What "Actual Knowledge" Is Under Title Insurance Policy

In 2007, C 1031 Properties, Inc. (“C 1031”), a Spokane developer, purchased a former drive-in movie theater site for construction of a self-storage facility.[i]  The purchase and sale agreement required the developer to inspect the property, and the developer’s agent signed an acknowledgement that he had sufficient time to inspect the property and approve the boundary line location and physical conditions of the property, which included power lines and power poles on the property.  C 1031’s title insurance company, First American Title Insurance Company (“First American”), then issued a Preliminary Commitment of Title Insurance to C 1031 which required C 1031 to notify First American of any existing encumbrances on the property.  C 1031, however, failed to inform First American about the existing power poles and lines on the property.

Prior to closing the sale, C 1031’s engineers prepared a full set of plans for the self-storage facility, including a survey.  Both the inspection and the survey revealed the presence of the power poles and lines at the site.  The Preliminary Commitment for Title Insurance, however, did not disclose any easement on the property.  C 1031 proceeded with closing and purchased the property.

After closing, C 1031 contacted the power company to remove the power lines and poles, but the power company refused, relying on a 1949 recorded easement granting the power company the right to maintain the electrical lines.  C 1031’s title insurance policy from First American provided coverage for “easements of record,” but specifically excluded “easements …which are not shown by the public record.” 

C 1031 then sued First American for breach of title insurance coverage.  First American admitted that it failed to disclose the recorded easement, but denied coverage based on the “actual knowledge” exclusions in the policy because, it argued that C 1031 had actual knowledge based on the presence of power lines and poles on the property.  At summary judgment, the trial court ruled that the issue of actual knowledge was a matter for the trier of fact that should be determined at trial rather than a question of law to be interpreted at summary judgment.  The parties then both requested discretionary review to Division Three of the Washington Court of Appeals.

On appeal, Division Three noted that the purpose of the title insurer is to insure title and that an insured (C 1031) relies on the title insurer (First American) to discover any encumbrances recorded in the public record because it is the insurer’s expert service to uncover defects in title.  First American admitted that it missed the electrical easement that was recorded on the property and that C 1031’s title policy stated that “easements of record are covered.”  First American argued that the policy was not violated because C 1031 had actual knowledge of the easement because it saw the power poles and lines on the property.  C 1031 argued that it had no actual knowledge of the easement, but only knowledge that the power poles and lines were located on the property.  The question before the Court of Appeals was whether the title insurance policy’s “knowledge” exception applied to its coverage for easements of record.

The Court held that “the [title insurance] policy definition unambiguously defines knowledge as ‘actual knowledge’ of an easement, not ‘constructive knowledge or notice that may be imputed to’ C 1031 constructively.”  And that when C 1031 “saw the power lines on the property, it acquired at best inquiry notice, not actual knowledge of a recorded easement.”  (emphasis added).  Accordingly, the Court reversed and remanded to the trial court because even if C 1031 had knowledge of the power poles and lines on the property, the title insurance policy required actual knowledge of an easement in order for the knowledge exception to the title insurance policy to apply.


[i] C 1031 Properties, Inc. v. First American Title Insurance Company,  __ Wn. App. ___, 2013 WL 2255873 (May 23, 2013).

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