What You Need to Know
- The First Department affirmed that Covered Risks 5 and 6 do not cover post-closing litigations seeking to restore a distressed property to habitability absent a recorded notice of violation or intent to enforce.
- Covered Risk 3 insures marketability of title, not economic marketability of a property.
- "The policy controls coverage," not pre-closing representations.
In Forrest Equities LLC v. Old Republic National Title Ins. Co., 2026 WL 1170695 . ___N.Y.S. 3rd __-- (1st Dept. 2026), the First Department of the New York Appellate Division summarily affirmed a trial court’s decision after a bench trial that the title policy at issue did not insure against two post-closing litigations: (1) suit instituted by the NYC Department of Housing and Preservation and Development (“HPD”) seeking civil penalties for failure to correct housing litigation and (2) a suit by the tenants under New York’s RPAPL 7-A seeking restoration of the building’s essential services. In doing so, it made clear what Covered Risks 3 (marketability of title) and 5 and 6 (enforcement actions) do and do not cover.
Forrest Equities Buys A Distressed Residential Property and Makes A Title Claim
In October 2018, Plaintiff Forrest Equities, LLC (“Forrest”) purchased a multiple-dwelling residential building. Before it closed on the purchase, Forrest was aware that an explosion had occurred destroying a portion of the building and the Department of Buildings issued a vacate order. Forrest also knew that it would be subject to relocation and emergency repair liens.
In November 2018, the HPD filed suit seeking civil penalties for failure to correct housing violations. Soon thereafter the tenants filed an Article 7A proceeding to compel the restoration of essential services.
Forrest sought coverage for the litigations from Old Republic National Title Insurance Company (“Old Republic”) under Coverage Risks 3, 5 and 6. Covered Risk 3 addresses marketability of title. Covered Risks 5 and 6 address coverage for enforcement actions as to insured’s property, but only if the violations or intent to enforce are recorded in the Public Records as that term is defined in the Policy, which is “records under state statutes … for the purpose of imparting constructive notice of matters relating to real property.” In New York City, documents are recorded and kept under the Automated City Register Information System (“ACRIS”) Old Republic denied coverage as the litigation did not impact marketability as there was no dispute that Forrest owned the property and marketability was therefore not impacted. As to Covered Risks 5 and 6, the litigations were post closing and the liens were not therefore recorded in ACRIS pre-closing for coverage to attach. Also, while not expressly mentioned in the Opinion, it appears that Old Republic also denied Exclusion 3(a), which does not provide for title defects “created, suffered, assumed, or agreed to by the Insured Claimant.” Here, Forrest knew of the explosion and implications thereof before it closed. The argument was that Forrest assumed and agreed to the risk of future litigations seeking to restore the building to habitability. It also appears that Old Republic denied coverage under Exclusion 3(d), which bars coverage for matters “attaching or created subsequent to the date of the Policy,” i.e., the HPD and Article 7(a) litigations.
The trial court conducted a non-jury trial and found for Old Republic, accepting its arguments that Covered Risks 3, 5 and 6, by its terms, did not provide coverage for the litigations.
The First Department Affirms and Puts its Stamp on Policy Interpretation of Covered Risks 3, 5 and 6
In a succinct Opinion, the First Department quickly dispatched with Forrest’s claims. Addressing Covered Risk 3, the Court held first that lis pendens, in and of itself, does not create an encumbrance of property; it is notice of a pending litigation. There the same held true for an order to vacate the property. At issue on the instruments were the HPD and Article 7(a) litigations. They did not render title unmarketable as the litigations only sought to alleviate conditions on the property and did not challenge ownership.
Regarding Covered Risk 5 and 6, the Court found the lis pendens was never recorded as required in ACRIS and the order to vacate did not appear in ACRIS until a year after closing. Thus, there was no coverage as the alleged liens were not in the Public Records at the time of closing.
Finally, while not relied on, it appeared to be of significance to the Court that Plaintiffs knew of the HPD’s and tenant’s claims before they closed. Indeed, the Court even dismissed as basis for liability that Old Republic knew of the relocation order and may have stated at one point before the closing that it would be responsible for the order because the policy controls coverage. And the policy did not provide coverage.
Takeaways
The First Department’s decision is a pithy analysis of Covered Risk 3, 5 and 6. Although not expressly said in the Opinion, the decision reinforces that Covered Risk 3 is not about economic marketability of a property. It only insures ownership of the parcel.
For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com.