Utah Appellate Court Holds Use Restrictions Did Not Render Title Unmarketable, but Reduction in Lot Size Would Be Covered Under Title Insurance Policy

A Utah appellate court recently held that use restrictions on an insured property did not render it unmarketable under the title insurance policy, but that damages caused because one of the insured lots overlapped with neighboring parcel would be covered.  See Lauritzen v. First Am. Title Ins. Co., 2018 WL 1663285 (Utah Ct. App. Apr. 5, 2018).  There, the insured owner purchased five lots and obtained a title insurance policy.  The deed did not include a metes and bounds description, and instead described the lots only as “Lot 54, 64, 76, 77 & 80, Sunset Ridge Phase 3,  according to the official plat thereof recorded in the office of the Washington County Recorder.”  The next year, the insured owner discovered that the plat had been rejected because one of the lots overlapped with a neighboring parcel.  The insured informed the title insurance company, and eventually a solution was reached whereby the overlapping lot was made smaller.  The solution also included new restrictions on construction on the lots.  The insured then made a claim with the title insurance company and, after the title insurance company denied the claim, the insured brought this action.  Among other things, the insured argued that the new construction restrictions depressed the value of the lots and that title was unmarketable.  The trial court granted the title insurance company’s motion for summary judgment.

On appeal, the Court affirmed in part and reversed in part.  First, the Court affirmed that the defects in the original plat did not render title unmarketable, with the exception of the overlapping lot.  “These issues are classic ‘economic marketability’ issues that do not come within the definition of the phrase ‘unmarketability of the title’ of the Lots. Because there are no true ‘title’ issues raised here (other than the overlap issue), it is irrelevant whether or not [the insured] would have purchased the Lots had he known about potential restrictions on development.”  Second, the Court held that the title insurance company was not entitled to summary judgment on its affirmative defenses, including its defense that the insured’s claim was not timely.  “[I]t is undisputed that [the insured] contacted one of [the title insurance company’s] insurance agents regarding the problems with the Original Plat shortly after learning of the problems himself, . . . it is undisputed that [the insured] asked to obtain a copy of the Policy, asked [the] agent what was ‘going on’ with respect to the problems with the Original Plat, and received an assurance from [the] agent in a personal meeting that the problem with the plat would be taken care of.”  Finally, the Court held that the insured should be allowed to provide evidence of his damages caused by the reduction in size of the overlapping lot.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Michael Crowley at mcrowley@riker.com, or Dylan Goetsch at dgoetsch@riker.com.