Somerset Savings Bank v. Chicago Title Ins. Co.

Brief Fact Summary.

Plaintiff sued Defendant, claiming breach of contract and negligence when Defendant claimed that Plaintiff’s losses due to a halt in construction ordered by the city were not covered by its insurance policy. The trial court granted summary judgment on all claims to Defendant. The court of appeals affirmed. Plaintiff appealed.

Synopsis of Rule of Law.

Legal restrictions on the use of a property do not render the title to the property unmarketable.

Facts.

In 1986, Somerset Savings Bank (Plaintiff) agreed to finance a construction project in Revere, Massachusetts. To protect its investment, Plaintiff purchased title insurance from Chicago Title Insurance Company (Defendant). The contract insured against loss or damage resulting from defects in title or unmarketability of title. The contract expressly excluded from coverage any restrictions on the use of the land resulting from a law or governmental regulation. At the time the contract was executed, Defendant advertised that it was familiar with local laws and practices. In 1988, after construction had begun, the city ordered construction halted because the state had not consented to the issuance of a building permit. State law required consent because the property had once been owned by a railroad company. Defendant claimed that Plaintiff’ losses were not covered by its insurance policy. Plaintiff filed suit, claiming breach of contract and negligence. The trial court granted summary judgment on all claims to Defendant, and the intermediate appellate court affirmed. Plaintiff appealed to the state supreme court.

Issue.

Whether title insurance policies cover losses resulting from legal restrictions on the use of a property.

Held.

No. The case is remanded for trial on the negligence claim. Legal restrictions on the use of a property do not render the title to the property unmarketable.

Discussion.

An insurance policy against loss or damage resulting from defects in title or unmarketability of title does not cover losses resulting from legal restrictions on the use of a property. Restrictions on the use of property will often affect economic marketability, but will not affect marketability of title. Title is marketable when a reasonably prudent buyer would accept it in the ordinary course of business. In this case, Plaintiff holds marketable title to the property: there are no legal restrictions on its ability to convey title to other parties. Because the title insurance policy does not cover use restrictions, the grant of summary judgment on the breach of contract claim was appropriate. The negligence claims, however, must be set for trial. Plaintiff introduced evidence that Defendant had advertised at the time of contract that it was familiar with the local laws and practices. This might be fairly interpreted as a promise to inform Plaintiff of all recorded facts about the property that would influence its decision to finance construction on the property. Defendant may have thereby assumed a duty to warn Plaintiff of the use restrictions.