Zoning issue involving a stand-alone barn
finds both buyers and sellers entangled in lawsuit
By Bruce D. Hicks, CPCU, CLU
The Court Decisions column is a popular part of Rough Notes magazine. One reason for this is that the court room is where the promises made in an insurance contract often become real. All insurance professionals can develop “what if” scenarios, but until those scenarios are tested with an actual loss and a court decision, they remain mental exercises. This column comes from the industry expert contributors to Policy Forms & Manual Analysis (PF&M). This is a knowledge base consisting of more than 15,000 pages of coverage explanations from The Rough Notes Company’s digital solutions. The contributors are going to dig a little deeper into one of those court decisions to identify a coverage problem, provide possible solutions and/or offer broader perspectives.
Neither the property sellers nor the buyers appeared to have any personal stake
in the stand-alone barn, especially as the building’s intended purpose or value was not even referenced during the dispute.
This month, we’ll focus on the case Sanford Sachtleben and Luciann Hruza v. Alliant National Title Insurance Company.
The Sullivans sold twenty acres of land to Sanford Sachtleben and Luciann Hruza in September 2016. At the time of the sale, a barn built by the Sullivans in 2015 was located on the property. Due to the sellers’ activities regarding building permits, the stand-alone barn violated the zoning for the land, which was strictly for residential use.
After purchasing the land, Sachtleben and Hruza sought title insurance coverage via an insurance broker that secured a policy, but also advised the new landowners’ insurer of a pending county lawsuit regarding the zoning issue, which had been filed against the sellers more than a month before the sale closed.
The buyers claimed that they were completely ignorant of the zoning issue until the county sent notice that, as the new property owners, they had been added as defendants in October 2016. After several years, court actions left Sachtleben and Hruza at a literal loss. The land they purchased was confirmed as violating the county’s zoning law.
Relying solely on the court summary as written, the amount of digging needed to understand this situation is substantial. Title insurance is quite a bit different than other lines of business. The protection it provides is based upon a snapshot it takes of conditions that exist when two parties wish to legally transfer property.
First, a title insurer determines the exposure before offering coverage. Second, if a policy is issued, coverage is limited. The resulting policy only protects against situations that were not identified as of the date of the policy’s issuance.
When a title insurer’s search does reveal an issue, it generally either refuses to issue a policy, or the policy is issued, accompanied with a carve-out where the impairment is specifically excluded from coverage.
The Sullivans v. Sachtleben/Hruza dispute is a puzzle. The title impairment was the barn. Its construction allegedly involved the Sullivans committing permit chicanery. The stand-alone barn was not supported by the land’s actual zoning nor by a zoning exception.
Neither the property sellers nor the buyers appeared to have any personal stake in the stand-alone barn, especially as the building’s intended purpose or value was not even referenced during the dispute.
The title insurance policy that was issued made no reference to the barn/zoning violation. This is quite odd considering that the insurance broker made the insurer aware of the zoning problem. In light of their awareness, the policy should have at least included a coverage carve-out (exclusion) for the serious title impairment.
What was the true point of the litigation?! After the passing of several years, nothing essential changed. The zoning violation posed by the barn was not covered by the title insurance and the sale and use of the land remained impaired.
By all appearances, the resolution should have been addressed directly. If the barn were of any importance as part of residential intent, the new owners could have filed a permit to build an accompanying residence, thereby achieving zoning compliance.
If the barn held no relevance, either the previous or the current owners could have demolished and removed the structure, which also would have achieved compliance. The sellers and buyers could have adjusted the property’s purchase price to accommodate the expense of the removal or just split the cost of doing so.
The lack of communication regarding the entire transaction is stunning.
However, eventually, all the parties became equally aware of the problem. From that point, it was incomprehensible that resolution was pursued through suits and countersuits rather than simply resolving the title impairment.
The author
Bruce D. Hicks, CPCU, CLU, is an Indiana-based insurance coverage expert. Active in the CPCU Society, Bruce served as a governor of the organization from 2007 through 2010 and most recently served on its International Interest Group Committee and as Chair of its Publications Committee.
