Posting for

Wednesday, June 2, 1999

by: Greg Holbrook

and: Paul Hammann

UTILITIES COVERAGE/UTILITY FACILITY ENDORSEMENT COVERAGE/TITLE UNDERWRITING

Greg Holbrook (Salt Lake City) writes:

A couple of us underwriter types here in Salt Lake City have recently received a request to issue a "Utility Facility Endorsement" (form provided):

"The Company hereby insures the insured

against loss or damage which the insured

shall sustain by reason of any inaccuracies

in the following assurances:

Water, gas, electric, telephone, storm sewer

and sanitary sewer services are available to

the land described in Schedule A as Parcel ___

either over, under or upon public rights-of-way

that are contiguous to said land, or over, under

or upon easements (that are not terminable by

the grantor thereof or by his heirs, personal

representatives, successors or assigns) that

are contiguous to said land, run for the benefit

of said land, and connect said land to public

rights-of-way."

This is the first we have seen of this endorsement, and while our initial reaction is that this doesn't look too bad, I would like to hear from those that have issued or otherwise dealt with this endorsement as to underwriting the same; any other insights; and any suggestions as to pricing. Thanks!

Reply by Paul Hammann (Santa Ana):

We have been seeing this type of endorsement request this year, with increasing frequency of late, primarily from lenders. As you might expect, there are numerous versions of this type of endorsement "floating around" and we have not always given all of the coverage that has been requested (i.e. we have often modified the endorsement to give only that coverage we felt we could give in the particular transaction).

Even for a lender, our underwriting requirement for issuance of this type of coverage is to verify by appropriate search and exam, inspection, and inquiry of appropriate parties (e.g. utility companies; property owner) each aspect of coverage we are asked to give.

To give all of the coverage which the language quoted in this LandSakes inquiry purports to give, one would first need to verify through reliable sources that each of the utilities listed are, in fact, "available to" the land. For example, included within the list are "gas" and "sanitary sewer". It is not always the case that a given property has gas available to it. Similarly, it may well be the case that, instead of sewer services, the property is served by a septic system. If we find that any of the listed utilities are not "available", we should not include those utilities in the endorsement.

This begs the question: What is the insured's expectation of the phrase "available to the land"? Absent a discussion with the insured to clearly define its expectation in this regard, in which event I would think more specificity in the language of the endorsement may be in order, we should assume this phrase means, at least, that each of the listed utilities are in fact installed "to" the boundary of the land such that they can readily be connected to any improvement located on the land. In the case of improved property presently connected to the particular utilities, we would be safe in giving this portion of the coverage upon confirming which utilities are connected. This coverage becomes much more problematic with vacant land and should be underwritten accordingly (which is to say, depending on the facts, we may be unwilling to issue it at all for unimproved property).

As to the portion of the coverage specifying "over, under or upon public rights-of-way" or ". . . easements (that are not terminable by the grantor thereof . . .) that are contiguous to the land", our search and inquiries must verify these facts. If we cannot or have not, we should not include this portion of the coverage.

As to the pricing for this endorsement, a premium should be set that provides reasonable compensation for the amount of work that can be involved in underwriting this risk, which, as is evident from the discussion above, can be substantial, particularly if we are required to search multiple adjoining parcels over which the utilities run to determine whether properly granted easements or public rights-of-way are in place.

While not related to the subject matter of this form of endorsement, I cannot resist commenting on the lead-in language that reads ". . . against loss or damage which the insured shall sustain by reason of any inaccuracies in the following assurances: . . ." We should no longer use this language! It is not consistent with the language of the policy itself which reads: ". . . insures . . . against loss or damage, . . ., sustained or incurred by the insured by reason of: . . . " As an alternative, consider the following as lead-in language: "The Company hereby insures the insured against loss or damage sustained or incurred by the insured by reason of the failure of the following utilities to be available to the land at Date of Policy: . . ."

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

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Following Wednesday's posting, Paul Trefz (Valley Forge/Philadelphia) writes:

We in PA have also been asked to provide such coverages and have declined, but have offered alternatives, such as insuring that specified utilities are installed in the bed of the public street upon which the land abuts, based upon survey or engineering data. Even so, I think there is an "unspoken" concern if such utilities are municipally supplied, such as water and/or sewer; should we specifically carve out of such affirmative assurances for costs or fees for connection or continuing service? Or is this concern just too, too savantish ??

Reply by Bert: I think the choice of the term "available to" the land takes care of the ya-gotta-be-connected issue. But, also as Paul says, we need to know the customer's expectation in order to draft the endorsement--so maybe your concern isn't too "Savantish."

Norm Chernin (Glendale/L.A.) writes:

I would expect from my years of handling sales of vacant subdivided property that this type of endorsement would most likely be requested on vacant land where the purchaser and/or lender is looking for assurances that underground utilities have in fact been stubbed-in to the property line so that the structure to be built on the property can be connected. Subdivision maps sometimes identify the utilities to be installed on designated easements. Utility companies usually require deeds for their utility lines from the developer who is required to install them as off-site improvements as part of the process of obtaining land use approvals. It was my practice to record notices of completion for utility improvements. Some government agencies require such a notice as a condition to release of improvement bonds.

Clare Ursano (Washington, D.C.) writes:

Brian Lobuts passed the e-mail on to me concerning this endorsement. This office has been requested on several occasions to issue this form of coverage. I personally do not like it because it is difficult to underwrite. In the past, when requested to issue this endorsement, I have attempted to modify the endorsement as to the word "available" as we cannot determine that the utilities are necessarily "available" to the site simply because they lie within a dedicated street, etc. With the surveyors assistance, we can often confirm that the utilities either already exist or lie within the bounds of a dedicated street. However, with the new survey rules we often find, particularly with a lender's policy, there will be no new survey. If we are not insuring any easement rights, we delete this from the coverage. As to cost, unfortunately, this is an area in which endorsements are not commonly charged for and our competition has had no problem issuing this coverage at no cost. Please keep this office informed as to the outcome of this survey!

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Following Wednesday's posting, Mary Lou Kennedy (Chicago/Commercial) writes:

This endorsement has been around (at least in the Chicago area) for a few years but has not been frequently requested until the last couple of years. We see it appearing more and more on lenders' lists of endorsements. A good survey is very helpful in underwriting the coverages in this endorsement. Some lenders even require detailed information regarding utilities be shown on the survey. I suspect that we do not see the request for this endorsement from those lenders since I recently had a transaction in which the lender's counsel listed the Utility Facilities Endorsement on the list given to the borrower but included a parenthetical to the effect that it would only be required if they did not get sufficient information on the survey.

While it is good to charge and collect what we can for endorsement fees, I think it will be difficult to collect what we might think is reasonable compensation.

Comment: There are at least three different situations to consider here: The request for utilities coverage when insuring commercial properties (which we get often), the same request for vacant land (which we also get--as addressed by Paul and Norm Chernin), and the request for single family residential property.

Cliff Morgan (Santa Ana) tells me this latter issue (utilities coverage for residential properties) was considered by the Forms and Practices Committee of the California Land Title Assn. before it approved the "second generation EAGLE" owner's policy form last year--and it was decided the coverage should not be included in the insuring provisions. The consensus was (and is) that this coverage is too risky to be taken as a "basic risk" (i.e., on a "casualty" or pure risk basis), it is not a suitable risk to insure based soley on a sellers' affidavit, and the additional underwriting it would call for makes it undesirable for inclusion in a standard policy form. At least for now.

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Following up on last Wednesday's posting, Charlie Hedgepath (Columbia, SC) writes:

When we got these requests prior to 97, we refused to give it. However, we were presented with a First American issued endorsement by a very persistent lenders counsel and after consultation with Ken Jannen agreed to give the coverage, but we changed the language to (read):

"...water, gas, electric, telephone, storm

sewer and sanitary sewer service to the

extent that they are available to the land,

are transmitted either over, under or upon

public rights-of-ways directly adjacent to

the land...."

Have not revamped the lead in sentence yet, but will have to put that on the list to do.

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Following up on our posting for Wednesday, 6/2/99, Phillip Poitevin (Jackson, MS) writes:

Just returned from a Realtor's convention. One Realtor is presently being sued for not disclosing that house he sold did not have city sewer service. Everybody, and I mean everybody, involved in deal was sure that house was serviced by city. Why? It was located in middle of city and all houses around it were connected. It turns out this was one of the oldest houses in this small town and the area was the oldest part of town. House was bought at estate sale, the original owners were dead and never had any problems with their old septic tank system. New owners added new systems that overloaded septic tank. Two months after sale foul smelling things bubbled to the surface of back yard. Owners are suing.

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Following up on our posting for 6/2/99, and its replies, Ken Jannen (Sr. Underwriting/Fort Lauderdale) has written a memo with suggested language for utilities coverage by endorsement. Looks good to me. To view the memo click on the URL below.