Fawn Second Avenue LLC v. First American Title Insurance Company
- Katherine Failla
- 1:21-cv-03715
- U.S. District Court · Southern District of New York
- 30
In Fawn Second Avenue v. First American, Judge Failla granted dismissal of the owners’ insurance, contract, and negligence claims.
The three plaintiff property-owning companies’ claims for insurance coverage, declaratory relief, breach of contract, and negligence were dismissed; First American Title Insurance Company prevailed on its motion to dismiss, and the case was closed.
What happened
In Fawn Second Avenue LLC v. First American Title Insurance Company, the plaintiffs owned a property that had been designated a landmark before they bought it, but they said they did not learn that until later. They sought coverage for the property’s reduced value and claimed that First American breached the title-insurance policy and negligently failed to disclose the designation.
First American argued that the policy did not cover losses from the landmark designation and that it had no duty to disclose the designation. The plaintiffs argued that the designation was a title defect or a covered government restriction and that they could pursue negligence claims based on the title report.
Judge Katherine Polk Failla granted First American’s motion to dismiss the Amended Complaint. She ruled that the landmark designation was not a covered title defect, was not recorded in the policy’s defined public records when the policy was issued, and was excluded from coverage. She also ruled that the title report had merged into the policy, so the negligence claim was not adequately stated.
The detailed version
- Fawn Second Avenue LLC v. First American Title Insurance Company · No. 1:21-cv-03715
- Katherine Failla
- July 11, 2022
Background
Fawn Second Avenue LLC, 1881 Second Avenue LLC, and SFP 1881 Holdings LLC purchased property at 82 Second Avenue in New York, New York, by deed on November 17, 2015. First American Title Insurance Company issued a title-insurance policy in connection with the purchase. The property had been designated by the New York City Landmarks Preservation Commission as part of the East Village/Lower East Side Historic District on October 9, 2012.
After the plaintiffs later planned improvements to the property, the Commission sent warning letters ordering them to stop work because the property was on a landmarked site or within a landmarked historic district. The plaintiffs notified First American that they sought coverage for the property’s reduced value resulting from the landmark designation. First American denied the claim.
The Amended Complaint asserted claims for declaratory relief, breach of contract, and negligence. First American moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not state a legally sufficient claim.
Coverage Claims
The plaintiffs argued that the policy covered their losses under Covered Risk 2, which addressed defects in, liens on, or encumbrances against title. The Court rejected that argument. Applying New York law, the Court held that the landmark designation regulated the property’s use and development but did not impair the plaintiffs’ right to ownership and possession. It therefore was not a title defect, lien, or encumbrance covered by Covered Risk 2.
The plaintiffs also relied on Covered Risk 5, which provided coverage for certain violations or enforcement of laws and governmental regulations when a notice describing the violation or intended enforcement was recorded in the policy’s defined “Public Records.” The Court interpreted that term to mean the real-property records maintained by the New York City Office of the City Register, as reflected in the Automated City Register Information System.
The Court found that the landmark designation was not recorded in those relevant public records as of the policy date. The records showed that the designation was not recorded until August 19,
- Because it was not recorded when the policy was issued, the designation could not trigger coverage under Covered Risk
- The Court also concluded that the plaintiffs’ losses were excluded by Exclusion 1(a), which excluded losses arising from laws or governmental regulations restricting the property’s use or improvements, while preserving coverage provided under Covered Risk
- The Court did not decide whether additional exclusions concerning governmental police power or matters assumed by the insured also applied.
For these reasons, the Court dismissed the breach-of-contract and declaratory-relief claims, concluding that the policy neither covered the claimed losses nor provided coverage for the unrecorded landmark designation.
Negligence Claim
The plaintiffs alleged that First American negligently prepared the title report and policy by failing to identify the property’s landmark status. The Court ruled that New York law does not allow a negligence claim based on a title search under a title-insurance policy because the insurer’s obligations are governed by the policy’s contractual terms, absent an independent legal duty.
The Court separately considered the title report, which was called a Certificate of Title. It held that the Certificate of Title expressly terminated when the title-insurance policy was issued. The policy also stated that claims arising from the status of title were restricted to the policy and that the policy was the entire contract between the parties. Because the Certificate of Title had merged into the policy, the plaintiffs could not pursue a separate negligence claim based on the earlier title search.
Disposition
Judge Katherine Polk Failla granted First American’s motion to dismiss the Amended Complaint. The Clerk was directed to terminate pending motions, adjourn remaining dates, and close the case. The opinion does not state that the dismissal was with or without prejudice.
Read the full 30-page opinion on CourtListener, the free public archive maintained by the Free Law Project.