## Facts

- The Coopers owned subdivision property in Homer, Alaska; in 1984 the U.S. Army Corps of Engineers halted their construction due to wetlands requiring a fill permit.
- The Coopers obtained a Corps wetlands permit effective May 2, 1985, valid for three years; it was never recorded and later expired.
- Bear Fritz agreed to purchase the subdivision lots and obtained a preliminary title insurance commitment from Kachemak Bay Title Agency and Ticor on May 1, 1985.
- The sale closed in late May 1985; Ticor issued a title insurance policy to Bear Fritz on August 22, 1985.
- The policy insured against loss from a “defect” or “encumbrance” on title, but stated those terms did not include laws, governmental acts, or regulations regulating property use.
- Bear Fritz asserted it first learned of the permit in 1989 or 1990 while negotiating lot sales; the permit had already expired.
- Bear Fritz stopped paying the Coopers’ purchase-money note; the Coopers sued on the note.
- Bear Fritz filed third-party claims against the title company/insurer for breach of contract and negligence based on failure to disclose the permit in the commitment and policy.

## Issues

1. Whether the wetlands designation and Corps wetlands permit (including its expiration) constituted a “defect” or “encumbrance” on title covered by the title insurance policy.
2. Whether nondisclosure of the permit in the preliminary commitment or policy could support liability for breach of contract or negligence.

## Decision

- The Alaska Supreme Court affirmed summary judgment for the title agency/insurer.
- The court held that wetlands designation and permit requirements are restrictions on land use, not defects in or encumbrances on title.
- The court concluded the policy’s coverage did not extend to governmental regulations affecting use, and the omission of the permit did not create contract or tort liability.

## Legal Principles

- Title insurance protects against defects in ownership or recorded interests affecting title, not against public-law restrictions that limit development or reduce property value.
- Marketability of title (ability to convey clear title) is distinct from economic marketability (value or suitability for intended development).
- Governmental laws and regulations regulating land use are not “defects” or “encumbrances” within standard title policy coverage when the policy so defines those terms.
- When the complained-of condition is not a covered title risk, failure to disclose that condition in a title commitment or policy does not, as a matter of law, support breach-of-contract or negligence claims premised on title coverage.

## Conclusion

Because wetlands status and Corps permitting requirements affected only the permissible use of the land and did not impair ownership or the ability to convey the property, they were not covered “defects” or “encumbrances” under the title policy; summary judgment for the title agency and insurer was properly affirmed.


Bear Fritz Land Co. v. Kachemak Bay Title Agency, Inc., 920 P.2d 759 (Alaska 1996)