from the September, 2001 issue of The Title Insurance Law Newsletter
A Minnesota court has held that a title insurance policy covering dockominium slip units "unambiguously excludes coverage" for the state's claim of public trust ownership of the lake bed, and therefore there also was no duty to defend the insured.
Facts
R.W. Docks & Slips, a partnership, bought land on Lake Superior in Wisconsin in 1968. It got a dredging permit from the state and, a year later, permits for a breakwater and harbor. Docks then built a 201-slip marina.
In 1977, Docks converted the marina to condominium ownership. The condominium declaration included the existing 201 slips and 71 additional slips that Docks hoped to get permission to build.
Docks sold the 201 existing slips. It got a master title insurance policy from Chicago Title, which was reduced with each unit sale. Afte the last unit was sold, the master policy amount stood at $1,000.
Docks asked the state for a dredging permit for the area in which it intended to put the additional 71 slips, but was denied because of environmental concerns. Docks pursued a series of administrative appeals.
In 1995, while in the midst of its appeal of the permit denial, Docks tendered the "defense" of its appeal to Chicago Title. Its basis for tendering was the DNR's statement that it might oppose the permit because it would foster the declaration of the additional slips under a condomium regime. The DNR said it might oppose the condominium because ownership of "a cube of water and air over the bed of Lake Superior is a violation of the public trust doctrine and the conveying entity does not have an interest" in the slips.
The insurer denied the tender on several grounds. First, it noted that the public trust issue had not been raised in any pleading to date. Second, it pointed out that Docks was asking that the company prosecute rather than defend the action filed by the insured. Third, it raised two exceptions in Schedule B:
"Rights of the public in any submerged portions of the subject premises lying below the ordinary high-water mark of Lake Superior.
"Public rights of the United States, … Wisconsin, or any of their agencies … to any portion of the subject premises, constituting the bed or the waters of Lake Superior or the banks, shores or dock lines, wharves, piers, protection walls, bulkheads or other structures …"
It also cited the governmental regulation exclusion. Finally, the insurer tendered to the insured the remaining $1,000 of policy coverage and asserted that its duty to defend, if any, was extinguished by payment of policy limits.
Docks did not contest the 1995 denial. It continued with its appeal and lost. In 1999, it brought a takings lawsuit against the state. Eventually, the Wisconsin Supreme Court ruled that there had not been a taking because Docks still had the benefit of substantially all of its property.
Docks tendered the prosecution of its takings lawsuit to Chicago Title. A short time later, it sued Chicago Title in Hennepin County District Court for defense duty and losses for a claimed defect in title. It sought about $167,000 in attorney fees and $2 million in lost development profit. The trial court gave Chicago Title summary judgment and Docks appealed.
The appeals court affirmed. It applied Wisconsin law on the duty to defend. That state says an insurer must defend its insured if a complaint alleges facts which, if proven, would be covered by the policy.
Policy "Could Not" Insure Bed of Lake
The court found that the policy did not insure "Docks's title in or use of Lake Superior's bed against Wisconsin's right to regulate" because the state's rights were excepted in Schedule B. It also ruled that the policy did not claim to assure that Docks owned the bed of Lake Superior.
"Further, Chicago Title could not have warranted that Docks owned title to Lake Superior's bed because Wisconsin law does not allow private citizens to own any part of Lake Superior's bed. Under its public trust doctrine, the state holds the beds of navigable waters, including Lake Superior, in trust for all of its citizens."
Because there was no coverage on the issue, there could be no duty to "defend."
"At oral argument, Docks conceded that if it has title to the 71 condominiums, the exclusion applies. Docks argued that Chicago Title nonetheless has a duty to "defend" the perceived challenges to title before it can rely on the exclusions. We disagree. Even if we disregard the requirement in Wisconsin law that the duty to defend can only be triggered by allegations in a complaint, not a defendant's answer to a complaint, and accept the rather dubious assertion that the State of Wisconsin and WDNR's answer challenged title to the condominiums, Chicago Title is entitled to rely on the unambiguous exclusion in the policy to deny coverage. When there is no coverage, there is no duty to defend."
Finally, the court found that the DNR did not attack title to the slip units, which were cubes of air and water above the lake bed.
"[N]othing in the record of the actions against the state and WDNR evidences a challenge to Docks's title to the cubicles of air over the waters of Lake Superior that constitute the undeveloped condominium units insured by Chicago Title and that there is no coverage under the policy for Docks's inability to dredge the bay and develop sailboat slips, a right Docks concedes has always been subject to the state's consent."
The court noted that, after oral argument on the appeal in this case, the Wisconsin Supreme Court affirmed the appeals court in the takings case, and stated that Docks does not have the right to put boat slips on the bed of Lake Superior. 628 N.W.2d 781, 2001 WL 722122 (June 28, 2001).
R.W. Docks & Slips v. Chicago Title Ins. Co., 2001 WL 856431 (Minn.App.) (unpublished).
