The Docket: Maryland Federal Court Holds No Title Insurance Coverage for Water Runoff

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The Docket: Maryland Federal Court Holds No Title Insurance Coverage for Water Runoff
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The Docket
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The Docket is a monthly TitleNews Online feature provided by ALTA’s Title Counsel Committee, which reviews significant court rulings and other legal developments, and explains the relevance to the title insurance industry.

Michael R. O’Donnell and Michael P. Crowley, both of the law firm Riker, Danzig, Scherer, Hyland & Perretti LLP, provided today’s review of a decision by a U.S. district court in Maryland that held there is no coverage under a title insurance policy when the insured’s neighbor brings a claim due to water runoff from the insured property. O’Donnell can be reached at modonnell@riker.com and Crowley can be reached at mcrowley@riker.com.

Citation: Batstone v. Chicago Title Ins. Co., 2020 WL 6393164 (D. Md. Nov. 2, 2020)

Facts: The United States District Court for the District of Maryland recently found that there is no coverage under a title insurance policy when the insured’s neighbor brings a claim due to water runoff from the insured property. (See Batstone v. Chicago Title Ins. Co., 2020 WL 6393164 (D. Md. Nov. 2, 2020)). The plaintiffs purchased their home in 2018 and obtained a homeowner’s title insurance policy from the defendant title insurance company. After closing, the plaintiffs’ neighbors informed them that the placement of the plaintiffs’ driveway caused excessive water runoff onto the neighbors’ property, and that the neighbors were planning to bring a lawsuit against plaintiffs and the homebuilder. The plaintiffs then submitted a claim to Chicago Title Insurance Company, which denied the claim. After the neighbors filed their lawsuit, the plaintiffs again submitted a claim and, after Chicago Title again denied, brought this lawsuit. The parties then cross-moved for summary judgment.

Holding: The court granted Chicago Title’s motion rejecting first the plaintiffs’ argument that their claim was covered under the policy’s Covered Risk 5, which covers the risk that “[s]omeone else has a right to limit Your use of the Land.” Under the plaintiffs’ argument, the neighbors were seeking to force the plaintiffs to take affirmative action on their land to stop the flow of water, which falls under this covered risk. The court disagreed, finding that the neighbors’ lawsuit challenged the plaintiffs’ right to affect the neighbors’ property, not the plaintiffs’. “When a neighbor seeks to stop a continuing trespass by another neighbor, that effort to enforce their rights is not a limitation on the trespasser's use of his land.”  Second, the plaintiffs argued that their claim was covered under Covered Risk 6 because title was defective. The court rejected this argument outright, holding that no one was challenging the plaintiffs’ title to the property. The court further found that the policy’s Exclusions 6(a) barred coverage for any claims arising from a right to use land outside the area specifically designated in the policy and nothing in the policy gave the plaintiffs the right to use their neighbors’ land. Finally, the court held that Exclusion 8 of the policy barred any coverage for flooding related to the plaintiffs’ property.

Importance to the title industry: This is an excellent and well-reasoned opinion that emphasizes that the protection that title insurance provides is that the property owner has good title to the real property. It is not coverage for defects in the property that do not affect title and thus cannot be uncovered through a search of the property records, such as water drain-off onto a neighbor’s land.  Finally, the opinion is also helpful in establishing the principle that there is no coverage for claims outside the property specifically identified in the policy.