An owner purchased property consisting of multiple subdivided parcels and obtained title insurance indemnifying the owner against losses caused by any encumbrance on the title to the property, unless listed or controlled by local law. The owner and a buyer entered into an agreement to sell one of the parcels. Before the sale closed, an encumbrance regulated by local subdivision law and not listed as an exclusion in the title policy was discovered. The buyer backed out of the transaction and the owner made a demand on the insurance company to recover his losses, claiming the insurance company’s policy indemnified the owner for lost value since the insurance company’s failure to disclose the encumbrance resulted in the failed sales transaction. The insurance company denied the claim since the encumbrance was recorded under local subdivision law and thus excluded from coverage. A California court of appeals held the title insurance company was not liable under the policy it issued for the owner’s losses since the policy excluded indemnity for losses caused by encumbrances controlled by local law. [Dollinger Deanza Associates v. Chicago Title Insurance Company (2011)_CA4th_]
Editor’s note – The owner also tried to recover money losses from the insurance company for the encumbrance’s negative effect on the marketability of the property. The California court of appeals also held the insurance company was not liable since, while the encumbrance affected the owner’s marketability of the property, it did not affect the owner’s claim to title to the property.