The United States Court of Appeals for the D.C. Circuit recently reversed a lower court and held that a title insurance company’s negligence claims against property surveyors may have been tolled until the insurer or its insured discovered the encroachment at issue.  See Commonwealth Land Title Ins. Co. v. KCI Techs., Inc., 922 F.3d 459 (D.C. Cir. 2019).  In 2006, one of the defendants conducted a survey of the insured property.  In 2007 and in reliance on this survey, the non-party insured purchased the property and the title insurance company issued a policy.  The second defendant conducted two more surveys of the property in 2012 and 2013 in which it discovered a neighboring wall encroached onto the insured property by four inches.  In 2014, however, the insured discovered that the wall encroached onto the insured property by twelve inches and that it would need to be razed for construction to continue.  The insured submitted a claim to the title insurance company for the costs of demolition and the delay penalties it had to pay to its tenant for the resulting construction delays.  The title insurance company accepted coverage and made the payment and, in 2017, brought this action against the two surveyors for negligence.  The surveyors moved to dismiss the complaint as untimely.  The District Court held that a three-year statute of limitations period applied, and that the title insurer’s claims accrued when the insured received the defective surveys.  The court declined to apply a discovery rule and dismissed the 2017 complaint with prejudice as untimely.

On appeal, the Court reversed.  First, the Court acknowledged that the D.C. Court of Appeals “has never explicitly held that the discovery rule is available to a plaintiff in a commercial construction dispute,” but inferred that it would be available “where a plaintiff in a construction dispute clearly lacks the requisite sophistication to identify defects that are latent in nature.”  (emphasis in original).  Second, the Court rejected the defendants’ claim that the title insurance company and the insured were sophisticated parties for whom the discovery rule was not available.  It held that they  “may be . . . sophisticated,” but they are “not sophisticated in the field of land surveying,” which is why they retained defendants.  Accordingly, the Court found that the complaint should not be dismissed at the motion to dismiss stage.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.