PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

HAW RIVER LAND & TIMBER
COMPANY, INCORPORATED; GEORGE W.
RIDDLE,
Plaintiffs-Appellants,
                                                                       No. 97-2549
v.

LAWYERS TITLE INSURANCE
CORPORATION,
Defendant-Appellee.

Appeal from the United States District Court
for the Eastern District of North Carolina, at Raleigh.
Terrence W. Boyle, Chief District Judge.
(CA-96-511-5-BO)

Argued: June 3, 1998

Decided: July 24, 1998

Before NIEMEYER and HAMILTON, Circuit Judges, and FABER,
United States District Judge for the Southern District of West
Virginia, sitting by designation.

_________________________________________________________________

Affirmed by published opinion. Judge Niemeyer wrote the opinion,
in which Judge Faber joined. Judge Hamilton wrote a dissenting opin-
ion.

_________________________________________________________________

COUNSEL

ARGUED: Odes Lawrence Stroupe, Jr., BODE, CALL &
STROUPE, L.L.P., Raleigh, North Carolina, for Appellants. Curtis
James Shipley, MOORE & VAN ALLEN, P.L.L.C., Raleigh, North
Carolina, for Appellee. ON BRIEF: Anthony D. Taibi, BODE,
CALL & STROUPE, L.L.P., Raleigh, North Carolina; Joseph N. Cal-
laway, BATTLE, WINSLOW, SCOTT & WILEY, P.A., Rocky
Mount, North Carolina, for Appellants. David E. Fox, MOORE &
VAN ALLEN, P.L.L.C., Raleigh, North Carolina, for Appellee.

_________________________________________________________________

OPINION

NIEMEYER, Circuit Judge:

After Haw River Land & Timber Company, Inc., and George W.
Riddle (collectively hereafter, "Haw River Timber") purchased the
timber rights to 712 acres of land in Wake County, North Carolina,
it learned that 179 acres lay within an environmental buffer zone cre-
ated by a municipal ordinance which effectively prohibited timbering.
Contending that the ordinance rendered title to the 179 acres of timber
"unmarketable," Haw River Timber sued the title insurance company
which insured against the "unmarketability of title" to the timber
rights. The district court entered summary judgment in favor of the
title company on the ground that the title was marketable and the eco-
nomic value of the timber was irrelevant to the question.

Because the adverse economic impact of a municipal ordinance
does not render title to timber legally unmarketable, we conclude that
the loss sustained by Haw River Timber because of restrictions
imposed by the municipal ordinance is not covered by the title insur-
ance policy. Accordingly, we affirm.

I

On September 13, 1995, Haw River Timber purchased"all the mer-
chantable timber of all kinds and descriptions" standing on 712 acres
of real property in Garner, North Carolina, from R.B. and Ida Mae
Barefoot. The timber deed granted title to the standing timber together
with the right to "pass and repass," at its option, on the underlying
land to cut and remove the timber for a period of three years. Haw
River Timber paid $800,000 for these timber rights.

                    2
In connection with the timber purchase, Haw River Timber pur-
chased title insurance from Lawyers Title Insurance Corporation
which issued a standard form American Land Title Association
(ALTA) policy. The policy insured Haw River Timber's fee simple
title to the merchantable timber for up to $800,000 against loss or
damage suffered by reason of (1) title to timber being vested in
another party; (2) any defect in or lien or encumbrance on the title to
the timber; (3) unmarketability of title to the timber; or (4) lack of a
right of access to the timber. The policy expressly excluded from cov-
erage any loss or damage resulting from an ordinance, zoning law, or
environmental protection legislation regulating the use of land "ex-
cept to the extent that a notice of enforcement thereof or a notice of
a defect, lien or encumbrance resulting from a violation or alleged
violation affecting the land has been recorded in the public records at
Date of Policy."

After Haw River Timber began harvesting timber on a portion of
the 712-acre tract, it was informed by the Town of Garner that some
of the property adjacent to Swift Creek was subject to municipal ordi-
nances passed in 1988, 1989, and 1994 to preserve the vegetation in
that area. The ordinances were enacted in response to a recommenda-
tion of the North Carolina Department of Natural Resources and
Community Development that the Swift Creek watershed be upgraded
for environmental purposes. The Town of Garner's ordinances pre-
serve a buffer zone within an area 500 feet from the center of the
creek or the 100-year flood plain plus 50 feet, effectively prohibiting
timber harvesting within the buffer zone. Of the total 712-acre tract
of which Haw River Timber held the timber rights, 179 acres fell
within the buffer zone. Haw River Timber has valued the timber in
the buffer zone, after cutting and hauling, at $374,769.

In its brief on appeal, Haw River Timber represents that it had a
title search performed prior to closing, which did not reveal the exis-
tence of the conservation ordinances. In addition, it states that the
ordinances were not cross-indexed in the Wake County Register of
Deeds with the sellers or previous land owners in the chain of title.

Faced with a $375,000 loss attributed to the impact of Garner's
municipal ordinances, Haw River Timber made a series of claims
against Lawyers Title under differing theories for a reimbursement of

                    3
the loss. When Lawyers Title denied coverage, Haw River Timber
filed suit in the General Court of Justice in Wake County, North Car-
olina, and Lawyers Title removed the case to federal court under 28
U.S.C. §§ 1441 and 1332.

On cross-motions for summary judgment, the district court entered
judgment in favor of Lawyers Title and against Haw River Timber on
the ground that the municipal ordinance neither constituted an encum-
brance on plaintiffs' title nor otherwise deprived it of marketable legal
title. Central to the court's reasoning was the principle that zoning
ordinances that affect all land generally are not"encumbrances" and
that the use restriction on some of the property did not render title to
the property "unmarketable," since it "in no way tainted title," even
if it "imposed an economic hardship on plaintiffs."

This appeal followed.

II

Haw River Timber contends that the scope of the Lawyers Title
policy, insuring its title to the timber rights on 712 acres, covers the
loss it sustained from the zoning ordinance that prohibits it from cut-
ting and removing the timber to which it had title. It argues that since
it bought only the timber rights and not the underlying property, its
use of the timber was dependent on its right to remove the timber
from the property. It maintains that its title was worthless if it could
not remove the timber; that title to unremovable timber is essentially
no title at all because it could not market, sell, or transfer its title to
timber with the restrictions against timbering imposed by the ordi-
nances.

While this argument has substantial appeal on a practical level, it
fails to recognize any distinction between marketable title and mar-
ketable property and to comprehend the risks insured by the Lawyers
Title policy.

As with any insurance policy, the policy language itself defines the
risks transferred to the insurance company. And risks not explicitly
transferred by the policy are borne by the insured. The form of policy

                     4
used in this case by Lawyers Title was a standard form ALTA policy
which provides that Lawyers Title insured Haw River Timber from
any "loss or damage . . . sustained or incurred by the insured by rea-
son of:

          1. Title to the estate or interest described . . . being vested
          other than as stated therein;

          2. Any defect in or lien or encumbrance on the title;

          3. Unmarketability of the title;

          4. Lack of a right of access to and from the land."

The policy defines the "unmarketability of the title" as "an alleged or
apparent matter affecting the title to the land, not excluded or
excepted from coverage, which would entitle a purchaser of the estate
or interest . . . to be released from the obligation to purchase by virtue
of a contractual condition requiring the delivery of marketable title."

The title insured in this case was evidenced by a"Timber Deed"
to 712 acres granting Haw River Timber free access to the property
and the right to cut and remove all timber for a period of three years.
The grantees warranted that they were "seized of said premises in fee
and have a right to convey timber" described in the deed without
encumbrance. Under North Carolina law, standing timber constitutes
real property, and when it conforms with the formal requirements of
real property deeds, a timber deed conveys a property right to the
grantee, whether the timber is later cut and removed or not. See
Bishop v. DuBose, 

, 312 (N.C. 1960); Winston v. Wil-
liams & McKeithan Lumber Co., 

, 220 (N.C. 1947).
Title to timber which is not removed reverts back to the grantor after
the time specified in the deed for removal. See 

. A timber deed is distinct from a contract to buy "logs on a
stump," which transfers title to timber only after the logs are severed.
See 

. Thus, in this case, the Lawyers Title
policy insured title to standing timber, whether the timber was
removed or not.

                     5
Haw River Timber nevertheless argues that because the Town of
Garner had enacted ordinances which prohibited Haw River Timber
from cutting and removing timber from 179 acres adjacent to Swift
Creek, its title to the timber was "unmarketable." Such an argument
presumes that the inability to cut and remove timber, rendering it val-
ueless to Haw River Timber, is the equivalent of unmarketable title.
This conceptual merger of marketable title with marketable property
does not, however, have support in the law.

Title refers to the legal ownership of a property interest so that one
having title to a property interest can withstand the assertion of others
claiming a right to that ownership. But title to property does not char-
acterize the property itself as valuable, merchantable, or even usable.
See Marriott Fin. Servs., Inc. v. Capitol Funds, Inc., 

,
430 (N.C. Ct. App. 1974), aff'd on other grounds , 

(N.C. 1975). Thus, while title to property may be unassailable, the
property itself may have no value and may even constitute a burden
to its owner. For these reasons, an insurance policy insuring legal title
covers only the right of the owner to assert ownership against others
claiming ownership or an interest in that ownership. And marketable
title is one which is "`free from reasonable doubt in law or fact as to
its validity.'" Burkhead v. Farlow, 

, 805 (N.C. 1966)
(quoting Pack v. Newman, 

, 92 (N.C. 1950)); accord
Black's Law Dictionary, 970-71 (6th ed. 1990).

Our conclusion that the marketability of legal title to property in
North Carolina is unrelated to that property's economic value is but-
tressed by state cases interpreting the North Carolina Marketable Title
Act, which do not inquire into the value of property in order to deter-
mine the legal question of marketability of title. In Beam v. Kerlee,

, 917 (N.C. Ct. App. 1995), the North Carolina Court
of Appeals held that in order to establish title to real property under
the Real Property Marketable Title Act, N.C. Gen. Stat. § 47B-2
(1984), a person must establish:

          (1) That [he], alone or together with his predecessors in title,
          was vested with an estate in real property which had been
          of record for at least 30 years; (2) the public record showed
          a title transaction at least thirty years old which purported
          to vest title in [him] or some other person from whom, by

                     6
          one or more title transactions, the property had passed to
          [him]; and (3) that nothing appeared of record to divest
          [him] of the estate.

Moreover, in an action to quiet title under North Carolina law, sat-
isfaction of the Marketable Title Act is all that is required, and the
issue of whether the real property at issue has value is irrelevant to
establishment of marketable title. See, e.g., Chappell v. Donnelly, 

, 805 (N.C. Ct. App. 1994); see also James M. Pedowitz,
What Title Insurance Does Not Cover, 416 PLI/Real 133, 135-37
(1996) (standard ALTA title insurance policies do not insure "the
value of the property -- or that it has any value at all").

While it is true that the Town of Garner's zoning ordinances have
effectively frustrated Haw River Timber's expectation of timbering
179 of the 712 acres granted under the timber deed, thereby substan-
tially reducing the economic value of the interest purchased, Haw
River Timber raises no issue about whether it received legal title to
the timber from the grantors. And the Lawyers Title policy insuring
marketable title under the timber deed only guarantees Haw River
Timber a title that could be enforced in a suit for specific perfor-
mance, not the economic value of the timber purchased. Indeed, the
explicit definition of marketable title provided in the policy limits any
more expansive notion by insuring against only those title defects that
would entitle a purchaser "to be released from the obligation to pur-
chase by virtue of a contractual condition requiring the delivery of
marketable title." The ordinances on which Haw River relies as a title
defect do not impair the grantor's ability to convey a timber deed.
Thus, we find fitting what the North Carolina Court of Appeals
observed in an analogous context:

          [W]e find nothing in the Ordinance or in the enabling legis-
          lation under which it was enacted which expressly or by
          necessary implication renders any contract, deed, or other
          instrument either void or voidable. To work so drastic an
          effect upon land titles requires a clearer expression of legis-
          lative intent than can be found in the statutes or Ordinance.

. It is similarly so with Garner's ordi-
nances.

                     7
III

Should any doubt remain about whether an ALTA standard form
title policy insures against economic loss occasioned by a town ordi-
nance, that doubt is put to rest by an applicable policy exclusion
which excludes coverage for any loss or damage arising by reason of:

          Any law, ordinance, or governmental regulation (including
          but not limited to building and zoning laws, ordinances or
          regulations) restricting, regulating, prohibiting, or relating to
          (i) the occupancy, use, or enjoyment of land; . . . or (iv)
          environmental protection, or the effect of any violation of
          these laws, ordinances or governmental regulations, except
          to the extent that a notice of enforcement thereof or a notice
          of a defect, lien or encumbrance resulting from a violation
          or alleged violation affecting the land has been recorded in
          the public records at Date of Policy.

The ordinances enacted by the Town of Garner during the period
from 1988 through 1994 establish an environmental buffer zone con-
sisting of 500 feet on either side of Swift Creek, in which vegetation
is preserved. They effectively prohibit Haw River Timber from cut-
ting and removing its timber from this zone. Haw River Timber con-
cedes that these ordinances fall within the language of the policy
exclusion and that any loss occasioned by them is excluded from cov-
erage of the policy unless coverage for the loss is provided by the last
clause of exclusion -- an exception to the exclusion -- providing
coverage for a loss caused by an ordinance "to the extent that a notice
of enforcement thereof or a notice of a defect, lien or encumbrance
resulting from a violation . . . has been recorded in the public
records." Haw River Timber argues that in this case the exception has
been met because the Town of Garner ordinances were"recorded at
the local register of deeds office" in minute books and that "the
recording of the Ordinances is `notice of enforcement'" as would be
covered by the policy.

Thus, the language of the policy's exclusion concededly denies
coverage for the adverse economic impact caused by any ordinance
or environmental protection enactment unless (1) a"notice of enforce-
ment" of the ordinance or a "notice of [an] encumbrance resulting

                    8
from a violation" has been issued and (2) such a notice has been "re-
corded in the public records." The policy defines public records to
mean "records established under state statutes at Date of Policy for
the purpose of imparting constructive notice of matters relating to real
property to purchasers for value and without knowledge." In short, the
adverse impact of ordinances is excluded from the scope of a standard
ALTA title policy unless a notice of enforcement or of a violation is
recorded in records established to put purchasers of real property on
constructive notice of matters about the property. Stated otherwise,
the risk transferred to the insurance company by the policy is the risk
of not conducting an adequate title search among the records estab-
lished by the state for searching titles to real property.

North Carolina law requires that the county commissioners of each
county "provide for the register of deeds" in a "book, to be called
Registration of Titles." See N.C. Gen. Stat. § 43-13. Since convey-
ances of land, contracts and options to convey land, leases over three
years, and mortgages and deeds of trusts are required to be recorded
in the Registration of Titles book in order to be effective against lien
creditors or purchasers for value, see N.C. Gen. Stat. §§ 47-18, 47-20,
the book establishes a chain of title on which purchasers can rely. See
Hensley v. Ramsey, 

, 10 (N.C. 1973) (purchaser charged
with notice of all facts disclosed by an examination of the chain of
title); see also Chrysler Credit Corp. v. Burton , 

,
1318 & n.9 (M.D.N.C. 1984) ("[P]ublic record concerning the status
of land titles" is established by recording in the Registration of Titles
as required by North Carolina General Statutes §§ 47-18 & 47-20).
Moreover, the North Carolina courts have clarified that the purpose
of these North Carolina recording provisions is to establish a "single
reliable means for purchasers to determine the state of the title to real
estate," and to impute constructive notice only of "all duly recorded
documents that a proper examination of the title would reveal." See
Stegall v. Robinson, 

, 804 (N.C. Ct. App. 1986).

While the Registration of Titles book constitutes the "sole and con-
clusive legal evidence of title," N.C. Gen. Stat.§ 43-22, liens, encum-
brances, and other matters affecting specific parcels of real property
may be recorded against the property in accordance with state statute
and thereby put purchasers of that property on constructive notice also
about them. For example, North Carolina provides for a "Record of

                     9
Lis Pendens," see N.C. Gen. Stat. § 1-117; a "judgment docket" or
book, see N.C. Gen. Stat. §§ 1-234 through 1-237, 1-208.1, 43-45;
and a "Book of Wills," see N.C. Gen. Stat. § 31-20.

Thus, in order to be contained in the "public records," as used in
the ALTA title policy, a notice of enforcement or of an encumbrance
would have to be recorded in one of these public records designed to
put purchasers of real property on constructive notice about matters
affecting title to the property which they are purchasing.

This interpretation of the title insurance policy language is consis-
tent with the principles of marketable title discussed above. Since the
purpose of title insurance is to insure that there are no defects in the
legal title to the real property interests being insured, the adverse
impact of zoning ordinances and regulations would be covered only
if they somehow affected title to specific property as it appeared in
state established records putting persons on legal notice about matters
affecting that property. Thus, in North Carolina as elsewhere, zoning
or environmental laws of general application, which are not recorded
against specific parcels of property, are generally excluded from
standard-form ALTA title insurance policies. See 

; see also Pedowitz, supra , 416 PLI/Real at 142-44
(agreeing with this interpretation of Marriott ).

We now turn to determine (1) whether a notice of enforcement or
notice of violation of the Town of Garner's ordinances ever issued,
and (2) whether the notices were recorded in public records estab-
lished by North Carolina for the purpose of imparting constructive
notice of matters relating to real property to purchasers of such prop-
erty for value and without knowledge.

First, there is no evidence that any enforcement proceeding was
ever initiated or "notice" given to enforce the buffer zone established
by Garner's ordinances. Nor is there any indication that a notice of a
violation of that buffer zone was ever issued. This is not surprising
because until Haw River Timber was granted the timber deed, no one
had apparently attempted to harvest the timber on the 179 acres adja-
cent to Swift Creek.

Second, there is no evidence that any notice of an enforcement
action or a violation of an ordinance was recorded in the Record of

                    10
Lis Pendens, the judgment docket, or the Registration of Titles book
maintained in Wake County where the property was located. Indeed,
there is no evidence that the ordinances themselves were ever so
recorded. While the ordinances may have been on file in minute
books maintained in the office of the register of deeds, this does not
satisfy the requirements of North Carolina statutes adopted to put pur-
chasers on constructive notice about matters affecting the real prop-
erty that they are purchasing. Were we to hold, contrary to the
language of the title policy in question, that the inclusion of the town
ordinances of general application maintained in minute books located
in the office of the register of deeds would have the same effect as
matters recorded against specific property, we would frustrate not
only the intent of the title insurance policy but also North Carolina
policy that purchasers have a "reliable means for purchasers to deter-
mine the state of the title to real estate." 

;
see also Chrysler 

.

For the reasons given, the judgment of the district court is

AFFIRMED.

HAMILTON, Circuit Judge, dissenting:

The majority rejects Haw River's claim seeking title insurance cov-
erage on two alternative theories. First, the majority concludes that
Haw River's title to the 179 acres of land lying within the environ-
mental buffer zone is not "unmarketable" and, therefore, the ALTA
policy's coverage provision for "unmarketability of the title" does not
apply. See ante at 4-7. Second, the majority concludes that even if
Haw River's title to the timber is unmarketable, the exception to the
zoning ordinance exclusion does not apply and, therefore, the ALTA
policy provides no coverage for the loss. See ante at 8-11. In my
view, both of these conclusions rest on unpersuasive reasoning. The
former conclusion is inconsistent with the North Carolina Supreme
Court's decision in Marriott Financial Serv. v. Capitol Funds, Inc.,

(N.C. 1975). The latter conclusion is inconsistent with
the North Carolina rule that if an insurance contract term is capable
of one or more interpretations, the one most favorable to the insured
applies. Because I believe Haw River suffered a loss covered by the

                    11
ALTA policy and that the exception to the zoning ordinance exclu-
sion does apply, I respectfully dissent.

I

In Marriott, the plaintiff purchased land near a bridge in a heavily
traveled area of Raleigh, North Carolina. 

Because of the
high traffic flow, the Raleigh City Council adopted a policy to deny
all driveway permit applications within 200 feet of the bridge. 

was not embodied in an ordinance and therefore was not
recorded at the county courthouse. When the plaintiff subsequently
sought to subdivide the tract, which required separate driveways for
each new lot, the permit request was denied because of the Raleigh
City Council's policy. 

Marriott brought suit against the title
insurance carrier contending that the loss in the value of the property
caused by the government-created restriction on access was a covered
risk under the title insurance policy issued to the plaintiff. The policy
issued to the plaintiff insured against, among other things, losses due
to "the lack of a right of access to and from land." 

The North Carolina Court of Appeals held that the policy provi-
sions insuring against the lack of access applied only when the land-
owner had no right of access to and from the land. 

According to the North Carolina Court of Appeals, even pedestrian
access to the property was sufficient to preclude coverage under the
title insurance policy. 

the North Carolina Supreme Court rejected the North
Carolina Court of Appeals' view that the presence of pedestrian
access was sufficient to preclude coverage. 

North Car-
olina Supreme Court adopted a reasonable insured approach. The
North Carolina Supreme Court held "that when an insurer contracts
to insure against lack of access to property, it must be deemed to have
insured against the absence of access which, given the nature and
location of the property, is reasonable access under the circum-
stances." 

reasonable insured approach, the North Carolina
Supreme Court found coverage. 

this conclusion, the
North Carolina Supreme Court stated that "it would strain credulity

                     12
beyond reasonable limits to hold that the parties to this [insurance]
contract understood that the insurance as to access could be satisfied
by pedestrian access." 

Carolina Supreme Court rea-
soned that the "insured must have contemplated insurance protection
against lack of vehicular access." 

us to ask, given the circumstances surrounding
the insurance contract at issue, whether Haw River contemplated that
the "unmarketability of the title" provision would cover losses arising
from a zoning ordinance filed in the Register of Deeds Office which
rendered the timber economically unmarketable. If we answer this
question in the affirmative then coverage attaches.

In this case, an insured in the same position as Haw River would
have understood the ALTA policy to cover losses due to a zoning
ordinance filed in the Register of Deeds Office that rendered the tim-
ber economically unmarketable. People acquire title to timber to mar-
ket the harvested timber. Such is the nature of a timber deed. A timber
deed holder cannot build on the property or otherwise use it in a rec-
reational sense. In essence, the insured enjoys no use or enjoyment of
the timber other than the ability to market it. Because the sole purpose
behind the acquisition of a timber deed is to harvest and sell the tim-
ber, it follows that a reasonable insured would understand "unmar-
ketability of the title" as insuring against the risk of loss due to the
existence of a recorded local ordinance which rendered the timber
economically unmarketable.

II

The ALTA policy contains a general exclusion for, inter alia, zon-
ing ordinances relating to environmental protection. There is, how-
ever, an exception to the zoning ordinance exclusion. The exception
applies when "notice of the enforcement [of the ordinance] . . . has
been recorded in the public records." Although the term "notice of
enforcement" is not defined in the ALTA policy, the term "public
records" is defined. That term is defined as"records established under
state statutes . . . for the purpose of imparting constructive notice of
matters relating to real property to purchasers for value and without
knowledge." In this case, the public records is the Register of Deeds
of Wake County.

                     13
The majority concludes that the exclusion applies, but the excep-
tion does not. Although I agree the exclusion applies, as the ordi-
nances at issue are zoning ordinances relating to environmental
protection, the exception to the exclusion applies as well. In this case,
the provision "notice of enforcement" is ambiguous. The term could
be construed as applying when a violation of an ordinance is recorded
in the public records. Alternatively, the term could be construed as
applying when the ordinance is recorded in the public records.

Under North Carolina law, if an insurance contract term is capable
of one or more interpretations, the one most favorable to the insured
applies. See Mills v. State Life & Health Ins. Co., 

, 590
(N.C. 1964). Here, the interpretation most favorable to the insured is
that the notice of enforcement provision applies when the zoning ordi-
nance is recorded in the public records. It follows that because the
zoning ordinances at issue were filed in the Register of Deeds of
Wake County on the date the policy was issued to Haw River, the
exception to the exclusion applies.

III

In summary, Haw River suffered a loss covered by the ALTA pol-
icy and the exception to the zoning ordinance exclusion applies.
Therefore, I respectfully dissent.

                     14