LLC Faces Losses Secondary To Property Deed Restriction

Case Overview

This case stems from a previous case surrounding a deed restriction. An LLC purchased golf course property and submitted housing redevelopment plans to the city council. Prior to submission, the LLC purchased title insurance and the insurance company performed an evaluation of the deed in question. They found a restriction in the deed but notified the LLC that any costs incurred surrounding that restriction would be covered under the insurance purchased. Once the redevelopment plans we submitted to the city council, the LLC received push back from local citizens and the restriction in the deed was called in question. A year later, the LLC wanted to file a quiet title action to determine whether the deed restriction was enforceable. The insurance company initially granted permission, but then rescinded permission 6 months later stating that a quiet title action would waive coverage. The council failed to act on LLC’s proposed plans for over a year, so the LLC filed a lawsuit against the city seeking approval. The insurance company provided the LLC an attorney to represent them for the deed restriction portion of the litigation. 3 years later, LLC and the city reached a settlement agreement in which the city would allow redevelopment but the LLC was required to grant a conservation restriction on a portion of the property to keep it a golf course. The settlement agreement could not take effect until the enforceability of the deed restriction was resolved. The restriction was resolved several years later when the courts modified the deed restriction to conform to the new restriction the LLC offered through the settlement agreement. Thus, the deed restriction continued to exist in a modified form. When the LLC filed a claim on the title insurance for losses suffered, the insurer said they could not indemnify the LLC for the losses as a result of the deed restriction. According to the insurer, the LLC triggered an exclusion under the policy by agreeing to the new restriction in the settlement agreement even though they knew about the settlement and advising LLC before it was entered but never told the LLC it could waive coverage.