The United States District Court for the Western District of Oklahoma recently held that use restrictions on a property did not render the property unmarketable, but nonetheless may be encumbrances that the title insurance policy at issue insured against.  See Chesapeake Land Dev. Co. LLC v. Chicago Title Ins. Co., 2017 WL 5930295 (W.D. Okla. Nov. 30, 2017).  In the case, the plaintiff insured purchased two lots in 2007.  Before purchasing, plaintiff learned that each lot was burdened with a use restriction:  one limiting its use to church purposes, and the other requiring it be used as a park.  Plaintiff insisted that these restrictions be removed, and the title agent allegedly represented that it would obtain releases that would remove these restrictions at the closing.  Similarly, plaintiff allegedly asked whether the city had an easement encumbering the property, and the title agent again allegedly stated that any easement would be eliminated through a release at the closing.  In 2014, plaintiff attempted to sell the property, but the potential purchaser discovered that the use restrictions still burdened the property.  Although plaintiff submitted a claim to the defendant title insurance company, it alleged that defendant delayed in responding and the potential sale was cancelled.  Around this time, plaintiff also discovered that the city’s easement likely still encumbered the property and had not been released.  Plaintiff then brought this action alleging breach of contract, among other things, and defendant filed a motion to dismiss.

The Court granted the motion in part and denied it in part.  First, it agreed with defendant that the use restrictions did not render the property unmarketable under the title policy.  “The two restrictive covenants at issue may affect the manner in which the parcels can be used and their economic marketability, but they do not necessarily impact title to the property.”  Nonetheless, the Court held that these restrictions were encumbrances on the property that may be covered by the policy and, as such, plaintiff had sufficiently plead a breach of contract claim regarding the restrictions.  Second, the Court held that plaintiff’s breach of contract claim regarding the easement should be dismissed.  Although the Court acknowledged that plaintiff had plead the existence of the easement on the property, it found that plaintiff did not allege that it had been damaged because of this easement.  Plaintiff’s allegation that “it is also unlikely that the City will voluntarily cede its implied easement rights without significant compensation for the same” was insufficient to survive the motion because plaintiff had not suffered any actual loss as a result of the easement.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.