Claim Dies With Sale
When the Insured sold the parcel without obtaining the title Insurer’s consent, a pending claim under the policy (for lack of access) was terminated. Cane v. First American Title Insurance Company of New York, 2015 NY Slip Op 30812(U) (Sup. Ct., Suffolk Cty., May 7, 2015).
Schedule B excepted losses by reason of a recorded declaration of a common driveway easement. Following closing, an error was discovered in the declaration that deprived the insured parcel of the benefit of the easement. First American undertook to rectify the problem, subject to a reservation of rights. In September, the First American provided correction documents that would solve the problem and Cane signed them. In December, before the correction documents were recorded, Cane sold the parcel at a substantial loss. The deed contained no warranty of title and First American did not consent to the sale.
The Court held that the sale “impaired First American's right to comply with its obligations vis-à-vis [the Insured] to pursue appropriate action to remedy any defect in title, and terminated coverage under the policy.”
The value to an Insurer of a “routine” reservation of rights letter in this situation cannot be overstated. Continuity of coverage issues have been popping up across the country in the last few years. Under the pretense of loss mitigation, some Insureds have been tempted by property values depressed by the Great Recession to sell when they otherwise would not. They then turn around and attempt to recover the difference from their title insurer. Even if a straightforward means of resolving the claim is available, the Insurer must also protect its own interests.