The United States District Court for the Southern District of New York recently dismissed a coverage action brought against a title insurance company and found that that insured’s claims were barred under Exclusion 3(a) because the insured had created them through its agreement with third parties. See 3 W. 16th St., LLC v. Commonwealth Land Title Ins. Co., 2019 WL 1397135 (S.D.N.Y. Mar. 28, 2019). In the case, plaintiff purchased a property in 2006. The defendant title insurance company issued a title insurance policy to plaintiff in connection with the purchase. In 2006, Plaintiff also allegedly entered into an agreement with other parties in which it agreed to donate certain floors of the property to them. In 2008, plaintiff was sued by these other parties who claimed that plaintiff had violated the 2006 agreement and failed to donate the floors to them. Plaintiff filed a claim with defendant, but defendant denied it based on Exclusion 3(a), which excludes “[d]efects, liens, encumbrances, adverse claims or other matters [ ] created, suffered, assumed or agreed to by the insured claimant.” Plaintiff then brought this action seeking coverage, and defendant moved to dismiss.
The Court granted defendant’s motion to dismiss. Although plaintiff acknowledged that Exclusion 3(a) barred any claims arising out of the 2006 agreement, it argued that some of the claims related to the other parties’ “alleged decades-old, pre-2006 equitable ownership interest” in the property, and therefore were not subject to Exclusion 3(a). The Court rejected this argument, finding that the complaint seeks to quiet title solely based on the 2006 agreement, and that the alleged pre-2006 equitable interest “was considered by and subsumed into the 2006 Agreement upon which the Underlying Action’s claims are premised. Indeed, the entire purpose of the 2006 Agreement was to recognize [the other parties’] claimed equitable interest in the Building via a promise by Plaintiff to donate” certain floors of the property. Thus, the Court found that there was no duty to defend and dismissed the action.