The Supreme Court of the State of New York, New York County recently granted a title insurance company’s motion to dismiss its policy-issuing agent’s counterclaim, finding that the title insurer had no obligation to inform the agent of a title claim arising from a policy the agent issued, nor did the insurer have to seek the agent’s consent before settling.  See Fidelity National Title Insurance Co. v. Rockwell Abstract, et al., 652588-2021 (N.Y. Sup. Ct. Sept. 1, 2021).  In 2006, the non-party property owner (“Ada”) executed a mortgage on her property.  The lender obtained a title insurance policy underwritten by plaintiff and that was issued by defendant, plaintiff’s policy-issuing agent.  In 2015, the children of Ada’s deceased husband, who had passed away in 2001, brought a lawsuit claiming they were 50% owners of the property and that Ada did not have the right to mortgage the property in 2006.  The lender submitted a claim to plaintiff, who eventually settled the case.  Plaintiff then brought this indemnification action against defendant, claiming defendant failed to properly identify the children’s interest in the property.  Defendant filed a counterclaim that plaintiff breached the duty of good faith and fair dealing because plaintiff did not inform defendant of the claim or seek defendant’s consent to settle.  Plaintiff moved to dismiss the counterclaim.

The Court granted plaintiff’s motion to dismiss the good faith and fair dealing counterclaim.  Under the parties’ agency agreement, “Agent agrees that Company shall be fully authorized and empowered, in its absolute discretion, to control, defend, prosecute, settle, compromise, and/or dispose of any claim, litigation or proceeding for which: (i) Company may be liable; and/or (ii) an insured under a Title Assurance may be liable.”  Based on this provision, the Court found that the agent “contracted away [its] right to have input in a potential settlement” and that “plaintiff was entitled to settle the title litigation ‘in its absolute discretion’ and did not need to inform defendant[].”  Accordingly, the Court dismissed the agent’s counterclaim.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Desiree McDonald at dmcdonald@riker.com, or Kevin Hakansson at khakansson@riker.com.

The Supreme Court of New York, Suffolk County, recently granted a property owner’s motion for summary judgment and held that a purported restrictive covenant on the property was void.  See U & Me Homes, LLC v. Cty. of Suffolk, 148 N.Y.S.3d 682 (N.Y. Sup. Ct. July 16, 2021). In the case, the plaintiff purchased an undeveloped parcel of land that was split-zoned by the defendant Town of Southampton (the “Town”), with a portion permitting 2-acre residential development and a larger portion permitting 5-acre residential development. The deed and title search report, however, did not contain any reference to any development restrictions. The plaintiff immediately proceeded to obtain a Health Department permit and an engineering permit from the defendant County of Suffolk (the “County”) to build a one-family home on the property. Shortly thereafter, a neighbor complained to the Town that there was a developmental restriction on the property, which the Town sought to confirm with the County. Both the Town and the County agreed that the proposed home could not be built because the parcel contained a blazed section of a public trail. However, the County had issued a quitclaim deed in 2010 to a predecessor in title that did not include any restrictive language. Moreover, a bargain and sale deed dated March 21, 2000 did not include any restrictions, despite the County Director of Planning’s recommendation. The plaintiff brought this action alleging that the covenant failed to run with the land and bind grantees, successors or assigns, and that such a restriction is offensive to public policy. The parties cross-moved for summary judgment.

The Court granted the plaintiff’s motion and denied the Town and County’s motion. First, the Court found that there was no proof that the original grantor and grantee intended the covenant to run with the land, noting that “[w]hen the purpose and effect of a covenant is to substantially alter the legal rights which otherwise would flow from the ownership of land and which are connected with the land, such requires a clear showing that the original grantee and grantor intended the covenant to run with the land.” The Court also found that the faulty drafting of the March 21, 2000 deed by the County called into question whether a restrictive covenant was even created, and that the County offered no statutory authority to support its ability to enter into such a restriction. Moreover, the Court found that, even conceding that the County wanted to restrict the development of the property, as the drafter of the deed, it could have easily drafted a deed binding successors to the use restrictions, noting that “[t]his is not a case of exalting technical form over substance, but of a complete failure of substance, on the part of the County.” Lastly, the Court found that the County and the Town both overstepped their bounds and reversed the role of government in response to issues that implicate the Bill of Rights and the Constitution, noting that “[t]he combined actions of these two governmental bodies have deprived the plaintiff of a bedrock constitutional right and have brought about a per se taking of an important ‘stick’ in the ‘bundle of sticks,’ the power to exclude people from one’s real property.” Here, the County failed to adequately protect the initial deed and as such, that deed restriction did not run with the land. Thus, the Court determined that the plaintiff was free to pursue its long-delayed residential permit application.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Desiree McDonald at dmcdonald@riker.com, or Kevin Hakansson at khakansson@riker.com.

The United States District Court for the Southern District of New York recently granted the defendant title insurance companies’ motion for summary judgment and found that the insured was not entitled to coverage when the action giving rise to the alleged title defect occurred in 1982 and the statute of limitations for a challenge to title had run.  See Morris Builders, L.P. et al. v. Fidelity National Title Insurance Company, et al., 2021 WL 4066725 (S.D.N.Y. Sept. 7, 2021).  The case involved the conveyance of parklands from the City of Yonkers to certain development agencies.  In 1985, the City of Yonkers, the insured, and three other parties entered into an agreement whereby Westchester Industrial Development Agency (the “Owner”) acquired certain parcels of land from the City, which the Owner simultaneously agreed to lease to the insured.  In 1989, the insured obtained title insurance policies covering the Owner’s interest in the property.  In 2011, upon learning that the Owner was planning to convey a neighboring lot, the insured began investigating the chain of title to the parkland properties.  As a result, the insured determined that a prior, 1982 transfer of the property was “unlawful under the public trust doctrine because it was not approved by an act of the State Legislature.”  The insured then wrote letters to the defendant title insurance companies claiming that there was a title defect and sought coverage under the policies.  Although the defendants agreed “to take curative measures pursuant to Condition 3(c)” of the policies, they included a reservation of rights in their letter to the insured.  Defendants also retained counsel to represent the insured, but the insured objected based on an alleged conflict.  In 2014, the insured brought an action against the other parties to the 1985 agreement and eventually reached a settlement whereby it obtained clear title to the property at issue, with the law firm retained by defendants involved “for the limited purpose of resolving the Defect.”  The insured then brought this action claiming defendants were required to indemnify it for certain additional losses incurred in litigating the 2014 action, as well as other damages arising from the alleged defect.  The parties cross-moved for summary judgment after conducting discovery.

The Court granted defendants’ motions and denied the insured’s.  Despite the extensive history, the Court found that the question of coverage under the policy hinged on the simple question whether there was a title defect as of the time the insured discovered the alleged defect or the time it filed the prior action in 2014.  The Court found that because the claim arose from an allegedly improper 1982 transfer of the property, any challenge would be subject to a six-year statute of limitations.  Accordingly, the Court found that the insured was not entitled to coverage under the policies.  “At the time [the insured] purported to discover the Defect in 2011, the applicable statute of limitations had long since barred any claim challenging [the owner’s] title to the Park Lots and, by extension, [the insured’s] leasehold.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Desiree McDonald at dmcdonald@riker.com, or Kevin Hakansson at khakansson@riker.com.