Please reference the jacket of your title insurance policy. Most "general" policies do not cover legal bills associated with title disputes like adverse possession. I would have your lawyer give the insurance company a ring regarding actual coverage. My title did not cover it and boy did I pay through the nose in my AP case. "Enhanced" title insurance is not something most people think about when they purchase insurance because most people do not encounter property dispute issues.

The lady can say whatever she wants about claiming that the property is hers. At the end of the day someone will have to file to Quiet Title. As per putting anything on there - I wouldn't. Sometimes what might seem normal might look like an aggressive move later down the road by the court. Also, sorry that you have to deal with a nasty neighbor. People do very strange things when it comes to land...like wanting more than their true share, or coming to reasonable terms.