Bear Fritz Land Co. v. Kachemak Bay Title Agency, Inc.

Brief Fact Summary.

The Coopers sold a subdivision parcel to Bear Fritz Land Company (Bear Fritz) (plaintiff). Bear Fritz obtained title insurance for the sale from Kachemak Bay Title Agency, Inc. and Ticor Title Insurance Company (Ticor) (defendants). Bear Fritz learned of a wetlands-permit requirement in while negotiating the sale of two subdivision lots. By that time, the Corps permit had already expired. Bear Fritz stopped making payments to the Coopers for the parcel. The Coopers sued Bear Fritz.

Synopsis of Rule of Law.

Legal restrictions impacting the development of property are not encumbrances that cause a title defect.

Facts.

The Coopers applied for and received a Corps permit to build on the wetlands but never recorded it. The Coopers sold the subdivision parcel to Bear Fritz Land Company (Bear Fritz) (plaintiff). Bear Fritz obtained title insurance for the sale from Kachemak Bay Title Agency, Inc. and Ticor Title Insurance Company (Ticor) (defendants). Under the title insurance policy, Ticor insured Bear Fritz against the risk of loss due to any “defect” or “encumbrance” on the title. The policy also stated that the terms “defect” and “encumbrance” did not include any laws, governmental acts, or regulations, including any laws that regulated the use of the property. Bear Fritz learned of the wetlands-permit requirement while negotiating the sale of two subdivision lots. By that time, the Corps permit had already expired so Bear Fritz stopped making payments to the Coopers for the parcel. The Coopers sued Bear Fritz. Bear Fritz filed a third-party complaint against Ticor, claiming that Ticor had breached its contract with Bear Fritz by failing to disclose the Corp permit in its policy. For the claims against Ticor, the trial court concluded that the expired permit and the existence of protected wetlands on the parcel were not defects in title and found for Ticor. Bear Fritz appealed.

Issue.

Whether the expired permit and the existence of protected wetlands on the parcel were title defects.

Held.

Bear Fritz argues that the wetlands classification and permit requirements are a defect or encumbrance covered by the title policy. However, there is nothing about the wetlands designation or permit restrictions that creates an encumbrance affecting marketability of title. Even if the parcel’s wetland status and the Corps’s legal restrictions make the property economically unmarketable, Bear Fritz still holds clear title to the parcel. Therefore, because Bear Fritz has not alleged any title defect or encumbrance, it has not alleged any event that could be covered under Ticor’s policy. Further, because Bear Fritz has not alleged an insured event, there is no need to get into the policy’s exclusions for legal regulations. The trial court is affirmed.

Discussion.

While legal restrictions impacting the development of property may affect the property’s market value, the restrictions are not encumbrances that cause a title defect. As cases from other jurisdictions show, there is a difference between a legal restriction that affects the market value of a property and one that affects marketability of title.