The United States District Court for the District of South Carolina recently held that a homeowner was not entitled to coverage from its title insurer for a neighbor’s claims regarding a prior litigation and regarding an easement on the insured property.  See Dudek v. Commonwealth Land Title Ins. Co., 2020 WL 3130232 (D.S.C. June 12, 2020).  Plaintiff entered into a contract to purchase the insured property in 2012.  A third party entered into a backup contract to purchase the property, and both ultimately sued the seller for specific performance.  Plaintiff prevailed in the lawsuit and purchased the property in 2017, and the defendant title insurance company issued a title policy.  In 2017, the third party brought another lawsuit against plaintiff, alleging fraud and abuse of process from the prior lawsuits between the parties.  The court dismissed the action, and the third party appealed.  In 2018, the third party—who had purchased an adjacent property while the lawsuits were pending—filed another action seeking to enforce a contract provision regarding a water and sewer easement across the insured property.  Plaintiff submitted claims for both actions to the title insurance company, who denied the claims.  Plaintiff then brought this lawsuit against the title insurance company, alleging breach of contract and bad faith.  The parties cross-moved for summary judgment.

The Court denied plaintiff’s motion for summary judgment and granted the title insurer’s.  First, the Court found that there was no coverage for the 2017 litigation.  The 2017 litigation was based on claims of fraud and abuse of process arising out of the prior lawsuits between the parties, and the policy included an exception for such claims:  “You are not insured against loss, costs, attorneys’ fees, and expenses resulting from . . . [m]atters, claims, losses arising from or under the lawsuits: 2013CP18-183 and 2016CP18-1706.”  The Court found that “[i]n short, each allegation in [the third party’s] 2017 complaint directly challenges the result of the 2013 Action, the legitimacy of the 2013 Action, or both. Commonwealth did not need to look beyond the allegations of that complaint to determine that the 2017 Action arises from the 2013 Action and thus falls within Policy Exception 10.”  Second, the Court found that the demand for coverage for the 2018 action was excluded under the policy.  The policy contains exclusions for defects “created, allowed, or agreed to by You, whether or not they are in the Public Records” and “that are Known to You at the Policy Date, but not to [Commonwealth].”  Here, plaintiff’s purchase contract contained an addendum stating “[b]uyer shall grant water & sewer easement to adjacent 2 acres [i.e., the third party’s property].”  Thus, the Court found that plaintiff’s claims were not covered.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Anthony Lombardo at alombardo@riker.com.