From the December, 2001 issue of The Title Insurance Law Newsletter:
A California court says that the insured gets a trial on its claim that it lost a buyer because title was unmarketable. The title defect was a street the city claimed to own, but which the insured deeded over in order to get a zoning variance. The trial judge had ruled as a matter of law that title was marketable.
A partnership billing itself The Redwood Group bought two acres in Concord, California. They held escrow open until they had tentative approval for a six-lot subdivision. Ticor Title issued an ALTA Residential policy on close of escrow.
Eleven days after escrow closed, Redwood submitted a claim, saying that their north property line was disputed. Ticor investigated and reported that there was no problem with that line. Redwood withdrew the claim.
Redwood allegedly later learned that their south line had a problem, because Treat Boulevard, which the court called a busy street, was 20 feet inside the boundary. Redwood did not submit a claim, however. Instead, it immediately contracted to sell the property to S & H Properties.
Redwood and S & H jointly applied for a zoning variance allowing substandard-sized lots. The city approved the variance, on the condition that Redwood deed over the 20 feet of Treat Boulevard and put up a fence. However, [f]or reasons not clearly reflected in the record, S & H pulled out of the deal. Redwood got the subdivision approved and continued to hold the property.
Redwood sued Ticor, but dismissed the suit under a stipulation in which Ticor waived the statute of limitations, in part because Redwood had failed to submit a claim before suing. Redwood then submitted a claim on the street issue, which Ticor denied. Redwood sued again, saying that its title was unmarketable and that Ticor had denied its claim in bad faith.
Redwoods claimed damages of $658,550 consisted mostly of lost development profit, apparently. The trial court refused to admit evidence of any loss other than diminution in value. It then ruled as a matter of law that, given the absence of any title in the City of Concord to the 20-foot strip, title was marketable and there was no coverage under the policy.
Redwood appealed. The appeals court said that the jury should decide whether or not title was marketable. It rejected Ticor's analogy to two cases that distinguished between physical conditions affecting salability of property and encumbrances that make title unmarketable. Hocking v. Title Ins. & Trust Co., 37 Cal.2d 644, 649 650, 234 P.2d 625 (1951); and Lick Mill Creek Apartments v. Chicago Title Ins. Co., 231 Cal.App.3d 1654, 283 Cal.Rptr. 231 (1991).
The Treat Boulevard encroachment represented both a physical condition and possible interest in plaintiffs' property. To the extent it was a road that crossed a portion of plaintiffs' property, it might have affected the market value of the property. But it also had the potential to affect plaintiffs' ownership or title to a portion of the property. The court distinguished Lick Mill because the issue in that case was a hazardous substance on the property, but "no allegation of a possible third-party claim to an interest in the plaintiffs' property."
The trial court had also accepted Ticor's argument that the parties in possession exception applied because, it said, there was no evidence in the public records of the city's claim to own the road. It relied principally on Native Sun Investment Group v. Ticor Title Ins. Co., 189 Cal.App.3d 1265, 1275, 235 Cal.Rptr. 34 (1987), which said the exception applied to the state's claim to own the ocean shore. The appeals court admitted that this may be a valid defense, but was not good enough for summary judgment. It said:
Native Sun
might be instructive once the underlying factual issues are resolved in this case.
That policy, as does the policy in the instant case, excepted easements, liens or encumbrances not shown by public records from coverage.
The appellate court affirmed the trial court's finding that the only claims to the property asserted by the state with merit were excluded Gion Dietz [shore ownership] claims.
Any other claims had no merit and did not affect the marketability of title.
TICOR has not shown, factually or legally, that a claim by the City of Concord to an interest in plaintiffs' property would have had no merit. Of course there are certain exceptions and exclusions in the policy that may apply unless the Treat Boulevard encroachment was reflected in the public records. Plaintiffs had an expert witness who opined the encroachment was reflected in the public records. TICOR stated it had an expert who would testify to the contrary. A jury will need to resolve the question.
Mellinger v. Ticor Title Ins. Co., 113 Cal.Rptr.2d 357 (1 Dist., Div. 4 2001).
