October 14, 2021

New York Federal Court Holds Insured Not Entitled to Coverage Under Title Policy When Statute of Limitations for Potential Challenge to Title Had Run

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The United States District Court for the Southern District of New York recently granted the defendant title insurance companies' motion for summary judgment and found that the insured was not entitled to coverage when the action giving rise to the alleged title defect occurred in 1982 and the statute of limitations for a challenge to title had run.  See Morris Builders, L.P. et al. v. Fidelity National Title Insurance Company, et al., 2021 WL 4066725 (S.D.N.Y. Sept. 7, 2021).  The case involved the conveyance of parklands from the City of Yonkers to certain development agencies.  In 1985, the City of Yonkers, the insured, and three other parties entered into an agreement whereby Westchester Industrial Development Agency (the "Owner") acquired certain parcels of land from the City, which the Owner simultaneously agreed to lease to the insured.  In 1989, the insured obtained title insurance policies covering the Owner's interest in the property.  In 2011, upon learning that the Owner was planning to convey a neighboring lot, the insured began investigating the chain of title to the parkland properties.  As a result, the insured determined that a prior, 1982 transfer of the property was "unlawful under the public trust doctrine because it was not approved by an act of the State Legislature."  The insured then wrote letters to the defendant title insurance companies claiming that there was a title defect and sought coverage under the policies.  Although the defendants agreed "to take curative measures pursuant to Condition 3(c)" of the policies, they included a reservation of rights in their letter to the insured.  Defendants also retained counsel to represent the insured, but the insured objected based on an alleged conflict.  In 2014, the insured brought an action against the other parties to the 1985 agreement and eventually reached a settlement whereby it obtained clear title to the property at issue, with the law firm retained by defendants involved "for the limited purpose of resolving the Defect."  The insured then brought this action claiming defendants were required to indemnify it for certain additional losses incurred in litigating the 2014 action, as well as other damages arising from the alleged defect.  The parties cross-moved for summary judgment after conducting discovery.

The Court granted defendants' motions and denied the insured's.  Despite the extensive history, the Court found that the question of coverage under the policy hinged on the simple question whether there was a title defect as of the time the insured discovered the alleged defect or the time it filed the prior action in 2014.  The Court found that because the claim arose from an allegedly improper 1982 transfer of the property, any challenge would be subject to a six-year statute of limitations.  Accordingly, the Court found that the insured was not entitled to coverage under the policies.  "At the time [the insured] purported to discover the Defect in 2011, the applicable statute of limitations had long since barred any claim challenging [the owner's] title to the Park Lots and, by extension, [the insured's] leasehold."

For a copy of the decision, please contact Michael O'Donnell at [email protected], Michael Crowley at [email protected], Desiree McDonald at [email protected], or Kevin Hakansson at [email protected].

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