Kremer v. Lawyers Title Insurance Corp.

Kremer v. Lawyers Title Insurance Corp. (2003-419); 177 Vt. 553;
861 A.2d 1103

2004 VT 91

[Filed 08-Sep-2004]

                                 ENTRY ORDER

                                 2004 VT 91

                      SUPREME COURT DOCKET NO. 2003-419

                              APRIL TERM, 2004

  Richard Kremer, M.D. and  	       }	APPEALED FROM:
  Andrea Kremer                        }
                                       }
       v.	                       }	Windsor Superior Court
                                       }	
  Lawyers Title Insurance Corp.	       }
                                       }	DOCKET NO. 331-7-02 Wrcv

                                                Trial Judge: Alan W. Cook

             In the above-entitled cause, the Clerk will enter:

       ¶  1.  Plaintiffs, insureds, appeal an order of the superior court
  granting summary judgment for defendant insurer on plaintiff's breach of an
  insurance contract claim.  Plaintiffs contend the court erred in concluding
  that their title insurance was not triggered by what they allege to be a
  municipal permit violation, even though the town has not found or alleged
  any violation.  We affirm.

       ¶  2.  As an initial matter, the significance of our ruling in this
  case is likely limited as the Legislature has declared, subsequent to the
  facts giving rise to this case, that no encumbrance on title results from
  failure to obtain a municipal land use permit, see 27 V.S.A. § 612(a), and
  that the statute eliminating such encumbrances is to be applied
  retroactively, 1999, No. 46, § 15(b).  That legislation aside, however, in
  this unusual case where purchasers of real property contend that their own
  home was in violation of municipal septic regulations despite testimony of
  the town septic officer to the contrary, we find no permit violation as a
  matter of law, and thus no defect in title from which title insurance
  coverage could arise. (FN1)
   
       ¶  3.  The following facts are undisputed.  On July 1, 1996,
  plaintiffs Richard and Andrea Kremer purchased a home in Norwich, Vermont. 
  On the same day, they purchased a title insurance policy from defendant
  Lawyers Title Insurance Corporation ("Lawyers Title").  The policy insured
  against "[a]ny defect in or lien or encumbrance on the title" of the
  premises.  The policy excluded from coverage defects in title arising from
  any zoning law violation except to the extent that "a notice of a defect .
  . . or encumbrance resulting from a violation or alleged violation
  affecting the land has been recorded in the public records at Date of
  Policy." 

       ¶  4.  In 1995, the previous owners, Charles and Jeanne Richards,
  made improvements to the house including the addition of two bedrooms and a
  bathroom.  An additional septic drain pipe connected the new bathroom to
  the existing drain pipe.  Prior to construction, the Richardses received a
  zoning permit in 1994, the application for which appears in the Norwich
  town records. Attached to the application is a floor plan for a "Proposed
  Master Bedroom Suite" depicting a bedroom and an unlabeled space with
  features of a bathroom. The form language on the application states: "Town
  health regulations require a separate permit for new sewage disposal
  systems or replacement/repair of existing sewage disposal systems.  A
  permit from the State of Vermont may also be required."  Philip Dechert
  granted the Richardses a zoning permit, and his signature appears at the
  bottom of their application.  At the time, Dechert was both the septic
  officer and zoning administrator for the town of Norwich.  

       ¶  5.  Soon after the Kremers purchased the house in 1996, the
  septic system failed.  They brought suit against the Richardses for a
  breach of deed warranty, misrepresentation, and fraud.  These claims
  settled for $82,000.00. 

       ¶  6.  The Kremers also sued Lawyers Title, alleging that the
  Richardses' failure to obtain a septic permit was a defect in title.  The
  trial court granted Lawyers Title's summary judgment motion, agreeing with
  Lawyers Title that there was no defect or encumbrance at the time of sale
  and that the public records did not, therefore, provide notice of any
  defect  Here, the Kremers' argument turns entirely on their interpretation
  of the word "extend" as it was used in the septic regulations in effect in
  1994 .  They argue that an "extension" of a septic system unambiguously
  includes an increase in the burden on the system.  Because an increase in
  bedrooms is an increase in the burden on the septic system, they argue, the
  septic regulations required a septic permit for the addition of bedrooms to
  a home.  They also contend that the term "extend" clearly applies to the
  additional drain pipe connecting the new bathroom to the existing septic
  drain pipe.  After reviewing the applicable regulations, we find both of
  these arguments without merit.

       ¶  7.  In reviewing an award of summary judgment, we apply the same
  standard as the trial court, that is whether there are any genuine issues
  of material fact and whether any party is entitled to judgment as a matter
  of law.  White v. Quechee Lakes Landowners' Ass'n, 170 Vt. 25, 28, 742 A.2d 734, 736 (1999); V.R.C.P. 56(c)(3).  We give the opposing party the benefit
  of all reasonable doubts and inferences in determining whether a genuine
  issue of material fact exists.  Gerrish v. Savard, 169 Vt. 468, 469, 739 A.2d 1195, 1196 (1999).  "Summary judgment is mandated where, after an
  adequate time for discovery, a party 'fails to make a showing sufficient to
  establish the existence of an element' essential to [its] case, and on
  which [it] has the burden of proof at trial."  Poplaski v. Lamphere, 152
  Vt. 251, 254-255, 565 A.2d 1326, 1329 (1989) (quoting Celotex Corp. v.
  Catrett, 477 U.S. 317, 322 (1986) (construing Fed. R. Civ. P. 56(c))).  
        
       ¶  8.  We turn then to the question of whether the Kremers have made
  a sufficient showing that the failure to obtain a septic permit when the
  Richardses made their additions resulted in a violation of the septic
  regulations.  The Kremers and Lawyers Title cite to slightly different
  dictionary definitions of the term "extend."  Compare Random House
  Dictionary 684 (1988) ("to enlarge the scope of"), with Webster's Ninth New
  Collegiate Dictionary (Merriam-Webster Inc. 1999) ("to stretch out . . . to
  cause to be longer").  It is a firmly established rule in this state that
  any uncertainty in land-use regulations must be construed in a way that is
  favorable to the property owner, that is, against the alleged land-use
  violation.  In re Vitale, 151 Vt. 580, 584, 563 A.2d 613, 616 (1989)
  (citing Murphy Motor Sales, Inc. v. First Nat'l Bank, 122 Vt. 121, 124, 165 A.2d 341, 343 (1960)).  Here, therefore, we must construe any ambiguity in
  the term "extend" against the Kremers' alleged septic permit violation.  

       ¶  9.  More importantly, we take the meaning of "extend" as it is
  used in the regulations from consideration of the regulations as a whole. 
  E.g., Conservation Law Found. v. Burke, 162 Vt. 115, 121, 645 A.2d 495, 499
  (1993) (recognizing that when we interpret regulations, we view them as a
  whole).  

       ¶  10.  The permit section of the regulations in effect in 1994
  reads: "No person shall construct a new individual sewage disposal system,
  nor extend nor replace an old one within the Town of Norwich, unless he
  holds a valid permit for the same . . . ."  Norwich, Vt., Town Regulations
  to control contagious disease by regulating the installation of individual
  sewage disposal systems § V(1) (1973).  The permit section makes no
  reference to the addition of bedrooms.  In fact, the only reference to
  bedrooms in all of the septic regulations in effect in 1994 appears in the
  "Detailed Specifications" section governing the size of a septic tank. 
  Detailed Specifications § 2.2 (1973) (size of septic tank to correspond to
  number of bedrooms); Detailed Specifications - May 1994 § 1.2 a.-b. (same). 
  In the instant case, plaintiffs do not allege any septic permit violation
  related to the size of the septic tank. 

       ¶  11.  In contrast, the septic regulations as amended in 1997
  explicitly require a septic permit for the addition of bedrooms and
  plumbing.  Norwich, Vt., Sewage Disposal System Ordinance § 3.4.1-2 (1997). 
  The 1997 ordinance requires owners of single family residences to obtain a
  septic permit or approval of the sewage officer for any "change of use" of
  the property.  Id. § 3.4.2.   "Change of use" includes "the addition of
  plumbing or running water" and "the addition of bedrooms." Id. § 3.4.1. 
  Significantly, whereas the septic regulations in effect in 1994 apply "to
  entirely new installations of individual sewage disposal systems or to
  extension or complete replacement of existing ones," Norwich, Vt., Town
  Regulations § II (1973) (emphasis added), the amended regulations state
  "[a]ll sewage disposal systems shall be built, altered, repaired and used
  in accordance with this ordinance," Norwich, Vt., Sewage Disposal System
  Ordinance § 3 (1997) (emphasis added). The term "extend," as used in the
  regulations in force in 1994, appears to have been replaced by the term
  "alter" in 1997.  Because the previous permit regulations make no reference
  to bedrooms while the 1997 regulations explicitly reference the addition of
  bedrooms and plumbing, we do not construe the term "extend" to encompass
  the addition of bedrooms and plumbing.  We thus do not agree with the
  Kremers that, in 1994, the regulations' use of the term "extend" imposed
  the need for a septic permit in as many contexts as are explicitly covered
  in the 1997 regulations.   
 
       ¶  12.  Our interpretation of the septic regulations is consistent
  with that of the town septic officer and zoning administrator.  Dechert
  testified in deposition that "[i]n 1994 . . . unless you were going to
  expand the system to accommodate the bedroom[,] there was nothing to kick
  in saying you had to [get a septic permit]."  He explicitly distinguished
  expanding a house from expanding a septic system in 1994.  When asked,
  "certainly as the septic officer in 1994 if a bedroom was added to a
  property it required a septic permit because the system was being
  expanded?" he replied: "No, you're not expanding.  You're expanding the
  house, not the septic system."  (Emphasis added.)  When asked to define the
  term "extend" he said  "to do work on the septic system that would . . .
  increase the capacity or increase the size of it so it would involve
  putting in a larger septic tank or increasing the size or putting in a new
  leach field."  (Emphasis added.)  

       ¶  13.  It is undisputed that the Richardses did not put in a larger
  septic tank, nor did they put in a new leach field.  As to the additional
  septic drain pipe, Dechert stated it was "questionable" as to whether a
  septic permit was required in this context, and explicitly stated that it
  was not the practice to require a permit in such a case.  The fact that the
  Kremers' septic system failed after bedrooms were added to their home might
  suggest that the town should have required septic permits for such
  additions, as they do now.  Nevertheless, it is not the duty of the title
  insurer to make up for the shortcomings of a town's septic regulations.  

       ¶  14.  Dechert is the municipal official most intimately familiar
  with and responsible for administering the zoning and septic regulations. 
  He could not discern the need for a permit after reviewing the Richardses'
  proposed additions.  He was equivocal at best about the need for a permit
  when posed with a hypothetical of the exact septic work performed by the
  Richardses.  Finally, there  is no compelling indication of error on the
  part of the town.  Accordingly, we cannot conclude there was a municipal
  permit violation in this case.  Our case law in this area has dealt with
  clear regulatory violations.  See New England Fed. Credit Union v. Stewart
  Title Guar. Co., 171 Vt. 326, 333, 765 A.2d 450, 454-55 (2000) ("readily
  discover[able]" subdivision of property without state subdivision permit
  was an encumbrance on title for purposes of title insurance); Hunter
  Broad., Inc. v. City of Burlington, 164 Vt. 391, 395-96, 670 A.2d 836,
  839-40 (1995) (city's violation of state subdivision regulation "should
  have been obvious . . . from the very nature of the transaction").  As a
  threshold matter in any claim for title insurance, there must be a defect
  in title.  In this case, the Kremers have failed to show any regulatory
  violation from which a defect in title could result.  

       Affirmed.    


                                       BY THE COURT:


                                       _______________________________________
                                       John A. Dooley, Associate Justice

                                       _______________________________________
                                       Denise R. Johnson, Associate Justice

                                       _______________________________________
                                       Marilyn S. Skoglund, Associate Justice

                                       _______________________________________
                                       Paul L. Reiber, Associate Justice


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                                  Footnotes


       Note:  Chief Justice Amestoy sat for oral argument but did not
  participate in this decision.

FN1.  Plaintiffs contend that the trial court erred in applying 27 V.S.A. §
  612(a) to this case.  They concede that the statute expressly rejects
  Bianchi v. Lorenz, 166 Vt. 555, 560, 701 A.2d 1037, 1041 (1997), in which
  this Court held that an encumbrance exists when municipal records reveal
  property to be in violation of local zoning law.  Nevertheless, they argue
  that a statute cannot retroactively abrogate common law rights according to
  1 V.S.A. § 214(b), a statute governing the repeal of statutory provisions. 
  1 V.S.A. § 214(b)(2) ("The amendment or repeal of an act or statutory
  provision . . . shall not . . . [a]ffect any right, privilege, obligation
  or liability acquired, accrued, or incurred prior to the effective date of
  the amendment or repeal").   Additionally, plaintiffs assert there was
  notice of the alleged defect in the town records pursuant to the
  "constructive notice" standard set forth by this Court in New England
  Federal Credit Union v. Stewart Title Guarantee Co., 171 Vt. 326, 335, 765 A.2d 450, 456 (2000), and that the municipal records relied upon in this
  case are "public records" under the terms of the policy.  The trial court,
  in addition to finding no permit violation, found for defendants on all of
  these claims.  Because we find no title defect as a matter of law, we do
  not reach these additional arguments.