Johnston et al v. Connecticut Attorneys Title Insurance Co. et al

Filing 32

OPINION AND ORDER granting 7 Defendant Connecticut Attorneys Title Insurance Co.'s Motion for Summary Judgment and denying 12 Plaintiffs' Cross-Motion for Partial Summary Judgment. Signed by Chief Judge Christina Reiss on 4/16/2014. (pac)

U.S. DIS Ix ieT Ci,"UfF
DISTRIC'f OF V He:'!

FILED
UNITED STATES DISTRICT COURT
FOR THE
DISTRICT OF VERMONT

2014 APR 16 PM I: 38
CLERK
BY _ _ .~e

___~

DEPUTY GLEn!;

TIMOTHY C. JOHNSTON and
ZAPATA COURAGE,
Plaintiffs,
v.
CONNECTICUT ATTORNEYS
TITLE INSURANCE CO., JON S.
SVITAVSKY, and CHERYL JIMMO, f/k/a
SVITAVSKY,
Defendants.

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Case No.5: 13-cv-229

OPINION AND ORDER GRANTING DEFENDANT CONNECTICUT
ATTORNEYS TITLE INSURANCE CO.'S MOTION FOR SUMMARY
JUDGMENT AND DENYING PLAINTIFFS' CROSS-MOTION FOR PARTIAL
SUMMARY JUDGMENT
(Docs. 7, 12)
This matter comes before the court on the motion for summary judgment filed by
Defendant Connecticut Attorneys Title Insurance Co. ("CATIC") and the cross-motion
for partial summary judgment filed by Plaintiffs Timothy C. Johnston and Zapata
Courage ("Plaintiffs"). Plaintiffs seek a declaration of coverage under a CATIC owner's
title insurance policy #OP1413352 (the "Policy") which Plaintiff Johnston purchased in
conjunction with his acquisition of certain real property located in Ripton, Vermont (the
"Property"). Plaintiffs claim coverage is available under the Policy because the United
States Forest Service ("USFS") issued them a letter, demanding the removal of certain
structures on the Property that allegedly encroach on federal lands.
CATIC moves for summary judgment in its favor, arguing there has been no
forced removal and that the Policy's survey exception applies and excludes coverage for
any facts which an accurate surveyor personal inspection of the land would disclose.
CATIC seeks summary judgment on Plaintiffs' claim for breach of the implied covenant

of good faith and fair dealing on the ground that no breach of the covenant may be found
because CATIC was merely asserting its contractual rights when it advised Plaintiffs not
to prompt the USFS to file suit. (Doc. 7.)
Plaintiffs cross-move for partial summary judgment in their favor. (Doc. 12.)
They contend that there has been a forced removal under the Policy and the survey
exception either does not exclude coverage, is unconscionable, or renders the forced
removal provision illusory.
The court heard oral argument on January 21, 2014. Plaintiffs are represented by
William L. Durrell, Esq. CATIC is represented by Michael J. Harris, Esq.
I.

Procedural Background.
In Counts I-IV of their Complaint, Plaintiffs allege claims of breach of warranty,

consumer fraud, fraud and deceit, and negligent misrepresentation against Defendants Jon
S. Svitavsky and Cheryl Jimmo, f/k/a Svitavsky. In Count V of their Complaint, they
seek a declaratory judgment that "CATIC has the duty to defend and indemnify Johnston
against any claims made by the USFS and/or the United States of America for trespass,
encroachment or similar claims under the terms of the title insurance policy at issue."
(Doc. 1 ~ 57.) In Counts VI, VII and VIII, Plaintiffs allege breach of contract, bad faith,
and breach of the implied covenant of good faith and fair dealing against CATIC. On
January 21,2014, Plaintiffs withdrew their bad faith claim against CATIC. At issue in
the cross motions are Plaintiffs' remaining claims against CATIC, each of which arises
from either the Policy or CATIC's handling of Plaintiff Johnston's claim under the
Policy.

II.

The Undisputed Facts.
A.

The Policy.

The Policy provides coverage to Plaintiff Johnston as follows:
OWNER'S COVERAGE STATEMENT
This Policy insures your title to the land described in Schedule A-if that
land is a one-to-four family residential lot or condominium unit.

2

Your insurance as described in this Coverage Statement, is effective on the
Policy Date shown in Schedule A.
Your insurance is limited by the following:
•
•
•

Exclusions on Page 2
Exceptions in Schedule B
Conditions on Pages 2 and 3

(Doc. 1-5 at 1.) The Policy defines "title" as "the ownership of your interest in the land,
as shown in Schedule A." Id. at 2. Schedule A references the July 19,2002
Svitavsky/Jimmo-to-Johnston deed and sets forth the property description contained
therein.
Immediately following the "OWNER'S COVERAGE STATEMENT" is a list of
"COVERED TITLE RISKS," which provides coverage for certain identified title risks,
including the following:
11.

Your title is unmarketable, which allows another person to
refuse to perform a contract to purchase, to lease or to make a
mortgage loan.

12.

You are forced to remove your existing structure-other than a
boundary wall or fence-because:
a.
b.
c.
d.

it extends on to adj oining land or on to any easement
it violates a restriction shown in Schedule B
it violates an existing zoning law
any portion of it was built without obtaining a building permit
from the proper government office or agency.

Id. at 1.

Schedule B of the Policy contains three general exceptions, identified as
exceptions A, Band C, which apply by default unless the insured and CATIC negotiate
their removal. Plaintiff Johnston and CATIC agreed to delete exceptions A and C, but
retained exception B, the survey exception.
The survey exception provides: "This Policy does not insure against loss or
damage (and the Company will not pay costs, attorney's fees or expenses) which arise by
reason of ... [a]ny facts which an accurate surveyor personal inspection of the land
3

would disclose." Id. at 5. The Policy defines "land" as "the land or condominium unit
described in Schedule A and any improvements on the land which are real property." Id.
at 2.
The Policy also excludes from coverage any "Title Risks ... that are created,
allowed or agreed to by [the insured]." Id.
The Policy sets forth CATIC's "choices" in the event of a claim:
OUR CHOICES WHEN YOU NOTIFY US OF A CLAIM
After we receive your claim notice or in any other way learn of a matter for
which we are liable, we can do one or more of the following:
a.
b.
c.
d.
e.
f.

g.

Pay the claim against your title.
Negotiate a settlement.
Prosecute or defend a court case related to the claim.
Pay you the amount required by this Policy.
Take other action which will protect you.
Cancel the coverage described in Items 12d or 18 of Covered Title
Risks by paying the amount of the insurance specified in the given
items as the limit for the particular covered risk, and only those
costs, attorneys' fees and expense incurred up to that time which we
are obligated to pay.
Cancel this Policy by paying the Policy Amount, then in force, and
only those costs, attorneys' fees and expenses incurred up to that
time which we are obligated to pay.

Id.

B.

The Alleged Encroachments.

In 2002, Plaintiff Johnston purchased the Property from Defendants Jon S.
Svitavsky and Cheryl Jimmo, f/k/a Svitavsky.l The Property consists of an
approximately seventeen-acre parcel of land upon which Plaintiffs' residence is located.
It is bounded on the east, south, and west by federal lands maintained by the USFS.
On May 4, 1999, while Defendants Svitavsky and Jimmo still owned the Property,
a USFS agent filed a "PRELIMINARY REPORT OF SUSPECTED
Plaintiff Johnston subsequently married Zapata Courage, who is named as a co-plaintiff due to
any marital homestead rights she may have in the Property.
I

4

ENCROACHMENT" (the "Preliminary Report"), which states that "[a]n addition was
built onto house adjacent to Govt. Land that crossed the boundary line. Propane tanks are
also across the line." (Doc. 1-2 at l.)
On November 17,2010, Plaintiff Johnston received a letter from the USFS,
advising him that it would have a survey crew working in the area and that "[i]nitial
reconnaissance indicates that your buildings are very close to the boundary line." (Doc. 1
~

18.) On January 21,2011, Plaintiff Johnston received a letter from the USFS stating, in

pertinent part:
As I believe you are aware, a recent survey of the common boundary
between your lands and National Forest lands (portion of U.S. Tract 503c)
in Ripton revealed that the westerly portion of your house as well as a
utility service box and a portion of a propane tank encroach onto U.S. Tract
503c. I am enclosing a drawing that our surveyors have done showing the
extent of the encroachment.
(Doc. 1-6 at l.) The survey drawing indicates that approximately four feet of an addition
on the residence, a utility service box, and a small portion of a propane tank (collectively
the "Encroachments") are located on federal land. Id. at 2.
Plaintiff Johnston contends that the USFS letter constituted a "Covered Title
Risk[]" under paragraph 12.a. ofthe Policy, which provides coverage in the event the
insured is "forced to remove [an] existing structure" because "it extends on to adjoining
land." (Doc. 1-5 at l.) In February 2012, he submitted a claim under the Policy, which
CATIC denied in a March 2012 letter stating, inter alia, that the "Encroachments fall
within the Survey Exception" and there had been no '" forced removal. '" (Doc. 7-4 at 23.)
Between May and October 2012, Plaintiff Johnston filed and pursued an
application under the Small Tracts Act, 16 U.S.C. § 521d, with the USFS seeking to
resolve the dispute through a land exchange. On October 26,2012, the USFS rejected the
application in a letter, stating:
We have previously provided you with a complete record of survey data
and maps related to the area and the items in question. This letter serves

5

as formal notice to remove all materials\structures you have located on
National Forest System land. Specifically, perform the following:
1.

Remove from Federal property all improvements related to
your home at 155 Norton Farm Road, Ripton, VT including a
portion of your home, propane tank and any lines associated
with such.

2.

Consult with the Rochester District Ranger and staff
regarding the necessary site restoration needed to restore the
site to a natural state which may include the removal or
addition of fill, spreading of loam, grading, and planting of
native seed mix or plants.

Please remove these items and complete restoration work by May 31, 2013.
If you feel this timeframe is not adequate you may provide, for our review
and approval, a detailed alternative schedule for the completion of this
action. If you have not completed this work by the above date we will
proceed accordingly.
(Doc. 1-7 at 2.)
On November 5,2012, Plaintiffs' counsel petitioned CATIC to re-open the claim
and stated that he had "advised [Plaintiff] Johnston that his best course of action is to let
the [USFS] know that a lawsuit will be necessary in order to trigger any rights he has
under his CATIC policy." (Doc. 1 ~ 29.) On November 8, 2012, CATIC denied the
petition to re-open the claim, and warned that inviting "litigation to trigger coverage of
the claim may be considered to be a violation of' the provision excluding "Title Risks
that are created, allowed or agreed to by the Insured." (Doc. 1-8 at 1) (internal quotation
marks omitted).
Plaintiffs have neither complied with the USFS's order to remove the
Encroachments and restore the land, nor has the USFS taken any further action.
Specifically, the USFS has not instituted a suit or administrative proceeding to force
compliance with the terms of its October 26, 2012 letter.

III.

The Disputed Facts.
Defendants Svitavsky and Jimmo admit that a USFS agent may have filed the

Preliminary Report in 1999, but they deny that it was filed in a place accessible to the
6

public and they deny ever seeing or receiving it. They contend that the alleged
Encroachments were built before they owned the Property. All parties agree that these
disputed facts are immaterial to the resolution of the pending motions for summary
judgment.
Plaintiffs dispute that a "survey" would have disclosed the Encroachments because
the Policy does not define the term "survey," which Plaintiffs contend generally merely
reveals a real property's metes and bounds. They assert that only a "survey plat" would
reveal the Encroachments. In support of this argument, Plaintiffs submit Vermont's
Administrative Standards for the Practice of Land Surveying which state that: a "land
surveyor who conducts a survey shall, when contracted for by the client, prepare a plat
showing the results of the survey and shall furnish a copy to the client." (Doc. 11-4 at 4.)
A "survey plat" shall include "[v]isible encroachments onto or from adjoining property or
streets and the extent of such encroachments." ld.
In its reply, CATIC contends for the first time that the USFS's survey was actually
a "sketch" and that Plaintiffs have failed to establish there is any actual encroachment on
USFS land. Plaintiffs counter that this belated dispute regarding the facts is at odds with
CATIC's argument that an accurate survey would have revealed the Encroachments.
Neither party provided either a surveyor survey plat of the Property for the court's
consideration.

IV.

Conclusions of Law and Legal Analysis.
A.

Standard of Review.

Summary judgment must be granted when the record shows there is no genuine
issue as to any material fact and the moving party is entitled to judgment as a matter of
law. Fed. R. Civ. P. 56(a). "[A] party seeking summary judgment always bears the
initial responsibility of informing the district court of the basis for its motion, and
identifying those portions of the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, which it believes demonstrate the
absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323,
(1986) (internal quotation marks omitted). In deciding the motion, the trial court must
7

resolve all ambiguities and draw all reasonable inferences in favor of the non-moving
party, and deny the motion if a rational juror could decide in favor of that party under the
applicable law. Scott v. Harris, 550 U.S. 372, 378 (2007).
"When both sides have moved for summary judgment, each party's motion is
examined on its own merits, and all reasonable inferences are drawn against the party
whose motion is under consideration." Chandok v. Klessig, 632 F.3d 803, 812 (2d Cir.
2011).

B.

Whether There Has Been a Forced Removal.

CATIC seeks summary judgment, arguing there has been no forced removal and
thus coverage under the Policy has not been triggered. Plaintiffs seek summary judgment
on this same ground, contending that the USFS's unequivocal demand that Plaintiffs
remove the Encroachments constitutes a forced removal.
The Policy insures only Plaintiffs' ownership interest in the land and
improvements actually conveyed under the Svitavsky/Jimmo-to-Johnston deed; it does
not generally insure title to real property located outside the deeded area. Accordingly,
even if the Encroachments are located on the USFS's property, they do not constitute a
challenge to the Plaintiffs' title. See Trinder v. Conn. Attorneys Title Ins. Co., 2011 VT
46, ~ 18, 189 Vt. 492, 22 A.3d 493 ("The fact that homeowners' septic system is partially
located on the museum's land created no challenge to homeowners' title to the property
described in their deed. Homeowners hold title to their property free and clear of any
adverse claim. No party asserts an interest in the land described in homeowners' deed.")
(citing Manneck v. Lawyers Title Ins. Corp., 33 Cal. Rptr. 2d 771, 776 (Cal. Ct. App.
1994) (explaining that the fact that plaintiffs' improvements encroached on their
neighbor'S land did not implicate plaintiffs' title to their property).
Because there is no challenge to Plaintiffs' title, coverage under the Policy must be
triggered under some other covered title risk. CATIC and Plaintiff Johnston agree that
the only applicable covered risk is the forced removal title risk which provides coverage
in the event Plaintiff Johnston is "forced to remove [his] existing structure-other than a

8

boundary wall or fence-because ... it extends on to adjoining land or on to any
easement." (Doc. 1-5 at l.)
In Trinder, the Vermont Supreme Court examined when a forced removal takes
place and in doing so examined a policy provision identical to the one at issue in this
case. In that case, a museum owned and occupied real property upon which the
homeowners' septic system encroached. Initially, the museum merely notified the
homeowners of the encroachment and did not "revoke permission, demand removal of
the septic system or threaten legal action." Trinder, 2011 VT 46, ~ 3. Thereafter, the
museum expressed in writing an intent to commence a construction project that "may
well compromise" the homeowners' further use of their septic system, but the museum
"did not demand or threaten removal of the septic system[,]" but rather expressed a
willingness to discuss the situation further. Id.

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5. CATIC denied coverage because the

homeowners' title to the property was not challenged and because a personal inspection
and accurate survey would have revealed the encroachment. Id.

~

6. The homeowners

brought suit naming CATIC and the museum as defendants. Id.

~

7. The museum did

not countersue or request injunctive relief to have the septic system removed. Id. The
homeowners and the museum subsequently settled the lawsuit with a boundary
adjustment and certain other agreements. Id.

~

8.

After settling with the museum, the homeowners continued to pursue their claims
against CATIC, seeking damages for engineering costs, the septic tank replacement, and
attorney's fees. Id. The trial court concluded that there was no coverage under the policy
because there had been no forced removal. Id.

~

9.

The Vermont Supreme Court affirmed. In doing so, it found no challenge to the
homeowner's title, no forced removal, and observed that the trial court had concluded
that there was "no ... impending demolition of homeowners' septic system in this case."
Id.

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14. The Trinder court did not decide whether a demand for removal of the septic

system in a letter would be sufficient to trigger forced removal coverage although it
observed that "[t]he mere existence of homeowners' septic system on the neighboring
museum property did not trigger coverage until homeowners were forced to remove the
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offending structure." Id.

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15 (emphasis supplied). Accordingly, uncertainty regarding

the possibility of a forced removal did not create coverage where it did not otherwise
exist. Id.

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13 (observing "[t]hat homeowners wished to resolve the uncertainty before

the situation reached that level is understandable, but does not result in coverage that is
beyond the terms of the policy"). In reaching these conclusions, the Trinder court cited
with approval two cases that required an actual or imminent forced removal before
coverage under the "forced removal" policy provision is triggered. As the Trinder court
explained,
Our construction of the policy's language is consonant with the
decisions from the few other courts that have addressed similarly worded
forced removal clauses in title insurance contracts. In [Manneck], the
insureds sought a declaratory judgment requiring their title insurance
company to prosecute an action on their behalfto resolve the problem that
their swimming pool and deck were constructed on their neighbor's
property. The insureds sought coverage based on a forced removal
provision. The court concluded that the language of the policy was clear
and the insurer had no duty to pursue an action "when made aware of the
mere potential, rather than the present existence, of the forced removal of
[the insureds'] improvements." The court explained that the insurer had no
obligation under this covered risk until "a court order requiring removal
or the imminent destruction of the encroaching improvements by
bulldozers." Similarly, a Minnesota appellate court held that a title
insurance company had no duty to defend under a forced removal clause
where there had been no demand for the insureds to remove the structures
that encroached on neighboring property. Fee v. Stahley, 2008 WL
4849844, at *4 (Minn. Ct. App. Nov. 10,2008) (unpub. op.). As the court
explained, "[t]he policy covers actual loss, and because [the insureds] have
suffered no loss, their claim is currently either improper or premature."
Trinder, 2011 VT 46, ~ 15 (emphasis supplied) (internal citations omitted).
In this case, the court must predict whether the Vermont Supreme Court would
hold that a letter from a neighboring property owner, here the USFS, demanding the
removal of alleged encroaching structures is sufficient to trigger the forced removal
coverage provision in the facts and circumstances of this case. The court predicts that it
would not. Although it is true that the USFS's demand is unequivocal and sets forth a
deadline of May 31, 2013 for the Encroachments' removal, the USFS offered to adjust
10

this deadline if more time is needed. In the letter, the USFS does not threaten either a
lawsuit or imminent destruction of the Encroachments but merely states that if Plaintiffs
"have not completed this work by the above date we will proceed accordingly." (Doc. 17 at 2.)
Plaintiffs did not remove the Encroachments by the USFS's deadline or at any
time thereafter. The Encroachments have neither been destroyed nor is their destruction
imminent. Plaintiff Johnston has thus not suffered an actual loss under the Policy.
Although it is certainly possible that the USFS may take legal action to obtain the
Encroachments' removal, it is equally possible that the USFS may conclude that a lawsuit
to obtain the removal of minor encroachments into an otherwise vast tract of federal lands
is not a prudent use of taxpayers' resources. This is especially true because the USFS
does not risk losing title to the land upon which the Encroachments are allegedly located
through adverse possession. See Benson v. Hodgdon, 2010 VT 11, ~ 14, 187 Vt. 607, 992
A.2d 1053 ("Public lands generally are statutorily exempted from adverse possession,
even if such possession is open and notorious"); 12 V.S.A. § 462 (stating that the statute
of limitations for recovery of lands does not "extend to lands given, granted, sequestered
or appropriated to a public, pious or charitable use, or to lands belonging to the state").
To require courts, property owners, and insurance companies to parse every
demand letter in order to discern whether a threatened removal is sufficiently serious to
trigger coverage would invite coverage disputes where none exist, prompt property
owners to file lawsuit when a forced removal may never actually take place, and embroil
the courts in a virtually impossible task of separating serious and viable threats from mere
posturing. The court thus predicts the Vermont Supreme Court would require something
more than a letter merely demanding removal of encroachments like the one at issue
here. 2 This conclusion is consistent with the plain language of the Policy which provides
The Trinder court cited with approval decisions that have concluded that "something
more" may consist of a lawsuit seeking an order of removal (at least insofar as the duty to
defend is concerned), a court order mandating removal, imminent destruction of the
offending structure, or actual loss.
2

11

coverage only when the insured is "forced to remove [his or her] existing structureother than a boundary wall or fence-because ... it extends on to an adjoining land or on
to any easement." (Doc. 1-5 at 1.) See Vt. Mut. Ins. Co. v. Parsons Hill P'ship, 2010 VT
44,

~

21,188 Vt. 80,1 A.3d 1016 ("When interpreting an insurance contract, [courts] rely

principally on the plain, ordinary, and popular meaning of the disputed terms."). Here, as
in Trinder, "[t]he mere existence of [the Encroachments] on the neighboring ... property
[does] not trigger coverage until [Plaintiffs are] forced to remove the offending
structure[s]." Trinder, 2011 VT 46,

~

15.

Summary judgment in CATIC's favor is thus hereby GRANTED on the ground
that there is no duty to defend or duty to indemnify under the Policy until a forced
removal is either imminent or has taken place. Plaintiffs' cross-motion on this same issue
is DENIED and Plaintiffs' motion for declaratory relief and breach of contract claims are
hereby DISMISSED.

C.

Whether the Survey Exception Applies.

Because the court has granted summary judgment in CATIC's favor on Plaintiffs'
declaratory judgment and breach of contract claims, it need not reach the issue of whether
the survey exception applies. However, as Plaintiffs are claiming that CATIC handled
Plaintiff Johnston's claim in a manner that violated the implied covenant of good faith
and fair dealing claim, and because CATIC requests judgment in its favor on this claim,
the court briefly addresses the survey exception. It does so solely for the purpose of
determining whether it renders the Policy's forced removal coverage illusory, whether the
survey exception is unconscionable, and whether CATIC is estopped from raising the
survey exception as a defense to coverage in this case.
"Title guaranty companies, almost without exception, issue their policy of
guarantee subject to conditions shown by a surveyor ifno survey is made, then subject to
such condition as an accurate survey will disclose." Amidano v. Donnelly, 615 A.2d 654,
659 (N.J. Super. Ct. App. Div. 1992) (internal quotation marks and brackets omitted); see

also 1 Title Ins. Law § 7:8 (2013-2014 ed.) ("An exception for what an accurate survey
or inspection of the premises would reveal has been standard in owner's title insurance
12

policies and often appears in loan policies as well."). As the Supreme Court of New
Jersey explained,
The purpose of the survey exception is to exclude coverage when the
insured fails to provide the insurer with a survey. From a search of relevant
public records, a title company cannot ascertain the risks that an accurate
survey would disclose. It is for this reason that the title company puts that
risk on the insured, who can control it either by obtaining a surveyor
arranging for the elimination of the survey exception. Thus, the very
purpose of a survey exception is to exclude from coverage errors that would
be revealed not by a search of public records, but by an accurate survey.

Walker Rogge, Inc. v. Chelsea Title & Guar. Co., 562 A.2d 208,217 (N.J. 1989) (internal
citation omitted); see also Bennett v. Investors Title Ins. Co., 635 S.E.2d 649,659 (S.C.
Ct. App. 2006) (collecting "a legion of case law [that] recognizes title insurance policies
using survey exceptions").
In general, courts have held that similar or identical survey exceptions to that set
forth in the Policy are unambiguous and enforceable. See, e.g., Walker Rogge, Inc., 562
A.2d at 216 ("At the outset, we find that the survey exception is neither vague nor
unenforceable."); Heyd v. Chicago Title Ins. Co., 354 N.W.2d 154, 157 (Neb. 1984)
("Th[ e] survey exception is expressed in language having plain and ordinary meaning.
Therefore, correct location of any structure on the described premises is not a risk or loss
covered by Chicago's policy of title insurance. "); Muscat v. Lawyers Title Ins. Corp., 351
N.W.2d 893, 895-96 (Mich. App. 1984) (holding the "'accurate survey' exception" was
enforceable as it was "clearly expressed in the policy and was not inconspicuous"); see

also Panciocco v. Lawyers Title Ins. Corp., 794 A.2d 810, 814 (N.H. 2002) (finding that
insured's claims "were expressly excepted from coverage by the policy's unambiguous
language" under Schedule B, "and thus the plaintiff could not reasonably expect
coverage").
Moreover, contrary to Plaintiffs' contention, courts generally do not distinguish
between "surveys" and "survey plats" for coverage purposes. Plaintiffs' reliance on Neal
v. Brown, 649 S.E.2d 164, 169 (S.C. Ct. App. 2007) for this proposition is misplaced
because that case was overruled by the Supreme Court of South Carolina, which held that
13

"the distinction between a 'survey' and a 'plat' is illusory." Neal v. Brown, 682 S.E.2d
268, 270 (S.C. 2009).
Plaintiffs contend that Pharmacists Mutual Ins. Co. v. Myer, 2010 VT 10, 187 Vt.
323, 993 A.2d 413 nonetheless supports a conclusion that the survey exception is
unenforceable because it would "gut the forced removal coverage" as an accurate survey
would always disclose encroaching structures. (Doc. 12-3 at 9.) Plaintiffs cite Glassford
v. BrickKicker, 2011 VT 118, 191 Vt. 1,35 A.3d 1044 for the further proposition that the
survey exception is "unconscionable" because the coverage offered for forced removals
is illusory. (Doc. 12-3 at 16.)
In Myer, the Vermont Supreme Court refused to construe a homeowner's
insurance policy exclusion for defamatory statements that the insured "'had reason to
believe'" were false as embodying a negligence standard because to do so would
"virtually eviscerate the coverage provision for 'misrepresentation, libel, slander,
defamation of character, or invasion of privacy. '" Myer, 2010 VT 10, ~ 10. The court
held that "[i]t is axiomatic that constructions of exclusionary clauses to nullify coverage
provisions are not reasonable." Id. It therefore construed the exclusion to apply to only
intentionally defamatory statements.
In Glassford, the Vermont Supreme Court found a home inspection contract
unconscionable based on its "illusory remedy for any claim for damages resulting from
its provisions limiting liability to the inspection fee and requiring binding arbitration
costs that would exceed the amount of the liability limit." Glassford, 2011 VT 118,

~

13.

The court held that the liability limit was "really an exculpatory clause insulating the
home inspector from all liability" for negligent or even intentional torts. Id.

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16.

Here, in contrast, Plaintiff Johnston could have negotiated for the removal of the
survey exception but did not. See First Am. Title Ins. Co. v. Dahlmann, 2006 WI 65, ~~
26-28 & n.14, 291 Wis. 2d 156,715 N.W.2d 609 (discussing the practice of negotiating
the removal of the survey exception from title insurance and purchasing extended
coverage). Moreover, nothing requires a title insurer to conduct its own survey as a
condition precedent to offering title insurance; instead, the decision to request a survey in
14

advance of a purchase lies squarely with the insured. See Walker Rogge, Inc., 562 A.2d
at 217 (explaining that the insured bears the "risk" of purchasing insurance without
"obtaining a survey"); Heyd, 354 N.W.2d at 156 (holding that "an insurance company has
no obligation to obtain a survey of the subject real estate before a policy of title insurance
is issued" absent an agreement or a policy provision that dictates otherwise); Kuhlman v.

Title Ins. Co. of Minn., 177 F. Supp. 925,926 (W.D. Mo. 1959) ("It is very apparent that
the [title insurance company] was under no obligation to cause a survey to be made prior
to issuing the policy[.]").
Although the survey exception limits forced removal coverage in the event an
encroachment would have been revealed by an accurate surveyor personal inspection, it
does not render that coverage wholly illusory. Coverage remains available for forced
removals on alternative grounds such as a structure built in violation of zoning laws or
built without a building permit. The instant case may thus be distinguished from both

Myer and Glassford.
Plaintiffs nevertheless argue that, if the survey exception would always negate
coverage for forced removals arising from an "existing structure" that "extends on to
adjoining land or on to any easement" (Doc. 1-5 at 1), the coverage for that category of
forced removals remains illusory because this "begs the question: When would a
structural encroachment not be disclosed by an accurate survey?" (Doc. 12-3 at 5.)
CATIC responds that an accurate survey is unlikely to reveal "subterranean
encroachments," such as septic fields, submerged fuel tanks, utility lines, and
underground footings. (Doc. 20 at 5.) In turn, Plaintiffs assert that the doctrine of
judicial estoppel forecloses CATIC's subterranean argument because CATIC took the
opposite position in Trinder, where it argued that '''[a]n accurate survey would have
depicted and revealed ... the Trinder septic tank and/or field.'" (Doc. 29 at 3) (quoting
Appellee's Brief at 27, Trinder, 2011 VT 46).
"[Judicial estoppel] typically applies when, among other things, a party has
succeeded in persuading a court to accept that party's earlier position, so that judicial
acceptance of an inconsistent position in a later proceeding would create the perception
15

that either the first or the second court was misled." Reed Elsevier, Inc. v. Muchnick, 559
U.S. 154, 170 (2010) (internal quotation marks omitted). "In this Circuit, judicial
estoppel applies only when a tribunal in a prior separate proceeding has relied on a
party's inconsistent factual representations and rendered a favorable decision." Adler v.
Pataki, 185 F.3d 35, 41 n.3 (2d Cir. 1999). Although the decision in Trinder noted that,
"[a]ccording to [CATIC], a survey and inspection would have revealed the
encroachment," Trinder, 2011 VT 46, ~ 6, the Trinder court did not rely on or adopt
CATIC's argument in deciding the case. See id.

~

22. Judicial estoppel is thus

inapplicable and does not bar CATIC from arguing that an accurate survey does not
reveal every encroachment.
However, just what an accurate survey would reveal in the facts and circumstances
of this case is unknown. As CATIC, albeit belatedly, admits in its reply, the USFS's
depictions of the Encroachments fall short of a formal survey. Neither party has provided
evidence, from an expert witness or otherwise, regarding what an accurate survey would
typically reveal or what it would reveal in this case. The administrative standards for
surveyors relied upon by Plaintiffs do not appear to require depiction of encroachments'
or even structures for a survey. The Policy, itself, provides only minimal guidance
because it states that the survey exception is triggered when an encroachment is one that
"an accurate survey ... of the land would disclose." (Doc. 1-5 at 5.) The Policy defines
the term "land" to include "the land ... described in Schedule A and any improvements
on the land which are real property." Id. at 2. This, in turn, raises the question of which
"improvements on the land" are real property and how this determination is made. A
personal inspection of the Property would undoubtedly reveal the Encroachments, but it
would provide no notice to Plaintiff Johnston that they allegedly extend onto adjoining
land.
Against this backdrop, the court cannot determine whether an accurate survey
would disclose the Encroachments. The court thus proceeds no further with determining
whether the survey exception applies. It concludes, however, that there was no violation
of the implied covenant of good faith and fair dealing in CATIC's raising the survey
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exception as a defense to coverage notwithstanding any position it took in Trinder. See

Post v. Killington, Ltd., 2010 WL 3323659, at *17 (D. Vt. May 17,2010) (granting
summary judgment and concluding, as a matter of law, that ski resort did not breach the
implied covenant when it merely exercised its rights under a contract), afl'd, 424 F.
App'x 27 (2d Cir. 2011).

D.

Plaintiffs' Claim for Breach of the Implied Covenant of Good Faith
and Fair Dealing.

Plaintiffs argue that CATIC attempted to undermine or destroy Plaintiff Johnston's
rights under the Policy when it advised his counsel that inviting the USFS to file suit in
order to trigger coverage "may be considered to be a violation of' the provision
excluding "Title Risks that are created, allowed or agreed to by the Insured." (Doc. 1 ,-r~
31,69) (internal quotation marks omitted). CATIC contends that this allegation fails to
demonstrate bad faith because CATIC merely advised Plaintiff Johnston of the potential
consequences of such actions under the Policy. 3
Pursuant to Vermont law, "a covenant of good faith [and fair dealing] is implied in
every contract." Carmichael v. Adirondack Bottled Gas Corp., 635 A.2d 1211, 1216 (Vt.
1993). "The covenant's purpose is to ensure 'faithfulness to an agreed common purpose
and consistency with the justified expectations of the other party. '" Lopresti v. Rutland

Reg'l Health Servs., Inc., 2004 VT 105, ~ 36,177 Vt. 316, 865 A.2d 1102 (quoting
Restatement (Second) of Contracts § 205 cmt. a (1981)).
In opposing summary judgment, a party asserting an implied covenant claim must
point to admissible evidence from which a rational juror could find in the party's favor:
To carry its burden for the good-faith-and-fair-dealing claim, [the plaintiff]
must produce evidence that could lead a reasonable jury to conclude that
CATIC's additional argument, that Plaintiffs' implied covenant claim fails as a matter of law
because it is duplicative of the breach of contract claim, is moot in light of the court's decision to
grant summary judgment in CATIC's favor on Plaintiffs' breach of contract claim and its
subsequent dismissal of this claim. The court therefore does not consider whether the two claims
are based on the same conduct. See Monahan v. GMAC Mortg. Corp., 2005 VT 11 0, ~ 54 n.5,
179 Vt. 167, 893 A.2d 298 ("[W]e will not recognize a separate cause of action for breach of the
implied covenant of good faith and fair dealing when the plaintiff also pleads a breach of
contract based upon the same conduct. ").

3

17

[the defendant] breached an implied-in-Iaw promise not to do anything to
undermine or destroy [the plaintiffs] rights to receive the benefit of the
parties' agreement. ... Good faith is ordinarily a question of fact. However,
plaintiff must provide a basis on which the fact finder can find a violation.
R & G Properties, Inc. v. Column Financial, Inc., 2008 VT 113, ~ 46, 184 Vt. 494, 968
A.2d 286 (internal quotation marks omitted).
In this case, the Policy excludes coverage for "Title Risks ... that are created,
allowed or agreed to by [the insured]." (Doc. 1-5 at 2). CATIC's letter to Plaintiff
Johnston's counsel merely noted this provision of the Policy and explained the potential
consequences of encouraging the USFS to sue. Both the tone and the content of the letter
are professional, non-threatening, and non-coercive. CATIC was free to assert its rights
under the Policy, and Plaintiffs cannot claim a "justifiable expectation" that CATIC
would do otherwise. South/ace Condo. Owners Ass 'n, Inc. v. South/ace Condo. Ass 'n,
Inc., 733 A.2d 55,58 (Vt. 1999) (holding "[b]ad faith cannot be inferred from the
expected course of business" and explaining that, "[i]fbad faith infiltrated [a] transaction,
it must appear that [the parties] acted beyond merely observing the terms of the
[contract]"); see also Vescio v. Merchants Bank, 272 B.R. 413, 442 (D. Vt. 2001)
(holding that "actions expressly authorized under the terms of the loan agreement,"
including the bank's "exercise of its assignment of rents," did not constitute bad faith);
Badgett v. Security State Bank, 807 P.2d 356,360 (Wash. 1991) ("As a matter oflaw,
there cannot be a breach of the duty of good faith when a party simply stands on its rights
to require performance of a contract according to its terms."), cited with approval in
Killington, Ltd. v. Richards, 641 A.2d 340, 342 (Vt. 1993) (mem.).
Plaintiffs do not identify any other conduct by CATIC that "violate[s] community
standards of decency, fairness or reasonableness." Carmichael, 635 A.2d at 1216
(internal quotation marks omitted). Accordingly, drawing all reasonable inferences in
Plaintiffs' favor, the facts "do not come close to providing a basis on which a jury could
determine that the covenant of good faith and fair dealing has been violated." Boulton v.
CLD Consulting Eng'rs, Inc., 2003 VT 72,

~~

12-13, 175 Vt. 413, 834 A.2d 37 (finding

summary judgment was properly granted to a defendant who neither abused its authority
18

nor lacked a reasonable basis for its actions with respect to the plaintiff). The court
therefore GRANTS summary judgment in CATIC's favor on Plaintiffs' implied covenant
claim (Count VIII).

CONCLUSION
For the reasons stated above, the court hereby GRANTS CATIC's motion for
summary judgment (Doc. 7) and DENIES Plaintiffs' cross-motion for partial summary
judgment. (Doc. 12.)
SO ORDERED.
Dated at Rutland, in the District of Vermont, this ~ day of April, 2014.

lsi Christina Reiss
Christina Reiss, Chief Judge
United States District Court

19