610 F.Supp.3d 621
S.D.N.Y.2022Background
- Plaintiffs bought 82 Second Avenue, NYC, in November 2015; First American issued an owner’s title insurance policy in connection with the purchase.
- The NYC Landmarks Preservation Commission designated the Property as part of a historic district on October 9, 2012, but Plaintiffs were unaware of that designation when they bought the Property.
- Plaintiffs received LPC stop‑work/warning letters in October 2017 after trying to make improvements and submitted a claim to First American on October 12, 2017; the insurer denied coverage in December 2017 and February 2018.
- The Policy identifies Covered Risk 2 (defect, lien, or encumbrance on title) and Covered Risk 5 (loss from enforcement of law/regulation, but only if a notice is recorded in the Public Records) as potentially relevant; the Policy also contains Exclusion 1(a) excluding loss from laws/ordinances/regulations affecting use or enjoyment.
- “Public Records” in the Policy is limited to state recording‑statute records (here, NYC ACRIS). ACRIS shows the landmark designation was not recorded until August 19, 2020—after the 2015 policy date.
- The Title Report’s Certificate of Title terminated upon issuance of the Policy; under New York law the certificate merged into the policy, limiting post‑policy claims to the policy terms.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an LPC landmark designation is a "defect, lien, or encumbrance" under Covered Risk 2 | Landmark status affects title and value, so it is a defect/encumbrance covered by §2 | Landmark designation is a regulatory restriction on use, not a title impairment; §2 covers traditional title defects only | Held for Defendant: landmark status is a regulatory restriction and not a title defect/encumbrance under Covered Risk 2 |
| Whether an unrecorded landmark designation triggers Covered Risk 5 (enforcement of law recorded in Public Records) | Covered Risk 5 covers governmental restrictions on use generally, so Plaintiffs are covered even if designation wasn’t recorded in chain of title | §5 requires a recorded notice in the Public Records (ACRIS); designation was unrecorded as of policy date, so §5 is not triggered | Held for Defendant: §5 applies only where a notice is recorded in Public Records; no record existed at policy date, so no coverage under §5 |
| Whether Exclusion 1(a) bars coverage for losses from governmental regulations like landmark designations | The loss is from a title defect (so exclusion inapplicable) | Exclusion 1(a) expressly excludes losses from laws/ordinances/regulations restricting use; unrecorded regulatory restrictions fall outside coverage | Held for Defendant: Exclusion 1(a) excludes losses from governmental regulation; even if regarded as affecting title, Exclusion 1(a) bars coverage |
| Whether Plaintiffs can state a negligence claim for an allegedly defective title search / failure to disclose designation | First American negligently failed to discover/disclose the landmark designation in the Title Report and Policy | Negligence claims for title searches cannot be pursued under the policy; the Certificate of Title merged into the Policy, foreclosing tort claims based on the search | Held for Defendant: negligence claim dismissed—title‑search negligence not actionable under the policy and the certificate merged into the policy |
Key Cases Cited
- Voorheesville Rod & Gun Club v. E.W. Tompkins Co., 82 N.Y.2d 564 (N.Y. 1993) (zoning/regulatory restrictions affect use/value but do not impair marketability of title)
- L. Smirlock Realty Corp. v. Title Guar. Co., 52 N.Y.2d 179 (N.Y. 1981) (title insurer indemnifies insured for loss occasioned by defect in title)
- Trenton Potteries Co. v. Title Guarantee & Trust Co., 176 N.Y. 65 (N.Y. 1903) (purpose of title insurance is to indemnify against losses from defects, liens, or encumbrances)
- Albert J. Schiff Assocs., Inc. v. Flack, 51 N.Y.2d 692 (N.Y. 1980) (scope of coverage defined by insuring clauses balanced against exclusions)
- Citibank, N.A. v. Chicago Title Ins. Co., 632 N.Y.S.2d 779 (N.Y. App. Div. 1995) (negligence in title search not actionable under title insurance policy once certificate merges into policy)
- Wolf v. Commonwealth Land Title Ins. Co., 690 N.Y.S.2d 880 (N.Y. App. Div. 1999) (losses from zoning regulation are not within title insurance coverage)