Unrecorded Landmark Designation

This week we wanted to direct your attention to a recent US District Court decision wherein the Court dismissed the Plaintiff/Owner’s claim for damages against an Underwriter seeking coverage under a Fee Owner’s Policy related to the post-closing discovery of an unrecorded Landmark Designation. This case highlights the importance of drafting your contracts to include Seller representations related to the existence, or lack thereof, of Landmark Designations, as the Owner’s Policy will not provide coverage for such claims.

It also serves as a reminder that the Certificate of Title (Title Report) merges with the Policy once issued, so the terms of the Owner’s Policy will expressly set forth the full extent of all coverage. The relevant facts on which the Court relied in making its decision are summarized below together with a link to the case.
The United States District Court for the Southern District of New York held that the unrecorded designation of a title insured property as a landmark was not a Covered Risk. According to the Court, “…the Property’s landmark designation was not recorded in the Public Records, as contemplated by the Policy…The Policy did not impose upon Defendant [title insurer] an obligation to search the entire universe of publicly available information to find the landmark designation.” Further, “local regulations that restrict the use or development of real property do not give rise to a defect in or encumbrance on title” and even if the unrecorded landmark designation was deemed a defect or encumbrance, Policy Exclusion 1(a), excluding coverage for the losses claims, states, in relevant part, the following:
“The following matters are expressly excluded from the coverage of this policy…1.(a) any law, ordinance, permit, or governmental regulation (including those relating to building and zoning) restricting, regulating, prohibiting, or relating to (i) the occupancy, use, or enjoyment of the Land, (ii) the character, dimensions, or location of any improvement erected on the Land…or the effect of any violation or these laws, ordinances, or governmental regulations…”
As for the Plaintiff’s claim for negligence based on the Certificate of Title, “the Certificate of Title merged with the Policy when the latter was issued, thus foreclosing any action for damages arising out of the previously conducted title search.” The Court granted the Defendant’s motion to dismiss.
Fawn Second Avenue LLC v. First American Title Insurance Company, Index No. 21 Civ. 3715, decided July 11, 2022, can be obtained at 2022 U.S. Dist. LEXIS 122021.
https://law.justia.com/cases/federal/district-courts/new
york/nysdce/1:2021cv03715/559145/43/