Nationwide Life Insurance Company v. COMMONWEALTH LAND TITLE INSURANCE COMPANY Appeal from the United States District…

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 06-2890
NATIONWIDE LIFE INSURANCE COMPANY,
Appellant
v.
COMMONWEALTH LAND TITLE
INSURANCE COMPANY
Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil Action No. 05-cv-00281)
District Judge: Honorable Ronald L. Buckwalter
Argued January 28, 2009
Before: SCIRICA, Chief Judge, AMBRO,
and SMITH, Circuit Judges
(Opinion filed : August 31, 2009)

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2
Justin K. Miller, Esquire
C. Paul Scheuritzel, Esquire (Argued)
Larsson & Scheuritzel
1500 Market Street
Centre Square West, Suite 3510
Philadelphia, PA 19102-0000
Counsel for Appellant
Craig R. Blackman, Esquire
Neal R. Troum, Esquire (Argued)
Stradley, Ronon, Stevens & Young
2600 One Commerce Square
Woodland Falls Corporate Park
Philadelphia, PA 19103-0000
Counsel for Appellee
OPINION OF THE COURT
AMBRO, Circuit Judge
Nationwide Life Insurance Company (“Nationwide”)
appeals the District Court’s dismissal of its claim under a title
insurance policy issued by Commonwealth Land Title Insurance
Company (“Commonwealth”). Nationwide seeks payment for
a loss arising from land title restrictions that allowed a former

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Commonwealth disputes that the Declaration contains a1
prior-approval-of-future-purchaser restriction, arguing instead
that Nationwide seeks simply to evade the Declaration’s use
3
owner of Nationwide’s real property to prevent its sale by
Nationwide. It asserts that the District Court erred in ruling that
Commonwealth had “expressly excepted” from insurance
coverage any loss related to these restrictions.
To decide this case, we interpret the standard-form policy
drafted by the American Land Title Association (“ALTA”) and
used by Commonwealth. In particular, we determine what a title
insurer must do to except restrictions from coverage under a
specific endorsement to the policy. The District Court held that
an insurer can do so merely by listing in a schedule of
exceptions to the policy the document in which the restrictions
are found. Because we believe that an insurer must list the
actual restriction in such a schedule to except them, we reverse.
I. Factual and Procedural Background
PMI Associates (“PMI”) purchased real property (the
“Property”) from Liberty Mills Limited Partnership (“Liberty
Mills”) in 1988. According to the complaint filed by
Nationwide, PMI and Liberty Mills entered into a Declaration
of Restrictions (the “Declaration”), vesting Liberty Mills with,
among other things, the right to refuse approval of future
purchasers of the Property. The Declaration also gave Liberty1

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restrictions. Commw.’s Br. at 4–5 n.2. Commonwealth accepts,
however, that because this case was decided at the motion to
dismiss stage in the District Court, the allegations in
Nationwide’s complaint “must be accepted as true for purposes
of this appeal.” Id.
In a related case in the District Court, Liberty Mills’s2
successor, Franklin Mills Associates Limited Partnership,
alleged as an affirmative defense that this right is one of “first
refusal.” Answer and Affirmative Defenses to Plaintiff’s
Complaint, Nationwide Life Ins. Co. v. Franklin Mills Assocs.
Ltd. P’ship, No. 04-05049, at 5 (E.D. Pa. April 4, 2005).
Typically a right of first refusal comes into play where one has
the option to buy, or buy back, a property before it can be sold
to a proposed buyer by the property’s then-owner. We are
unaware of anything in the record indicating that Franklin Mills
sought to purchase the Property that Nationwide proposed to sell
to another. Indeed, Commonwealth asserts there is no right of
first refusal involved in this case. Commw.’s Br. at 4-5 n.2.
4
Mills an option to repurchase the Property in certain
circumstances.2
In 2001, PMI borrowed $3.5 million from Nationwide,
using the Property as collateral. Nationwide insured its lender’s
interest in the Property by purchasing a title insurance policy
from Commonwealth. The policy contains a specific
endorsement, known as an ALTA 9 Endorsement, that, among
other things, covers Nationwide against loss from “a right of

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Because Franklin Mills based its refusal on the3
Declaration’s restrictions, Commonwealth’s calling them
another name—use restrictions rather than a prior-approval-of-
future-purchaser restriction or some other right of refusal, see
supra nn.1 & 2—is irrelevant. Though we need not decide
whether use restrictions necessarily are restrictions on the
approval of future purchasers of property, they are deemed so
here because that is the practical effect of Franklin Mills’s
actions in this case. (In any event, use restrictions are, like
prior-approval-of-future-purchaser restrictions, among the
important items of information lenders and owners seek in
obtaining title insurance policies.)
5
first refusal or the prior approval of a future purchaser or
occupant” unless “expressly excepted” in a schedule of
exceptions appended to the policy.
PMI defaulted in 2003 on the balance of its loan from
Nationwide. As a result, PMI conveyed the Property to
Nationwide by fee simple deed. Nationwide attempted to sell
the Property to Ironwood Real Estate, LLC (“Ironwood”). This
sale was halted, however, when Liberty Mills’s successor in
interest, Franklin Mills Associates Limited Partnership
(“Franklin Mills”), refused to approve Ironwood as a buyer in
accordance with Franklin Mills’s rights conferred by the
restrictions in the Declaration.3
Following Franklin Mills’s rejection of Ironwood,
Nationwide submitted a claim for coverage to Commonwealth.

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6
Nationwide alleged that Franklin Mills’s rights of refusal were
covered restrictions that made the Property unusable and
unsalable. Commonwealth denied Nationwide’s claim, stating
that its policy expressly excepted coverage for loss resulting
from Franklin Mills’s invoked rights.
Nationwide responded by filing suit in the United States
District Court for the Eastern District of Pennsylvania. It argued
that the ALTA 9 Endorsement to its policy covered loss
resulting from Franklin Mills’s rights of refusal because those
rights were not expressly excepted in the policy’s schedule of
exceptions. Commonwealth answered with a motion to dismiss
under Federal Rule of Civil Procedure 12(b)(6). It asserted that
the rights were expressly excepted from coverage provided by
the ALTA 9 Endorsement because the Declaration, in which the
rights were stated, was listed in the policy’s schedule of
exceptions.
The District Court granted Commonwealth’s motion to
dismiss. It held that the general listing of the Declaration under
the heading “exceptions from coverage” in the policy’s
exceptions schedule unambiguously eliminated coverage for loss
stemming from the rights of refusal. See Nationwide Life Ins.
Co. v. Commw. Land Title Ins. Co., No. 05-281, 2005 WL
2716492, at *7 (E.D. Pa. Oct. 19, 2005). In doing so, it rejected
Nationwide’s claim that only a specific listing of the rights in
the exceptions schedule could exempt them from ALTA 9
Endorsement coverage. See id.

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7
Nationwide then filed a motion for reconsideration with
exhibits, contending that the Court’s interpretation of the policy
and endorsement was inconsistent with industry custom and
practice. The Court denied this motion and struck most of
Nationwide’s exhibits from the record. It reiterated its prior
interpretation of the policy, rejected Nationwide’s reference to
custom and practice, and held that “it was [Nationwide]’s duty
to exercise proper diligence before issuing the subject
mortgage” on the Property. Nationwide Life Ins. Co. v. Commw.
Land Title Ins. Co., No. 05-281, 2006 WL 1192998, at *1–3
(E.D. Pa. May 3, 2006). Nationwide appeals to us.
II. Jurisdiction and Standard of Review
The District Court had jurisdiction under 28 U.S.C.
§ 1332. We have jurisdiction under 28 U.S.C. § 1291.
We review de novo the District Court’s dismissal of an
action under Rule 12(b)(6). See Phillips v. County of Allegheny,
515 F.3d 224, 230 (3d Cir. 2008). “[W]e ‘accept all factual
allegations as true, construe the complaint in the light most
favorable to the plaintiff, and determine whether, under any
reasonable reading of the complaint, the plaintiff may be entitled
to relief.’” Rodriguez v. Our Lady of Lourdes Med. Ctr., 552
F.3d 297, 302–03 (3d Cir. 2008) (quoting Phillips, 515 F.3d at
233).
Interpretation of an insurance policy is a question of law

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8
over which we exercise plenary review. See Regents of
Mercersburg College v. Republic Franklin Ins. Co., 458 F.3d
159, 163 (3d Cir. 2006). Under Pennsylvania law, which applies
to this action, we ascertain the intent of the parties by reading
the policy as a whole, and we give unambiguous terms their
plain meaning. See Jacobs Constructors, Inc. v. NPS Energy
Servs., Inc., 264 F.3d 365, 375–76 (3d Cir. 2001); J.C. Penney
Life Ins. Co. v. Pilosi, 393 F.3d 356, 363 (3d Cir. 2004). We
also consider evidence of industry custom and practice.
Sunbeam Corp. v. Liberty Mut. Ins. Co., 781 A.2d 1189, 1193
(Pa. 2001) (“[C]ustom in the industry or usage in the trade is
always relevant and admissible in construing commercial
contracts and does not depend on any obvious ambiguity in the
words of the contract.”). We construe ambiguous terms strictly
against the insurer, but avoid reading the policy “to create
ambiguities where none exist.” Sikirica v. Nationwide Ins. Co.,
416 F.3d 214, 220 (3d Cir. 2005).
III. Discussion
Nationwide claims that, under the policy issued by
Commonwealth, it (1) is covered for loss arising from the rights
of refusal contained in the Declaration, and (2) did not bear the
burden of diligence to ensure that its title to the Property was
free from harmful rights or restrictions. We agree on both
points. The text and purpose of the policy, along with custom
and practice in the title insurance industry, convince us that the
ALTA 9 Endorsement covers loss stemming from rights of

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For purposes of our opinion, “restrictions” include defects4
in title, liens, easements, encumbrances, conditions, and
covenants (such as the rights at issue in this case) affecting the
insured property.
9
refusal unless those rights are explicitly noted in a schedule of
exceptions to the policy. Insurers may not except rights of
refusal or other title restrictions from ALTA 9 Endorsement4
coverage simply by listing as exceptions the instruments in
which they are embedded. Instead, the burden is on the title
insurer to find and except them expressly.
A. Excepting a Restriction from ALTA 9
Endorsement Coverage
The title insurance policy that Commonwealth issued to
Nationwide is a 1992 ALTA Loan Policy with an ALTA 9
Endorsement. Like all such policies, it contains six sections: (1)
the Insuring Provisions stating the basic coverage terms; (2) the
Exclusions from Coverage, which list standard coverage
exclusions; (3) the Conditions and Stipulations that define
relevant terms and note the parties’ responsibilities; (4)
Schedule A, which describes the Property and amount of
insurance; (5) Schedule B, which lists, in two parts, coverage
exceptions specific to the Property; and (6) the ALTA 9
Endorsement (also referred to hereinafter as “the
Endorsement”), which, for an additional price, insures over
certain exceptions in Schedule B. See Joyce D. Palomar, 1 Title

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10
Insurance Law §§ 5.17–9.4 (2005); Amy W. Beatie & Arthur R.
Kleven, The Devil in the Details: Water Rights and Title
Insurance, 7 U. Denver Water L. Rev. 381, 398–400 (2004);
Charles B. DeWitt, III, Title Insurance: A Primer, 3 Tenn. J.
Prac. & Proc. 15, 18–19 (2001). We read these sections
together, giving effect to all their provisions. See Western
United Life Assur. Co. v. Hayden, 64 F.3d 833, 837 (3d Cir.
1995); Eric Holmes, 4 Holmes’ Appleman on Insurance § 20.1
(2d ed. 1998).
The Insuring Provisions of the policy state:
SUBJECT TO THE EXCLUSIONS FROM
COVERAGE, THE EXCEPTIONS FROM
COVERAGE CONTAINED IN SCHEDULE B
A N D T H E C O N D I T I O N S A N D
STIPULATIONS, COMMONWEALTH LAND
T I T L E I N S U R A N C E C O M P A N Y , a
Pennsylvania corporation, herein called the
Company, insures, as of Date of Policy shown in
Schedule A, against loss or damage, not
exceeding the Amount of Insurance stated in
Schedule A, sustained or incurred by the insured
by reason of:
1. Title to the estate or interest
described in Schedule A being
vested other than as stated therein;
2. Any defect in or lien or

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11
encumbrance on the title;
3. Unmarketability of the title;
. . .
6. The priority of any lien or
encumbrance over the lien of the
insured mortgage; . . . .
Together with Schedule A, which identifies the Property and
sets a $3.5 million amount of insurance, these provisions
obligate Commonwealth to insure Nationwide’s interest in the
Property against loss from any restriction not stated in the
Exclusions from Coverage or listed as an exception in
Schedule B.
Schedule B, which is captioned “EXCEPTIONS FROM
COVERAGE,” lists a number of instruments that affect the
Property. Part I of Schedule B sets out matters excepted from
coverage that might cause loss to Nationwide. Part II of
Schedule B lists matters affecting the Property that are
subordinate to Nationwide’s interest. The Declaration
containing the restrictions giving rise to Nationwide’s loss is
listed in Part I of Schedule B:
This policy does not insure against loss or
damage . . . which arise by reason of:
. . . .

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12
5. Declaration of Restrictions between
Liberty Mills Limited Partnership and PMI
Associates dated August 15, 1988 and
recorded in Deed Book FHS 1155, page
206, and First Amendment to Declaration
of Restrictions between Franklin Mills
Associates Limited Partnership and PMI
Associates dated December 5, 1989 and
recorded December 21, 1989 in Deed
Book FHS 1518, page 541. (The “PMI
Declaration”).
The Declaration is thus “an exception from coverage contained
in Schedule B.”
The Declaration’s listing as an exception, however, does
not necessarily exempt from coverage all losses stemming from
it. As noted, the ALTA 9 Endorsement brings back into play
coverage for restrictions contained in instruments listed in
Schedule B unless those restrictions themselves are set out in
that Schedule. See James L. Gosdin, Title Insurance: A
Comprehensive Overview 257 (3d ed. 2007); Holmes, supra,
§ 20.1.
Paragraph 1(b)(2) of the Endorsement reads:
The Company insures the owner of the
indebtedness secured by the insured mortgage

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13
against loss or damage sustained by reason of:
1. The existence at Date of Policy of any of
the following:
. . . .
(b) Unless expressly excepted in
Schedule B
. . . .
(2) Any instrument referred to
in Schedule B as containing
covenants, conditions or
restrictions on the land
which, in addition, (i)
establishes an easement on
the land; (ii) provides a lien
for liquidated damages; (iii)
provides for a private charge
or assessment; (iv) provides
for an option to purchase, a
right of first refusal or the
prior approval of a future
purchaser or occupant.
App. at 39 (emphases added). Accordingly, because the
Declaration is an “instrument referred to in Schedule B as
containing . . . restrictions on the land which . . . provides for an
option to purchase, a right of first refusal or the prior approval
of a future purchaser or occupant,” loss arising from it is
covered under paragraph 1(b)(2) of the ALTA 9 Endorsement

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“[u]nless expressly excepted in Schedule B.”
As one might expect, Commonwealth argues that loss
arising from the Declaration is “expressly excepted in
Schedule B,” and therefore is not covered by paragraph 1(b)(2)
of the ALTA 9 Endorsement. Nationwide contends otherwise.
No provision of the policy or Endorsement, however, explains
how to determine whether loss from the Declaration is expressly
excepted.
Commonwealth asserts that Schedule B’s two-part
structure provides the framework that distinguishes the
Declaration as “expressly excepted” from ALTA 9 Endorsement
coverage. Looking first to what Schedule B excepts from the
Insuring Provisions of the policy, Commonwealth alleges that
only Part I of Schedule B contains exemptions from policy
coverage, whereas Part II of Schedule B “contains not
exemptions from coverage (like Part I) but rather the
prioritization of liens.” Commw.’s Br. at 3. It states that “the
respective lead-in language in Parts I and II of Schedule B
removes any doubt about this important difference between the
two Parts.” Id. at 10. The caption to Part I, it notes, states:
SCHEDULE B
EXCEPTIONS FROM COVERAGE
PART I
But the caption to Part II reads:

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15
SCHEDULE B
PART II
Commonwealth then highlights that Part I begins, “This policy
does not insure against loss or damage . . . which arise by reason
of,” while Part II reads:
In addition to the matters set forth in Part I of this
Schedule, the title to the estate or interest in the
land described or referred to in Schedule A is
subject to the following matters, if any be shown,
but the Company insures that these matters are
subordinate to the lien or charge of the insured
mortgage upon the estate or interest.
This “lead-in” language, states Commonwealth, shows that
Schedule B, Part I, contains “the stuff of exception,” while
Schedule B, Part II, simply lists those matters “referred to in
Schedule B” as “subordinate to the . . . insured mortgage.” Id.
Building on this framework, Commonwealth claims that
the instruments in Schedule B, Part I, are “expressly excepted”
from Endorsement coverage because they are the only
“exceptions from coverage” in the policy, whereas the
instruments in Schedule B, Part II, fall within the coverage of
the Endorsement because they are “referred to in Schedule B”
but not “expressly excepted in Schedule B.” See id. at 9–10.
Commonwealth argues that this construction provides a clear

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16
way to identify matters covered by the ALTA 9
Endorsement—loss from instruments in Schedule B, Part I, is
not covered; loss from instruments in Schedule B, Part II, is
covered. And because the Declaration is listed in Schedule B,
Part I, Commonwealth concludes that no loss stemming from it
is covered by paragraph 1(b)(2) of the Endorsement. See id.
Nationwide dismisses Commonwealth’s interpretation,
and responds that loss resulting from the Declaration is covered
by the ALTA 9 Endorsement because the rights of refusal stated
within it are not specifically mentioned in Schedule B.
Nationwide argues that both parts of Schedule B contain
exceptions from coverage and asserts that “to signify an
exception to ALTA 9 Endorsement coverage, an insurer [must]
expand[] the description of the pertinent instrument [i]n
Schedule B to describe any included . . . . rights specified in
subparagraph 1(b)(2) . . . of the ALTA 9.” Nationwide’s Br. at
14–15. “In other words,” it claims, “exceptions to the coverage
afforded by the ALTA 9 are not made merely by listing a
document on Schedule B, coverage is instead negated by
specifically referring to and excepting the covenant, condition,
or right in question.” Nationwide’s Supp. Br. at 10; see also
Nationwide, 2006 WL 1192998, at *2. Nationwide argues that
this construction of the policy best serves insurers and lenders,
and it emphasizes that it “is the construction widely followed in
the title insurance industry.” Nationwide’s Reply Br. at 1.
The District Court was persuaded by Commonwealth’s

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17
reasoning, holding that the “heading and language of
Schedule B, Part I, clearly indicate that the Declaration is
‘expressly excepted in Schedule B.’” Nationwide, 2005 WL
2716492, at *7. It opined that “[t]he Policy would be clearer
had [Commonwealth] placed the ‘Exceptions from Coverage’
header under ‘Part I’ instead of under ‘Schedule B,’” but it ruled
that “the language preceding Part I makes clear that the items
listed in Part I are exceptions from coverage . . . , while the
language preceding Part II indicates that the items listed in Part
II are not exceptions from coverage . . . .” Id. (internal citations
omitted).
We disagree with Commonwealth and the District Court.
In our view, concluding that Schedule B, Part II, does not
contain “exceptions from coverage,” and reading the caption and
initial language of Schedule B, Part I, to “expressly except”
from ALTA 9 Endorsement coverage loss stemming from all
matters in instruments listed therein, runs roughshod over the
policy’s language, purpose, and usage. We instead adopt
Nationwide’s construction of the policy and hold that paragraph
1(b)(2) of the ALTA 9 Endorsement extends coverage to loss
from an instrument in either part of Schedule B unless the
insurer takes express exception to the specific restrictions stated
in the instrument. This interpretation fits the textual scheme of
the policy, and reflects the purpose and industry custom
associated with the ALTA 9 Endorsement.

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1. Text
Contrary to Commonwealth’s interpretation, we think the
placement of the line “EXCEPTIONS FROM COVERAGE”
above “PART I” in the caption of Schedule B is evidence that
both Parts I and II contain “exceptions from coverage.” This
interpretation is reinforced by a reading of a blank 1992 ALTA
Loan Policy, which shows that the caption’s drafting was not an
error and indicates that the seeming inapplicability of the line
“EXCEPTIONS FROM COVERAGE” to Part II is the result of
nothing more than the page break between Parts I and II of
Schedule B. See Gosdin, supra, at 38. It also finds support in
an intratextual reading of the policy, which never distinguishes
between Parts I and II of Schedule B and instead refers only to
“the exceptions from coverage contained in Schedule B.”
A textual comparison of the ALTA 9 Endorsement
(which covers an ALTA Loan Policy) to its companion ALTA
9.1 Endorsement (which covers an ALTA Owner’s Policy) also
rejects Commonwealth’s suggestion that paragraph 1(b)(2) of
the ALTA 9 Endorsement covers only matters in Schedule B,
Part II. An ALTA 9 Endorsement, to repeat, states:
The Company insures the owner of the
indebtedness secured by the insured mortgage
against loss or damage sustained by reason of:
1. The existence at Date of Policy of any of
the following:

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19
. . . .
(b) Unless expressly excepted in
Schedule B
. . . .
(2) Any instrument referred to
in Schedule B as containing
covenants, conditions or
restrictions on the land
which, in addition, . . .
provides for an option to
purchase, a right of first
refusal, or the prior approval
of a future purchaser or
occupant.
Similarly, an ALTA 9.1 Endorsement reads:
The Company insures against loss or damage
sustained by the insured by reason of:
1. The existence at Date of Policy of any of
the following unless expressly excepted in
Schedule B:
. . . .
(b) Any instrument referred to in
S c h e d u le B a s c o n ta in in g
c o v e n a n t s , c o n d i t i o n s o r
restrictions on the land which, in
addition, . . . provides for an option

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Schedule B of a blank ALTA Owner’s Policy reads:5
SCHEDULE B
EXCEPTIONS FROM COVERAGE
This policy does not insure against loss . . . which
arise[s] by reason of:
20
to purchase, a right of first refusal,
or the prior approval of a future
purchaser or occupant . . . .
Given the essentially identical language of the two
endorsements, one would expect the interpretation of “unless
expressly excepted in Schedule B” to remain constant. In
particular, if Commonwealth’s suggestion is correct, the ALTA
Owner’s Policy should list express exceptions in Part I of
Schedule B and non-exceptions covered by the ALTA 9.1
Endorsement in Part II of Schedule B.
But that is not the case. Rather, the ALTA Owner’s
Policy does not contain a two-part Schedule B. In the context5
of language identical to that in an ALTA 9 Endorsement, an
insurer drafting an ALTA Owner’s Policy thus must do more
than simply list an instrument in a part of Schedule B to except
all loss related to it from coverage under an ALTA 9.1
Endorsement. It must distinguish between those Schedule B
matters that are merely “exceptions from coverage,” to which

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Paragraph 1(b)(4) of the ALTA 9 Endorsement, for6
instance, insures against
loss or damage sustained by reason of . . . .
(b) Unless expressly excepted in
Schedule B . . . .
(4) Any encroachment of existing
improvements located on the land
. . . subject to any easement
excepted in Schedule B.
App. at 39 (emphases added). Under this paragraph, an insurer
seeking not to have the Endorsement cover an encroachment on
land “subject to any easement excepted in Schedule B” must
21
the ALTA 9.1 Endorsement applies, and those that are
“expressly excepted” from all coverage. This recognition
correlates with interpreting the ALTA 9 Endorsement to cover
loss from an instrument in either part of Schedule B unless the
insurer explicitly notes the rights or restrictions contained in the
instrument.
Requiring insurers to take express exception in
Schedule B to rights of refusal or other restrictions mentioned
in paragraph 1(b)(2) of the ALTA 9 Endorsement, moreover,
does not “torture[] the language of the Policy.” Nationwide,
2005 WL 2716492, at *7. The Endorsement recognizes a
difference between “excepted” instruments and “expressly
excepted” restrictions. The very term “expressly excepted”6

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take specific exception to the encroachment in order to
distinguish it from the already excepted easement under which
it could cause a loss.
The following matters are listed in Schedule B, Part II, of7
Nationwide’s policy:
22
implies as well that an insurer seeking to retract Endorsement
coverage of a restriction must do so specifically.
2. Purpose
Commonwealth’s constrained interpretation of the
ALTA 9 Endorsement also flouts the purpose of the
Endorsement. Lenders seeking to insure their mortgage interest
in a property pay an additional premium for an ALTA 9
Endorsement to cover, among other things, “any instrument
referred to in Schedule B as containing covenants, conditions or
restrictions.” See Beatie & Kleven, supra, at 400. We cannot
conceive why, as Commonwealth suggests, lenders would do so
only to cover instruments in Schedule B, Part II, which already
are insured as “subordinate to the lien or charge of the insured
mortgage upon the estate or interest.” More specifically, it
surpasses strange to think that Nationwide would pay for an
ALTA 9 Endorsement just to cover the matters already listed as
subordinate to its interest in Schedule B, Part II, especially
where, as here, Nationwide is directly involved in each of those
matters and needed no extra assurance that they were harmless7

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[1] Unrecorded Lease between PMI Associates
. . . and Phar-Mor, Inc., dated February 2, 1989
and subordinated by a Subordination, Non-
Disturbance and Attornment Agreement between
Nationwide Life Insurance Co., and Phar-Mor,
Inc. dated February 28, 2001 . . . [;]
[2] Assignment of Leases, Rents and Profits
between PMI Associates . . . and Nationwide Life
Insurance Company . . . dated March 22, 2001
. . . [; and]
[3] UCC-1 financing statements from PMI
Associates . . . to Nationwide Life Insurance
Company recorded . . . on April 2, 2001.
App. at 37.
This recognition undercuts Commonwealth’s suggestion8
that Nationwide purchased the ALTA 9 Endorsement to provide
“an affirmative grant of insurance coverage to the extent that
harm results from any matter listed on Part II of Schedule B . . .
[containing] an option to purchase, a right of first refusal or the
prior approval of a future purchaser or occupant which impair[s]
the mortgage lender’s mortgage interest . . . .” Commw.’s Br.
at 17 (internal quotations omitted). As a party to each matter
listed in Schedule B, Part II, Nationwide had no reason to fear
that one of them might contain a restriction that would cause it
loss or damage.
23
to its interest.8

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The importance of notice is shown by this case. Nationwide9
asserts it did not know until 2003 that the Declaration contained
the restrictions on which Franklin Mills refused approval of the
proposed future purchaser of the Property. See Tr. Or. Arg. at
9–10. It “relied on the policy,” which it purchased “in part . . .
so the title insurer w[ould] go through [the documents relevant
to its interest in the Property] and point out potential traps.” Id.
24
Additionally, Commonwealth’s interpretation would
thwart the purpose of the ALTA 9 Endorsement by eliminating
the notice benefits it provides. Through its requirement that
insurers “expressly except[]” the restrictions they do not want to
cover under paragraph 1(b)(2), the Endorsement gives lenders
crucial notice of the specific matters that may harm their
mortgage interests. By permitting insurers to except expressly9
all loss from an instrument simply by listing that instrument in
Schedule B, Part I, Commonwealth’s interpretation would strip
away this notice benefit from the ALTA 9 Endorsement.
3. Custom and Practice
The title insurance industry’s treatment of the ALTA 9
Endorsement strongly supports our reading of the Endorsement.
It is one of the “most common” endorsements used to “insure
against the effect or aspects of exceptions,” Gosdin, supra, at
257, and the “standard endorsement for commercial lending
transactions.” App. at 60; see also Palomar, supra § 9.3.
Industry custom and practice show that both parts of Schedule B

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At oral argument, Commonwealth’s counsel suggested that10
he was “not aware of any explicit guidelines” produced by
Commonwealth pertaining to the ALTA 9 Endorsement. Tr. Or.
Arg. at 16–17. But a guideline document quoted in
Commonwealth’s supplemental brief includes an “Underwriting
Checklist for Lender’s ALTA 9” produced by a branch
operation of Commonwealth. Commw.’s Supp. Br. at 3–4
(quoting Commonwealth Land Title Insurance Co., D.C. and
Maryland Operations, 98-07 Commonwealth Offers ALTA 9
Coverage on Residential Mortgage Policies, 3 (June 22, 1998)).
This document draws no distinction between the two parts of
Schedule B, and notes that “the ALTA 9 protects the lender
against loss due to any [covenants, conditions, or restrictions]
violation, encroachment, charge, assessment, option, easement,
etc., not expressly excepted to in Schedule B.” Id. at 1–2.
In supplemental briefing, Commonwealth quoted from an11
article written by the Knight-Barry Title Group to show “that
only instruments listed in Schedule B, Part II, can trigger
coverage from Paragraph 1(b)(2)” of the ALTA 9 Endorsement.
Commw.’s Supp. Br. at 3. The article describes the relationship
of an ALTA 9 Endorsement to a “Knight-Barry commitment”:
Paragraph 1(b)(2) . . . [i]nsures that any
25
contain exceptions over which the ALTA 9 Endorsement
insures. No guideline or article produced by a title insurer,
including Commonwealth, states that only Schedule B, Part I,10
contains exceptions from coverage or that the ALTA 9
Endorsement covers only matters in Schedule B, Part II.11

-- 25 of 39 --

instrument in Schedule B-II of a Knight-Barry
commitment[,] which includes [covenants,
conditions, or restrictions,] does not in addition
. . . provide for an option to purchase, a right of
first refusal, or the prior approval of a future
purchaser or occupant. . . . If one of these
additional items exists, then we will call out the
additional item(s) as an exception on Schedule B-
II of the commitment—many times prompting the
parties to take further action. For example, if
there is a right-of-first refusal in an [instrument],
Knight-Barry will include the right-of-first refusal
as an exception on Schedule B-II . . . .
Commw.’s Supp. Br. at 3 (quoting Cheri Hipenbecker and Craig
Haskins, The ALTA 9 Endorsement for Loan Policies, Knight-
Barry Title Group (2009)). Although this article seemingly links
paragraph 1(b)(2) of the ALTA 9 Endorsement to “Schedule B-
II,” it is ultimately unhelpful to Commonwealth. A close
reading of the article reveals that Schedule B-II of a Knight-
Barry commitment is different from Schedule B, Part II, of the
1992 ALTA Loan Policy used as the model for Nationwide’s
policy. In particular, Schedule B-II of the Knight-Barry
commitment appears to serve the function of both parts of the
ALTA Schedule B by including all exceptions to the
commitment. See id. Even Commonwealth does not suggest
that Schedule B, Part II, of the ALTA Loan Policy is so broad.
See Tr. Or. Arg. at 25. More importantly, the article undermines
Commonwealth’s claim that a listing of an instrument is
26

-- 26 of 39 --

sufficient to “expressly except[]” matters within it from
coverage under paragraph 1(b)(2) of the ALTA 9 Endorsement,
noting instead that the insurer must “call out” the specific
matters.
At oral argument, Commonwealth’s counsel stated that he12
did not “know the simple answer” to whether LandAmerica
owned Commonwealth. Tr. Or. Arg. at 17. On April 2, 2001,
the date Commonwealth issued Nationwide’s policy,
LandAmerica owned Commonwealth. See App. at 30
(describing Commonwealth as “a LandAmerica Company”).
T o d a y i t d o e s n o t . S e e L a n d A m e r i c a ,
http://www.landam.com/index.htm (last visited Aug. 28, 2009)
(noting that LandAmerica sold Commonwealth to Fidelity
National Financial, Inc. on December 22, 2008).
27
Indeed, contrary to Commonwealth’s claim that Part II of
Schedule B does not contain “exceptions from coverage,” we
note that, in an internal memorandum reviewed by the District
Court, LandAmerica Financial Group, Inc. (“LandAmerica”),
the parent company of Commonwealth at the time it drafted
Nationwide’s policy, unambiguously describes the matters in12
Part II of Schedule B as “exceptions”:
SCHEDULE B - PART II: Enter all exceptions to
title discovered in the title search and from the
survey, if any, that are subordinate to the lien of
the insured mortgage. . . . Schedule B - Part II sets
out only those matters affecting the title to the

-- 27 of 39 --

28
insured land that are subordinate in priority to the
lien of the insured mortgage. You must take
exception to all such defects in title, liens,
encumbrances and outstanding interests affecting
the title. . . . The items found in Schedule B - Part
II are generally lien interests and sometimes
leasehold interests. . . . Probably more often than
not, you will have no exceptions for Schedule B -
Part II. If you have no exceptions, insert the word
“NONE” in the schedule to show that no
exception has been taken.
App. at 55–56 (emphases added).
Industry custom and practice also confirm that the
ALTA 9 Endorsement covers loss from matters in instruments
mentioned in paragraph 1(b)(2) of the Endorsement unless the
insurer explicitly notes those matters in Schedule B. For
example, LandAmerica provides the following guidance to
agents issuing ALTA 9 Endorsements:
Instruments identified in Exceptions in
Schedule B [may] also contain any of the
following matters which are NOT shown as
separate Schedule B exceptions:
(1) Easements
(2) Liens for liquidated damages
(3) Charges or liens for assessments

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29
(4) Options to purchase, rights of first
refusal, or rights of prior approval
of purchasers.
If instruments described in Schedule B
Exceptions do contain any of those elements, they
should be shown as separate exceptions, or stated
as separate components of an exception. For
example, if a subdivision “declaration of . . .
restrictions” also contains grants or reservations
of easements, or rights of first refusal, the
Schedule B exception should appear as follows:
METHOD 1 (Multiple exceptions):
“Declaration of . . . Restrictions for
dated recorded at book
page ”
“Easements reserved in Declaration
of . . . Restrictions for dated
recorded at book page ”
“Rights of first refusal reserved in
Declaration of . . . Restrictions for
dated recorded at book
page ”
METHOD 2 (Single exception describing
several elements):
“Declaration of . . . Restrictions for
dated recorded at book ,
page ; also, easements and right
of first refusal reserved in said

-- 29 of 39 --

This guidance document is published at a website cited by13
both parties. See Nationwide’s Supp. Br. at 4 (citing
LandAmerica, https://www.agentxtra.net/extranet, as a source
containing “at least some published underwriting guidelines”
relevant to the ALTA 9 Endorsement); Commw.’s Supp. Br. at
3–5. The District Court also admitted and considered
information from this website. See App. at 54 (denying
Commonwealth’s motion to strike “all factual allegations
regarding . . . [LandAmerica]’s website”)
30
declaration.”
L a n d A m e r i c a , h t t p s : / / w w w . a g e n t x t r a . n e t / E x t r a n e t /
singlesource/NavMaster.asp?IndexID=3202&IndexTerm=PU
D&LinkID=5178317 (last visited Aug. 28, 2009) (emphases
added). This guidance document states precisely that the13
insurer must take separate and specific exception to the matters
contained in instruments listed in Schedule B in order to avoid
covering them under the ALTA 9 Endorsement.
Even Commonwealth appears to follow the interpretive
approach we now endorse. In an internal bulletin produced by
its “D.C. and Maryland Agency Operations,” Commonwealth
explains that it is “OK” for its agents to use an ALTA 9
Endorsement if a document with restrictions “contains an
easement, a lien provision, charge or . . . option/right of first
refusal/future purchase approval . . . [b]ut when taking exception
to [the document with restrictions], [the agent] must expressly

-- 30 of 39 --

Although Commonwealth quoted this bulletin in its14
supplemental brief and did not object to our review of it in full,
see Tr. Or. Arg. at 40, it emphasized that “this is not a
Commonwealth Land Title Insurance Company document.” Id.
It is apparent, however, that the D.C. and Maryland Agency
Operations are branch offices of Commonwealth, see
Commonwealth, http://www.cltic.com (last visited Aug. 28,
2009), and Pennsylvania title insurers follow the same drafting
custom described in the quoted bulletin. See William C. Hart,
The Law of Titles in Pennsylvania, 1104 (4th ed. 2005),
available at http://www.titlelawannotated.com/021703.pdf.
31
include [the] relevant provision, e.g., ‘Terms and provisions of
a Declaration, including access easement created therein dated
.’” Commw.’s Supp. Br. at 3–4 (quoting Commonwealth, 98-
07 Commonwealth Offers ALTA 9 Coverage on Residential
M o r t g a g e e P o l i c i e s , 3 – 4 ( J u n e 2 2 , 1 9 9 8 ) ,
https://www.agentxtra.net/extranet/SingleSource/content/State
Law/DistrictofColumbia/Bulletins/DC_98-07_Commonwealt
hOffersALTA9Coverage.htm) (emphasis added). The advice14
in this bulletin dovetails with the guidance document produced
by LandAmerica and contrasts with what Commonwealth now
argues. It also appears to be the advice that Commonwealth
followed in taking exception to a License Agreement in
Schedule B, Part I, of Nationwide’s policy:
6. The appurtenant easement rights insured
under the License Agreement dated March

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32
4, 1991 between Franklin Mills Associates
Limited Partnership f/k/a Liberty Mills
Partnership and PMI Associates . . . , as
located on survey . . . Dated March 16,
2001[,] . . . are subject to the following:
a. Terms and conditions of said
Agreement
b. Questions of marketability due to
the Agreement being unrecorded;
and
c. A ll m ortg ages, easem ents,
c o v e n a n t s , c o n d i t i o n s a n d
restrictions affecting the property
now or formerly of Franklin Mills
Associates Limited Partnership,
adjacent to the insured premises
and the subject of said Agreement.
App. at 35–36. Though not stated in the exact manner suggested
by the LandAmerica guidance document or Commonwealth
bulletin, this listing follows the industry practice of expressly
excepting the rights within an instrument (in this listing, the
“appurtenant easement rights”) so as to remove them from
coverage under paragraph 1(b)(2) of the ALTA 9 Endorsement.
In fact, industry practice is so settled in favor of
requiring insurers to state the specific matters they are excepting
from ALTA 9 Endorsement coverage that one industry expert

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33
directly criticized the District Court’s decision in
Commonwealth’s favor. Writing in a work published by the
American Bar Association’s Section of Real Property, Probate
and Trust Law, James L. Gosdin detailed the Court’s reasoning
and concluded:
The result of this case is surprising and is
inconsistent with the widespread interpretation of
the Endorsement in the title insurance
industry—that the Schedule B exception must
refer at least to the “right of first refusal” or
“easement” or other such right, although there is
no need to refer to the specific paragraph or
location in the document of the right.
Gosdin, supra, at 258.
* * * * *
In sum, the text, purpose, and industry usage of the
ALTA 9 Endorsement convince us that the District Court erred
in granting Commonwealth’s motion to dismiss. To except
expressly from ALTA 9 Endorsement coverage a right of refusal
or other restrictions noted in paragraph 1(b)(2) of the
Endorsement, an insurer must list those restrictions specifically
in Schedule B. It is not enough for the insurer merely to list in
some part of Schedule B the document in which the restrictions
are embedded. Commonwealth thus failed to “expressly

-- 33 of 39 --

34
except[]” from ALTA 9 Endorsement coverage loss from the
restrictions contained in the Declaration, and should cover
Nationwide’s claim.
B. Assigning the Burden of Diligence To Discover
Restrictions
In addition to holding that loss from the rights of refusal
contained in the Declaration was “expressly excepted” from
ALTA 9 Endorsement coverage, the District Court also
determined that Nationwide “bore the burden of completing
proper diligence” to ensure that the Declaration did not contain
restrictions harmful to its interest in the Property. Nationwide,
2006 WL 1192998, at *3. The Court based this determination
on its reading of a passage in a LandAmerica article cited by
Nationwide that describes paragraph 1(b)(2) of the ALTA 9
Endorsement:
Paragraph 1(b)(2) insures the lender that a
document, described only as containing
restrictions, doesn’t contain a grant of easement,
a lien for liquidated damages, a private charge or
assessment, an option, a right of first refusal or a
right for prior approval of a future purchaser or
occupant. . . . Paragraph 1(b)(2) is found under
paragraph 1(b) because an exception that fully
describes the features of a document kills the
coverage. The Insured will not be misled by an

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35
exception that discloses the features of a recorded
instrument. If the exception has incomplete
disclosure, the lender must review all of the
recorded documents for an opinion that none
contains a provision that might harm it.
Id. at *2 (quoting Robert S. Bozarth, LandAmerica
SingleSource: Commercial Transactions 101 (May 2003),
https://www.agentxtra.net/extranet/SingleSource/NavMaster.a
sp?IndexID=3770&IndexTerm=Zoning&LinkID=5187463).
The Court particularly focused on the last sentence of this
passage to support its ruling. See id. at *2–3.
Nationwide asserts that the Court misread the passage
and ruled “in conflict with years of industry practice.” See
Nationwide’s Br. at 16 n.8. Nationwide is correct. The quoted
passage makes clear that (1) an insurer must “fully describe the
features of a document” to except loss arising from them, and
(2) a full description of any excepted “feature” ensures that
“[t]he Insured will not be misled.” In this context, it is unlikely
that the passage further means to state, as the District Court
ruled, that an insurer’s failure to note a matter contained in a
document in Schedule B forces “the lender [to] review all of the
recorded documents for an opinion that none contains a
provision that might harm it.” Nationwide, 2006 WL 1192998,
at *2. Instead, we read the passage’s remarks about “incomplete
disclosure” as distinguishing between the two methods of taking
express exception to matters outlined in the LandAmerica

-- 35 of 39 --

36
guidance document quoted above. To repeat, the first method
lists both an excepted document and every matter within it as a
separate exception:
METHOD 1 (Multiple exceptions):
“Declaration of . . . Restrictions for
dated recorded at book page ”
“Easements reserved in Declaration of . . .
Restrictions for dated recorded at
book page ”
“Rights of first refusal reserved in
Declaration of . . . Restrictions for
dated recorded at book page ”
LandAmerica, https://www.agentxtra.net/Extranet/singlesource/
NavMaster.asp?IndexID=3202&IndexTerm=PUD&LinkID=5
178317 (last visited Aug. 28, 2009). This method completely
discloses to the insured lender the nature of each expressly
excepted matter, the party benefitting from its terms, the date it
was recorded, and its location in a deed book.
Alternatively, the second method lists the excepted
document in detail but only mentions in general the expressly
excepted matters within the document:
METHOD 2 (Single exception describing several
elements):
“Declaration of . . . Restrictions for

-- 36 of 39 --

The first title insurer was the Real Estate Title Insurance15
Company of Philadelphia. See DeWitt, supra, at 17. This
company was the forerunner of Commonwealth and sprang up
37
dated recorded at book , page ;
also, easements and right of first refusal
reserved in said declaration.”
Id. This method still marks the matters within a document as
expressly excepted from coverage, but it does not disclose to the
insured lender (1) the party benefitting from each expressly
excepted matter, (2) the date on which each matter was
recorded, or (3) the location of the matters in a deed book.
Thus, when an insurer uses this method to take express
exception to a matter within a document, the insured lender must
research that matter further to determine its details. In our view,
this is what the passage from the LandAmerica article quoted by
the District Court means when it states that “[i]f the exception
has incomplete disclosure, the lender must review all of the
recorded documents for an opinion that none contains a
provision that might harm it.” Nationwide, 2006 WL 1192998,
at *2.
The history and purpose of land title insurance further
repudiate the District Court’s conclusion “that it was
[Nationwide]’s duty to exercise proper diligence before issuing
the subject mortgage.” Id. at *3. Since the first land title
insurance company opened in 1876, “[o]ne of the big talking15

-- 37 of 39 --

in response to the Pennsylvania Supreme Court’s decision in
Watson v. Muirhead, 57 Pa. 161 (1868), which held that a
conveyancer who failed to disclose a defect in a property’s title
was not liable for losses arising from the defect sustained by the
buyer of the property. See id.
38
points for title insurance is that it relieves the investor from title
work, examinations and worry therefrom, as well as affording
protection.” Gosdin, supra, at 1 (internal quotations omitted).
Title insurers also advertise their ability to review titles
accurately and efficiently through use of their title records,
which “are more effectively organized than public records, . . .
may also contain more complete title information, [and may]
provide a more efficient means of evaluating title than . . . a
search through public records.” Beatie & Kleven, supra, at
400–01. The District Court’s contention that a lender or buyer
paying for title insurance “b[ears] the burden of completing
proper diligence” accordingly robs title insurance of one of its
primary reasons to exist.
Nationwide paid Commonwealth to review its interest in
the title to the Property and either cover any title restrictions or
explicitly identify them as exceptions. In so doing, Nationwide
discharged its “burden of completing proper diligence” to the
extent that Commonwealth did not expressly except such
restrictions from coverage in Schedule B of the policy.

-- 38 of 39 --

39
IV. Conclusion
When Commonwealth issued its title insurance policy to
Nationwide, it failed to except expressly the restrictions
contained in the Declaration from coverage under paragraph
1(b)(2) of the policy’s ALTA 9 Endorsement. To avoid paying
for this failure (and Nationwide’s claim), Commonwealth seeks
to lead us down a path that would make title insurance a
Barmecide feast. That is not the purpose of title insurance, it is
not how the title insurance industry perceives what it does, and
it is not how the text of and guidelines for title insurance read.
We thus hold that Commonwealth bore the burden of detecting
the restrictions stated in the Declaration, and had to list those
restrictions explicitly as exceptions to avoid covering loss from
them. For these reasons, we reverse the District Court’s order
granting Commonwealth’s motion to dismiss and remand for
further proceedings consistent with this opinion.

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