L. Smirlock Realty Corp. v. Title Guarantee Co.

Decision Date19 February 1981
Citation52 N.Y.2d 179,418 N.E.2d 650,437 N.Y.S.2d 57
Parties, 418 N.E.2d 650, 17 A.L.R.4th 1067 L. SMIRLOCK REALTY CORP., Appellant, v. TITLE GUARANTEE COMPANY, Respondent.
CourtNew York Court of Appeals Court of Appeals
OPINION OF THE COURT

JASEN, Judge.

This appeal presents a question of first impression for our court. At issue is whether a policy of title insurance will be rendered void pursuant to a standard misrepresentation clause found therein as a result of the insured's failure to disclose a material fact which was a matter of public record at the time the policy was issued.

In November, 1967, the Town of Hempstead condemned and thereby acquired title to certain property on and adjacent to the premises known as 31-39 Carvel Place, which is located in Inwood, Long Island. At that time, the premises were owned by Bass Rock Holding, Inc. (Bass Rock), a corporation controlled by Helen and Anthony De Giulio. The Bass Rock property was improved by a warehouse and access to and from the property was over three public streets: Carvel Place to the north of the premises and St. George Street and Jeanette Avenue to its east. The principal loading docks for the warehouse were located at the easterly end of the building with direct access from St. George Street and Jeanette Avenue. In addition, there was an alleyway along the northern side of the warehouse connecting the Carvel Place entrance to these loading docks. However, clearance along this passageway was quite limited and trucks would often strike the warehouse building when attempting to maneuver down this alleyway. Because of this, the Carvel Street entrance was of little value as an access route for the warehouse facility.

The Bass Rock property was heavily indebted and in 1968 there was a default in mortgage payments. A foreclosure proceeding was instituted in the early part of 1969. It was at about this time that Gerald Tucker, general counsel for one of the mortgagees in the foreclosure proceeding, indicated an interest in the property and negotiations were commenced with the De Giulios with a view toward the eventual purchase of the Bass Rock property. Soon thereafter, the plaintiff corporation was formed by Tucker and a group of associated investors.

It was also around this time, according to the testimony of Abraham Lee, Special Counsel for the Town of Hempstead, that Lee telephoned Tucker to inform him that a portion of the Bass Rock property had been condemned by the town and should be excluded from the foreclosure proceeding. Lee testified that he identified the condemned parcel as "abutting on Carvel Place", but that Tucker stated that he was not interested and would proceed with the foreclosure action anyway. The parcel in question subsequently was identified in the record as the town's damage parcel 8-6, taken for street alignment purposes.

Sometime after Tucker spoke with Lee, Tucker and Joseph Tiefenbrun, the attorney retained by plaintiff, met with the Bass Rock attorney to discuss the details of the sales contract. At this meeting, Tucker was informed that, although the exact location of the property involved was uncertain, Bass Rock was entitled to a $5,000 to $6,000 condemnation award from the Town of Hempstead. As a result of this discussion, the contract was amended to include a clause assigning "any condemnation award affecting the premises then due or to be due in the future" to the plaintiff. It was agreed that the necessary information concerning this condemnation would be provided at the title closing. On April 25, 1969, the sales contract was executed by Bass Rock and the plaintiff. The purchase price was set at $600,000.

On May 14, 1969, title was closed. During the closing, and in the presence of defendant's title closer, Tucker and Mrs. De Giulio discussed the condemnation award referred to in the sales contract. In fact, Mrs. De Giulio sketched an outline of the condemned property on the Bass Rock title survey. The parcel marked by Mrs. De Giulio was adjacent to the southwest corner of the Bass Rock property, but it was not part of nor did it affect any access routes to the warehouse.

After title closed, defendant issued plaintiff a title policy covering the warehouse property. The policy contained the following clause insuring access to public streets: "Notwithstanding any provisions in this paragraph to the contrary, this policy, unless otherwise excepted, insures the ordinary rights of access and egress belonging to abutting owners." It should be noted that no exception was listed in the policy for any condemnation affecting Carvel Place, St. George Street or Jeanette Avenue.

At the time the property was purchased, plaintiff leased the entire premises to Pan American World Airways, Inc. In addition, plaintiff had spent an additional $95,000 above the purchase price in order to improve the premises for its new tenant. Unfortunately it was soon discovered that the title search had failed to reveal that the roadbeds of St. George Street and Jeanette Avenue and a portion of the property along Carvel Place had been condemned by the Town of Hempstead two years prior to plaintiff's acquisition of the property. It was apparent that the defendant's title searchers simply failed to check the master card on file at the Nassau County Clerk's office covering the applicable section and block which would have revealed these condemnations.

By 1971, plans for urban development in the Town of Hempstead required the closing down of the warehouse access routes at St. George Street and Jeanette Avenue, thereby rendering the property valueless. As a result, Pan American quit the premises and plaintiff eventually lost 31-39 Carvel Place in a foreclosure sale. Plaintiff then commenced the present action against the defendant seeking to recover $600,000 in damages pursuant to its title insurance policy based on the defendant's failure to discover the condemned roadbed property. *

In its answer, defendant pleaded an affirmative defense based on the following standard provision in its policy:

"MISREPRESENTATION

"Any untrue statement made by the insured, with respect to any material fact, or any suppression of or failure to disclose any material fact, or any untrue answer by the insured, to material inquiries before the issuance of this policy, shall void this policy."

According to defendant, plaintiff, through its agent Tucker, had knowledge prior to the closing of the town's condemnation as a result of his conversation with Lee. Defendant asserted that plaintiff's failure to divulge this knowledge to the defendant was a "failure to disclose (a) material fact" which rendered the title policy void.

At the end of a nonjury trial, Trial Term dismissed plaintiff's claim. Finding that plaintiff, through Tucker, had knowledge of the condemnations prior to the issuance of the policy which it failed to disclose to the defendant, Trial Term concluded that the policy was nullified.

On appeal, a unanimous Appellate Division, 70 A.D.2d 455, 421 N.Y.S.2d 232, affirmed, but for reasons somewhat different than those expressed at Trial Term. The Appellate Division determined that although Tucker had been alerted by Lee as to the taking along Carvel Place of damage parcel 8-6, this fact offered no basis for the further inference, one apparently drawn by Trial Term, that Tucker also had knowledge of the condemnation of the roadbeds at St. George Street and Jeanette Avenue. Thus, the Appellate Division found that Tucker only had knowledge prior to the closing of the Carvel Place taking and of the condemnation of the small adjacent parcel at the southwest corner of the property which was identified at the closing by Mrs. De Giulio. According to the Appellate Division, the crucial issue of the case was whether "this knowledge concerned a material fact, the concealment of which was tantamount to a misrepresentation sufficient to permit defendant to void its title policy" (70 A.D.2d, at p. 461, 421 N.Y.S.2d 232).

In addressing this issue, the court below defined materiality in terms of "whether the suppression deprived the insurer of its freedom of choice in determining whether to accept or reject the risk upon full disclosure of all the facts which might reasonably affect that choice." (70 A.D.2d at p. 462, 421 N.Y.S.2d 232.) The court went on to state (at p. 463, 421 N.Y.S.2d 232) that materiality "extends to any information that might have been revealed had further inquiry followed the initial disclosure of the suppressed facts." The court found that information regarding the condemnation of damage parcel 8-6 at Carvel Place was not itself material in that that taking had little, if any, effect on the value of the property. However, because disclosure of the Carvel Place taking, revealed to Tucker prior to closing, would have caused the defendant to check the appropriate public records and inevitably led to the discovery of the St. George Street and Jeanette Avenue condemnations, the Appellate Division concluded (70 A.D.2d, at p. 463, 421 N.Y.S.2d 232) that "no title insurance company with knowledge of (these) facts would have insured ingress and egress over streets already condemned for an urban renewal project." Therefore, inasmuch as Tucker's failure to disclose the information acquired in his conversation with Lee deprived the defendant of its "freedom of choice in determining the nature, scope and extent of the risk it would assume", the Appellate Division held (at p. 464, 421 N.Y.S.2d 232) that the suppression of the information regarding the Carvel Place condemnation was "material as a matter of law and would preclude recovery on the policy". We reverse.

At the outset, we note our agreement with the court below that information concerning the condemnations of damage parcel 8-6 adjacent to Carvel Place and the St. George...

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