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Bear Fritz Land Company v. Kachemak Bay Title Agency (7/5/96), 920 P 2d 759
NOTICE: This opinion is subject to formal correction before
publication in the Pacific Reporter. Readers are requested to bring
errors to the attention of the Clerk of the Appellate Courts, 303 K
Street, Anchorage, Alaska 99501, phone (907) 264-0607, fax (907)
THE SUPREME COURT OF THE STATE OF ALASKA
BEAR FRITZ LAND COMPANY, an )
Alaska Limited Partnership, ) Supreme Court No. S-6992
) Superior Court No.
v. ) 3AN-92-10919 CI
KACHEMAK BAY TITLE AGENCY, ) O P I N I O N
INC., and TICOR TITLE CO., )
) [No. 4367 - July 5, 1996]
Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage,
John Reese, Judge.
Appearances: Kermit E. Barker, Anchorage, for
Appellant. C. Michael Hough, Law Offices of
C. Michael Hough, Homer, for Appellee Kachemak
Bay Title Agency, Inc. Jennifer M. Coughlin,
Preston Gates & Ellis, Anchorage, for Appellee
Ticor Title Co.
Before: Compton, Chief Justice, Rabinowitz,
Matthews, Eastaugh and Fabe, Justices.
COMPTON, Chief Justice.
I. FACTS AND PROCEEDINGS
In 1984 Robert Cooper and Virginia Cooper owned a parcel
of property in Homer known as Fritz Subdivision, Unit 2. While the
Coopers were making improvements on the parcel, a representative of
the Army Corps of Engineers (Corps) inspected the site and ordered
the Coopers to stop construction. The Corps believed the parcel
included wetlands which the Coopers needed a permit to fill.
The Coopers applied for a wetlands permit in
October 1984. On April 23, 1985, the Corps sent the Coopers copies
of a proposed permit which allowed them to fill certain areas in
the subdivision. The permit became effective on May 2, 1985, the
date on which it was signed by the Chief of the Corps' Regulatory
Branch. It was valid for three years from the date of issuance.
The Coopers never recorded the permit.
During the permitting process, the Coopers apparently
were negotiating the sale of the subdivision to Bear Fritz Land
Company (Bear Fritz). On May 1, 1985, Bear Fritz obtained from
Kachemak Bay Title Agency, Inc. and Ticor Title Insurance Company
(collectively, Ticor) a preliminary commitment for title insurance
on the property. On May 8, Bear Fritz executed an agreement to
purchase the lots. At the end of May the parties closed the sale.
(EN1) On August 22, Ticor sent Bear Fritz a title insurance
Bear Fritz claims it first learned of the wetlands permit
in 1989 or 1990 while negotiating the sale of two lots in the
subdivision. The permit already had expired. Bear Fritz stopped
making payments on the purchase money note.
The Coopers sued Bear Fritz on the note. Bear Fritz
filed a third-party complaint against Ticor, claiming that Ticor's
failure to disclose the permit in the title policy and the
preliminary commitment was a breach of its contract with Bear
Fritz, and negligence on which Bear Fritz reasonably had relied in
closing the deal. (EN3) Ticor moved for summary judgment. The
superior court granted the motion, primarily on the basis of its
conclusion that the permit and the property's wetlands status were
not defects in the title. Bear Fritz appeals. We affirm.
A. Standard of Review
We will uphold summary judgment only if the record
presents no genuine issues of material fact and the moving party is
entitled to judgment on the law applicable to the established
facts. Bishop v. Municipality of Anchorage, 899 P.2d 149, 153
(1995). When making this determination, we will draw all
reasonable inferences in favor of the non-moving party. Id.
B. The Policy Language Is Not Ambiguous.
The policy Ticor issued states:
Ticor . . . subject to the conditions and
stipulations of this policy, does hereby
insure the person or persons named . . .
against loss or damage sustained by reason of:
1. Title to the estate, lien or interest . . .
being vested, at the date hereof, otherwise
than as stated . . . or
2. Any defect in, or lien or encumbrance on,
said title existing at the date hereof, not
shown in Schedule B[.]
Schedule B provides that "defects, liens, encumbrances and other
matters against which the company does not insure"include:
Any laws, governmental acts or regulations,
including but not limited to zoning
ordinances, restricting, regulating or
prohibiting the occupancy, use or enjoyment of
the land or any improvement thereon, or any
zoning ordinances prohibiting a reduction in
the dimensions or area, or separation in
ownership, of any lot or parcel of land; or
the effect of any violation of any such
restrictions, regulations or prohibitions.
Bear Fritz devotes a significant portion of its briefing
to a discussion of the general principles of insurance contract
construction. According to Bear Fritz, both the general insuring
clause and the governmental regulation exception are vague and
ambiguous. It argues that the general insuring clause should be
construed in favor of coverage, and that "[t]he general exception
for laws and ordinances is void because it is not intelligible to
a lay person." Bear Fritz further argues that "had Appellee Ticor
not intended to cover wetlands designations it should have
expressly stated so in the Title Policy to avoid any possible
ambiguity or misunderstanding by its policy holder."
Bear Fritz's arguments are not persuasive. The policy
language is reasonably clear and unambiguous. See Somerset Sav.
Bank v. Chicago Title Ins. Co., 649 N.E.2d 1123, 1126-28 (Mass.
1995) (finding unambiguous a title insurance policy virtually
identical to that presented here); Lick Mill Creek Apartments v.
Chicago Title Ins. Co., 283 Cal. Rptr. 231, 234-38 & n.3 (Cal. App.
1991) (same). Therefore, the principles of construction favoring
the insured are not material. See Jarvis v. Aetna Casualty and
Sur. Co., 633 P.2d 1359, 1363 (Alaska 1981) ("This rule [that
ambiguity and uncertainty in an insurance policy is resolved in
favor of the insured] is not applied whenever two parties to a
contract simply disagree over the interpretation of any of its
terms. Rather, ambiguity is found to exist only when the contract,
taken as a whole, is reasonably subject to differing
interpretations."(internal quotations omitted)). The general
rule is that "'[a]n insurance company has the right to limit the
coverage of a policy issued by it and when it has done so, the
plain language of the limitation must be respected.'" Id. (quoting
Continental Casualty Co. v. Phoenix Constr. Co., 296 P.2d 801, 806
(1956)). The rule applies here; it negates Bear Fritz's contention
that coverage for wetlands designation cannot be excluded because
the policy exception does not mention it expressly and
C. The Property's Wetlands Status and the Permit
Restrictions Are Not a "Defect in, or Lien or Encumbrance
Bear Fritz contends that the property's wetlands
classification and the restrictions of the wetlands permit are a
defect, lien or encumbrance covered by the title policy. Ticor
Bear Fritz loses its coverage argument at the
very first level of insurance policy analysis:
as the permit in question did not affect
title, it never came within the type of risk
that this insurance purported to cover in the
first place. . . . Title insurance does not
cover all risks involved in the purchase or
ownership of property. As the name implies,
title insurance provides protection against
defects in title. . . . [A] title policy
identifies the party in whom title vests, and
insures against defects in that vested party's
title. It does not insure that the new owner
will be able to develop the property without
(Emphasis in the original.)
Ticor is correct. The law amply supports the distinction
Ticor draws between defects or encumbrances affecting the
marketability of title and defects affecting only the market value
of the property. The law also supports Ticor's contention that the
wetlands designation and permit are in the latter category.
In Domer v. Sleeper, we accepted the Washington Supreme
Court's definition of "encumbrance"as
any right to, or interest in, land which may
subsist in third persons, to the diminution of
the value of the estate of the tenant, but
consistent with the passing of the fee; and,
also, a burden upon the land depreciative of
its value, such as a lien, easement, or
servitude, which, though adverse to the
interest of the landowner, does not conflict
with his conveyance of the land in fee.
533 P.2d 9, 11 (Alaska 1975) (quoting Hebb v. Severson, 201 P.2d
156, 160 (Wash. 1948)). In Domer we held that building and fire
code violations discovered by the buyer of a building were not
encumbrances affecting the marketability of title. "[A] contrary
rule would,"we said, "generate considerable uncertainty as to the
buyer's title." Id. at 13.
The requirement that the property in this case comply
with wetlands-protection provisions is similar to the requirement
that the building in Domer comply with the building and fire codes.
As with the building and fire code violations in Domer, the
wetlands designation here is not an encumbrance: it does not give
any third person a right to or interest in the property, nor does
it burden the property with a lien, interest or servitude.
Cases from other jurisdictions further support Ticor's
position. In Hocking v. Title Ins. & Trust Co., 234 P.2d 625 (Cal.
1951), the buyer of two lots in a subdivision found that she could
not build on the lots without considerable unforeseen expense,
because the seller had not complied with various local ordinances
regarding subdivision of the land. Id. at 625-27. She claimed the
title was defective and sought damages from the title insurer. Id.
The California Supreme Court denied her claim:
Although it is unfortunate that plaintiff
has been unable to use her lots for the
building purposes she contemplated, it is our
view that the facts which she pleads do not
affect the marketability of her title to the
land, but merely impair the market value of
the property. She appears to possess fee
simple title to the property for whatever it
may be worth; if she has been damaged by false
representations in respect to the condition
and value of the land her remedy would seem to
be against others than the insurers of the
title she acquired.
Id. at 629-30 (emphasis in original). Faced with similar facts
forty years later, the Supreme Court of Mississippi reached the
same result in Seymour v. Evans, 608 So. 2d 1141, 1144-47 (Miss.
In Frimberger v. Anzellotti, the Appellate Court of
Connecticut held that wetlands designation does not affect the
marketability of title or rise to the level of an encumbrance, even
where the property had been improved in violation of the wetlands
provisions. 594 A.2d 1029, 1031-32 (Conn. App. 1991) (citing
Domer, 533 P.2d 9). In Lick Mill Creek Apartments, the California
Court of Appeals held that a title insurance company whose
representative had physically inspected a property prior to issuing
a title insurance policy was not responsible for the costs
associated with the cleanup of hazardous wastes on the insured
property. 283 Cal. Rptr. at 233, 236-37. The court found that
although the wastes may have affected the market value of the
property, they did not affect the marketability of title. Id. at
Finally, in Somerset Savings, the Massachusetts Supreme
Judicial Court held that a restriction which required the consent
of the state's Executive Office of Transportation and Construction
(EOTC) to build on land formerly used as a railroad right-of-way
did not come within the general coverage of title insurance. 649
N.E.2d at 1127-28. It wrote:
It is well established that building or
zoning laws are not encumbrances or defects
affecting title to property. Such
restrictions are concerned with the use of
land. There is a difference between economic
lack of marketability, which concerns
conditions that affect the use of the land,
and title marketability, which relates to
defects affecting the legally recognized
rights and incidents of ownership. An
individual can hold clear title to a parcel of
land, although the same parcel is valueless or
considered economically unmarketable because
of some restriction or regulation on its use.
A title insurance policy provides protection
against defects in, or liens or encumbrances
on, title. Such coverage affords no
protection for governmentally imposed
impediments on the use of the land or for
impairments in the value of the land.
. . . The requirement of [EOTC] approval,
prior to the issuance of a building permit, is
a restriction on the use of the property, but
it does not affect the owner's title to the
property. It is a restriction that may affect
the value of the property and the
marketability of the parcel, but it has no
bearing on the title to the property.
The insurance policy provided coverage
for losses sustained as the result of a defect
in or lien or encumbrance on the title to the
property and for unmarketability of the title.
Although they may have impaired the property's
market value or caused a halt to construction
on the property, the requirements of [the
railroad right-of-way restriction] have no
effect on the marketability of the title nor
did they create a defect, lien, or encumbrance
on the title. The existence of the statutory
restriction, therefore, does not give rise to
coverage under the policy.
Id. (citations omitted). With a few minor changes, the reasoning
and language of the Somerset Savings opinion could be applied to
this case. We conclude that Somerset Savings and the other cited
precedents are a correct statement of the law, and hold that the
neither the property's wetlands status nor the existence of the
permit is an insured event or circumstance covered by Ticor's
In light of this conclusion, it is unnecessary for us to
address Bear Fritz's claim that the policy's governmental
regulation exception is inapplicable or its claim that Ticor had a
duty to disclose the permit in the preliminary commitment. See
Bank of California v. First Am. Title Ins. Co., 826 P.2d 1126
(Alaska 1992) (establishing potential tort liability for
misrepresentations made in preliminary commitments for title
The judgment of the superior court is AFFIRMED.
1. The Coopers financed the transaction.
2. The policy is dated June 10, 1985.
3. The Coopers and Bear Fritz settled their dispute.