Lawyers Title Insurance v. Doubletree Partners, L.P., 739 F.3d 848

Doubletree Partners sought title insurance from Lawyers Title for a 36-acre Highland Village, Texas property intended for a senior living community.
Lawyers Title issued the policy but later canceled flowage easement and survey coverage from the policy due to a software printing error; Doubletree paid a premium for amended survey coverage.
The property is encumbered by a 1955 flowage easement exposing the US to flood areas below 537 feet and prohibiting building below that elevation without US consent.
Doubletree’s development relied on an original survey, which underrepresented the flowage easement; later discovery revealed a much larger no-build zone and development impact.
Foreclosure occurred in 2009 after Doubletree failed to meet loan obligations; Lawyers Title filed suit seeking reformation and declaratory relief; Doubletree counterclaimed for breach and extracontractual claims.
The magistrate judge granted summary judgment for Lawyers Title on breach and extracontractual claims but reformation was contested; the court later awarded attorneys’ fees against Doubletree’s counsel under §1927.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the policy should be reformed	Doubletree argues no mutual mistake occurred.	Lawyers Title asserts unilateral mistake with knowledge; reformation appropriate.	Policy reformation affirmed; mutual/unilateral mistake satisfied.
Whether the reformed policy covers survey errors locating the flowage easement	Survey coverage extends to survey errors, including easement location.	Survey coverage excludes flows not affecting boundaries; ambiguity exists.	Survey coverage covers the error in locating the flowage easement; reversal on this issue.
Whether the flowage easement exception precludes coverage	Flowage easement should not bar coverage under the reformed policy.	Flowage easement exception precludes coverage.	Flowage easement exception interpreted as reasonable interpretations on both sides; Doubletree’s reading adopted.
Whether exclusion 3(a) bars the claim	Doubletree suffered, assumed, or agreed to the encumbrance via closing documents.	Doubletree had no full knowledge of extent; exclusion does not bar coverage here.	Exclusion 3(a) does not bar coverage; the insured's lack of full knowledge precludes strict application.
Whether the extracontractual/ bad-faith claims were properly sanctioned under § 1927	Kalis and Martin pursued meritorious or good-faith claims; sanctions unwarranted.	Extraterritorial claims lacked merit and multiplied proceedings.	District court abused its discretion in awarding § 1927 sanctions; sanctions reversed.

Shaver v. National Title & Abstract Co., 361 S.W.2d 867 (Tex. 1962) (easements are title defects covered unless excluded)
Valdes, 445 S.W.2d 26 (Tex. Civ. App.—Austin 1969) (survey exception coverage of encumbrances not revealed by survey)
McKee, 354 S.W.2d 401 (Tex. Civ. App.—Fort Worth 1962) (encumbrance exception coverage when not shown by survey)
Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663 (Tex. 1987) (contra-insurer rule; ambiguous policy construed in insured's favor)
National Union Fire Ins. Co. of Pittsburgh, Pa. v. Hudson Energy Co., 811 S.W.2d 552 (Tex. 1991) (easements and policy language interplay; supports coverage view when ambiguous)
Am. Sav. & Loan Ass’n v. Lawyers Title Ins. Corp., 793 F.2d 780 (6th Cir. 1986) (liberal construction in favor of insured when ambiguity exists)
Union Bankers Ins. Co. v. Shelton, 889 S.W.2d 278 (Tex. 1994) (bad-faith standard; no reasonable basis for denial required)