A property owner learned the hard way that not all title policies are created equal. In Dollinger DeAnza Associates v. Chicago Title Insurance Company, 2011 DJDAR 15079, Dollinger was under contract to sell Parcel 7, one of seven parcels that it owned in Cupertino, Calif., to Peninsula Pacific Group. Peninsula terminated the purchase contract when it discovered the existence of a previously recorded notice of merger (which by chance had been improperly indexed by the county recorder) that purportedly merged Dollinger's seven parcels into a single parcel. Dollinger's title policy failed to disclose the existence of the notice of merger and described the property as comprising seven separate legal parcels. Dollinger tendered a claim under the title policy. When the title company initially denied coverage for the claim, Dollinger sued the title company for losses incurred resulting from the unmarketability of Dollinger's title to Parcel 7.
The court held that the title policy did not cover Dollinger's claim because the notice of merger, whether properly indexed or not, did not impact Dollinger's title to Parcel 7. The notice of merger was not a third person's claim to an interest in Parcel 7; nor did it cast doubt on who owned Parcel 7. The notice of merger created an ambiguity about the number of parcels owned, not who owned the parcels, and therefore did not entitle Dollinger for damages for unmarketability of title.
The court did not affirm or disaffirm the trial court's holding that the notice of merger was void due to improper indexing in the county records. Assuming the notice of merger was enforceable and merged the seven parcels into one, Dollinger's claim would have been covered if the policy contained a Subdivision Map Act Compliance Endorsement (CLTA Form 116.7). The endorsement would have increased the policy premium, but it would have proven a wise investment where the legality of Parcel 7 was critical to Dollinger's plans for the property.
