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Texas Department of Insurance Makes It Plain: Title Insurers Must Include Coverage of Mineral Estates

April 22, 2008

The Texas Department of Insurance has issued a bulletin reminding title insurers and agents in the state of Texas that title insurance policies must cover the mineral estate as well as the surface estate of a property, unless there is clear documentation that the mineral rights have been severed from the remaining property.  The clarification from the Department comes as a direct result of the recent, increasingly frequent practice of excluding the mineral estate from title insurance policies even when the mineral estate is conveyed in the purchase contract.

Much of the privately held property in Texas sits atop mineral-rich reserves.  This is particularly true in North Texas, where large deposits of natural gas (including the Barnett Shale formation) have begun to be exploited.

The value of most mineral estates in Texas has likewise grown exponentially, as has the risk to title insurers if it is discovered that a buyer does not, in fact, own the title to the mineral estate included in the insured property.  In response, rather than increasing their efforts to determine ownership of mineral estates with greater accuracy, some title insurers have begun to write blanket exceptions to coverage of mineral estates in their title insurance policies.

With its recent bulletin, the Texas Department of Insurance has clarified its position that those practices are prohibited.  Therefore, real estate purchasers and lenders should be aware that title insurance policies must include coverage of the mineral estate where it is a part of the real property being conveyed unless there is clear documentation, in the form of a recorded instrument, that demonstrates that the mineral estate has been severed from the surface estate.