The Docket: Florida Court Rules in Case Addressing Alleged Breach of Policy, Land Use Regs

June 20, 2017

The Docket is a monthly TitleNews Online feature provided by ALTA’s Title Counsel Committee, which reviews significant court rulings and other legal developments, and explains the relevance to the title insurance industry.

James C. Russick, vice president and Florida State and governmental affairs counsel for Old Republic National Title Insurance Company, provided today’s review of a Florida court decision regarding the alleged breach of a title insurance policy and coverage against future changes to land use regulations. He can be reached at [email protected].

Citation: Kahama VI, LLC v. HJH, LLC, et al., 2016 WL 7104175 (/12/06/2016)

Facts: This case involved a parcel of oceanfront real property on the East Coast of Florida. Plaintiff acquired the note and mortgage encumbering subject property and the accompanying title insurance policy issued by Old Republic National Title Insurance Company. The insured lender filed a foreclosure action that was frustrated and delayed by the city’s claim of title to the East 150 feet of the subject property based upon a 1917 plat. A quiet title action was filed that expanded to include Old Republic Title as a defendant for allegations of fraudulent misrepresentation and breach of contract.

Plaintiff alleged that Old Republic breached the title insurance policy by failing to conduct a reasonable search as required by statute that would have identified the city’s claim to the East 150 feet. Secondly, plaintiff alleged the insurance contract was breached for failure to diligently prosecute the quiet title action.

Old Republic Title moved for summary judgment after successfully prosecuting the quiet title action against the city. Specifically, the court found that Florida’s Marketable Record Title Act stripped the city of any interest in the real property and left only the inalienable right of the public to use the beach, a right that is not an easement under Florida law. 

Holding: The court held for Old Republic Title finding that the successful quiet title action resulted in Plaintiff’s inability to establish a loss compensable under the policy. Old Republic Title prevailed on every matter covered by the insurance policy. 

Importance to the Title Industry: Addressing the claim that Old Republic Title failed to diligently prosecute under the terms of the policy, the court noted that the policy terms allow the insurer to pursue litigation to a “final determination.” In this case, the quiet title action was successful and thus cured the title defects and precluded this cause of action as a matter of law.

This case underscores the nature of the title insurance product as a contract of indemnity. It pointedly distinguishes title insurance from casualty insurance products by noting the statutory duty imposed on title insurance companies to conduct a “reasonable title search” before issuing a policy. It notes that this duty to conduct a reasonable title search is limited by Florida’s Marketable Record Title Act and that MRTA extinguished the city’s claim to title founded upon the old plat. The court went on to hold that the public’s right to utilize the beach was based on a “law” that fell into the Exclusion from coverage for “(a)ny law, ordinance or governmental regulation ... restricting, regulating, prohibiting or relating to the occupancy, use or enjoyment of the land.”

This is an excellent case underscoring that a title insurance policy does not expose the issuer to a cause of action in tort and that the policy creates liability exclusively under contract law. 

Contact ALTA at 202-296-3671 or [email protected].