The Supreme Court of New York, Suffolk County, recently granted a title insurance company’s motion for summary judgment and held that a declaration recorded by a prior property owner limiting the number of houses that could be built on the insured property was a “government regulation” excluded from coverage under the policy. JBGR LLC v. Chicago Title Ins. Co., 2018 WL 6055884 (N.Y. Sup. Ct. Nov. 13, 2018). In the case, a corporation purchased the insured property in 1994 to develop a residential community and golf course. As part of the development, and in exchange for the zoning board’s approval of the golf course, the corporation proposed that it would reduce the number of building lots from 218 to 140. The zoning board agreed and adopted a resolution stating “[t]hat in the event that a golf course is developed as proposed, a covenant be filed limiting the residential development of the property to no more than 140 lots or units[.]” The golf course was developed and this covenant/declaration was recorded in 1997. The corporation eventually sold the property to another entity (“Great Rock”), who then agreed to sell it to a third entity. This third entity assigned its right to purchase to plaintiffs in 2006, and plaintiffs obtained a loan from Great Rock secured by a mortgage on the property. In 2009, plaintiffs learned about the declaration and that they could not build any additional houses on the property. After plaintiffs defaulted on the loan and Great Rock obtained a judgment against them, plaintiffs sued the defendant title insurance company to indemnify plaintiffs for their losses. The parties cross-moved for summary judgment.
The Court granted the title insurance company’s motion. It found that Exclusion 1(a) of the policy expressly excludes from coverage “[a]ny law, ordinance or governmental regulation (including but not limited to building and zoning laws, ordinances, or regulations) . . .” In that vein, it further found that a “[z]oning regulation is not an encumbrance on title to property, nor does it render title unmarketable” and that “[z]oning regulates the manner in which the property can be used and is not an encumbrance on the title.” Based on these findings, the Court held that the declaration was recorded in connection with the town’s site plan approval. “In view of the foregoing, the court finds that the Declaration is not a defect in or lien or encumbrance on title to the Property and that it is a zoning regulation, which falls squarely within Exclusion 1(a) of the Policy.” Thus, the claims against the title insurance company were dismissed.