Introduction

In a recent case from the Supreme Court of Missouri, the Court addressed whether a title company’s actual knowledge of an existing lawsuit against buyers of real property  (“Buyers”) could defeat the plain language of Covered Risk 5 and Exclusion 1(a) of the standard ALTA title insurance policy (the “Policy”) that otherwise would have precluded coverage of the defense of a lawsuit. Sachtleben v. Alliant Nat’l Title Ins. Co., 687 S.W.3d 624 (2024). The Court ultimately relied on the Policy’s plain language to reject the Buyers’ various arguments and affirm the lower court’s grant of summary judgment in the title company’s favor.

Background

On September 28, 2016, the Buyers purchased approximately 20 acres of land in the city of New Melle, Missouri. The land was largely unimproved, except for a barn. On August 29, 2016, prior to the sale of the property, New Melle sued the sellers of the property (“Sellers”) to enjoin the Sellers from using the barn for any other purpose other than a single family residence as that was all the applicable zoning code allowed for. In October 2016, New Melle added the Buyers as defendants based on their new ownership of the property.

Before closing, Buyers engaged a title agent, Investors Title Company (“ITC”), to obtain a title insurance policy from Alliant National Title Insurance Co. (“Alliant”). ITC prepared a title commitment for Alliant which identified the aforementioned law suit as a potential “special exception” from coverage. However, when Alliant ultimately issued the insurance policy to Buyers, the policy did not identify or otherwise reference the New Melle lawsuit.

Buyers alleged that they were not provided a copy of the title commitment, nor were they otherwise informed of the New Melle lawsuit by ITC, Alliant, or the Sellers. Indeed, Buyers asserted that they only discovered the existence of the suit when they were added as defendants. Buyers demanded that Alliant provide coverage for the New Melle zoning case, but Alliant denied coverage as the Policy only covered zoning violations if they were recorded in the Public Records under the plain meaning of Exclusion 1(a) and Covered Risk 5, and the lawsuit was not. Exclusion 1(a) of the Policy excluded coverage for zoning violations unless addressed in Covered Risk 5, which provided coverage if the violation was recorded in the aforementioned Public Records. The Public Records in the Policy were defined as “Records established under state statutes at the Date of the Policy for the purposes of imparting constructive notice of matters relating to real property to purchasers for value without Knowledge [defined policy term to mean actual knowledge].”

On March 25, 2021, the Missouri circuit court entered judgment in New Melle’s favor in that case.

On May 13, 2021, Buyers sued Alliant, ITC, and others. With respect to Alliant, Buyers alleged that it breached the insurance policy by refusing to defend against the New Melle lawsuit. Alliant successfully moved for summary judgment, asserting that no provision of the policy provided coverage to the Buyers. Buyers appealed.

Appeal

On appeal, the Buyers argued that Alliant should have provided defense of the New Melle case because it had actual knowledge of the lawsuit from the title commitment, and the lawsuit constituted a public notice of a violation of a city ordinance concerning use and enjoyment of the land, which was covered by the policy. The Buyers asserted that to find no coverage would create an “absurd loophole” that allowed for the title company to decline coverage for an issue it was aware of simply because the notice of the issue had not been properly recorded with a recorder of deeds.

The Missouri Supreme Court rejected the Buyers’ arguments, and stated that it was bound to enforce the Policy as it was written. In that regard, Covered Risk 5 of the Policy provided for coverage for zoning violations only “if a notice, describing any part of the Land, is recorded in the Public Records setting forth the violation or intention to enforce, but only to the extent of the violation or enforcement referred to in that notice.” In other words, the policy provided that recorded notice was required for coverage. However, it was undisputed that county land records contained no document describing the property nor identifying that any ordinance violation existed. Therefore, the Court found that the specific provision did not provide for coverage of the New Melle lawsuit.

In doing so, the Court similarly rejected the Buyers’ argument that the policy’s definition of “Public Records” was ambiguous and that “Public Records” must include court records. Once again relying on the plain language of the policy, the Court held that the policy’s definition of “Public Records” limited it to those records established by statute to impart constructive notice to purchasers of real property, and therefore excluded court records.

Finally, the Court rejected Buyers’ remaining arguments for coverage under Covered Risks 2 and 3 relating to defects in title and marketability based on Exclusion 1(a).  That exclusion provides that:

The following matters are expressly excluded from coverage of this policy . . . (a) any law, ordinance, permit, or governmental regulation (including those related to buildings and zoning) restricting, regulating, prohibiting, or relating to

• The occupancy, use, and enjoyment of the Land;
• The character, dimensions, or location of any improvement erected on the Land;
• The subdivision of land;
• Environmental protection.

Thus, the Court held that the Policy was unambiguous and the plain meaning of Exclusion 1(a) and Covered Risk 5 controlled despite the title insurer’s actual knowledge of the lawsuit.

Takeaway

This case reinforces the well-established maxim of contract interpretation that the language of a clear and unambiguous insurance policy will be afforded its plain meaning with particular regard to the critical provisions of coverage for zoning violations in the standard title policy: Covered Risk 5 and Exclusion 1(a). Insureds, who want more coverage for zoning issues, would be well advised to consider the zoning endorsement offered by underwriters.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Matthews Florez at mflorez@riker.com, or Kori Pruett at kpruett@riker.com.