Citation. 231 Cal. App. 3d 1654, 283 Cal. Rptr. 231, 1991 Cal. App. 91 Cal. Daily Op. Service 5509
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The Plaintiff, Lick Mill Creek Apartments (Plaintiff), discovered hazardous materials that they were required to clean up after purchase of the land. Plaintiff sued the Defendant, Chicago Title Insurance Co. (Defendant), on a theory that they were liable because the hazardous materials constituted an encumbrance on the land and thus affected the marketability of title.
Synopsis of Rule of Law.
Hazardous materials located on land relate to the condition of the land and not the marketability of the title unless there is an encumbrance on the land with respect to the hazardous materials.
Facts.
In 1986, Plaintiff acquired the land in question. Prior to 1986, the land had been used by various corporations, which had deposited large amounts of hazardous materials in underground tanks. Plaintiff retained the Defendant for title insurance. The Defendant commissioned a survey and inspection of the property. During the survey, the survey company noticed the presence of pipes and tanks. Further, the Department of Health Services and the Regional Water Control Board maintained records disclosing the hazardous materials. Plaintiff filed suit to recover costs incurred in cleaning up the hazardous substances. Plaintiff appealed from the trial court’s dismissal of their claim based on a finding that the title insurance did not cover removing hazardous waste.
Issue.
Whether hazardous materials affect the marketability of the title or act as an encumbrance on the land, which would allow for Plaintiff to recover under the title insurance contract.
Held.
Affirmed. Hazardous materials do not constitute an encumbrance on the land, nor affect the marketability of the land. Thus, Plaintiff cannot recover from Defendant under the title insurance coverage.
Encumbrances on land include only liens, easements, restrictive covenants and other such interest in or rights to the land held by third persons, but does not include clean up costs associated with hazardous materials. The mere possibility that a future lien may be attached is not a present lien.
Marketability of title concerns only the title, not the actual value of the land. One can hold perfect marketable title to land that is valueless. The condition of the physical land is irrelevant to the condition of the title.
Discussion.
The court started its analysis by referring to the contractual obligations of both parties.
First, the court stated that marketability of title is different than the market value of the land. The hazardous materials affected market value, not the marketability of title, which could make the Defendants liable.
Second, the court analyzed whether threat of future state lien enforcement action was a present encumbrance. The court found that because there had been no state action, there was no encumbrance at the time and thus the title company could not be held li
