## Facts

- William and Melissa Hatch bought a home in Rowley, Massachusetts in April 1986 and purchased an owner’s title insurance policy from First American Title Insurance Company; the policy was delivered 18 days after closing.
- The policy included Paragraph 7, limiting claims where the insurer, after notice, cured a defect or established title “within a reasonable time” (7(a)) and barring claims during title litigation absent a final determination adverse to title (7(b)).
- About a year later, the Hatches contracted to sell the Rowley property for $136,000 and, anticipating those proceeds, bought a home in Wayland, Massachusetts financed in part by a $29,000 loan intended to be repaid from the Rowley sale.
- In November 1987, the prospective buyers asserted a title defect making title unmarketable, based on an old town ordinance reserving a long-unused grazing right.
- The Hatches terminated the sales contract in January 1988 and notified First American that title had been rejected.
- First American assumed payment of interest on the mortgage associated with the Rowley property; the Hatches continued to pay interest on the Wayland loan.
- First American filed a Massachusetts Land Court petition to establish title; in June 1994 the Land Court entered judgment confirming the Hatches’ title.
- After judgment, the Hatches sold the Rowley property for $114,000 and later claimed under the policy for (1) the earlier $136,000 contract value and (2) approximately $20,000 in Wayland-loan interest; First American denied liability based on Paragraph 7.

## Issues

1. Whether Paragraph 7(a) barred coverage because the insurer ultimately established insured title by litigation within a reasonable time after notice, precluding damages for losses during the period of unmarketability.
2. Whether Paragraph 7(b) barred any claim where title litigation ended with a final determination favorable to the insureds rather than adverse to their title.
3. Whether the more-than-five-year Land Court process was, on the undisputed record, a “reasonable time” as a matter of law under Paragraph 7(a).

## Decision

- The court granted summary judgment for First American.
- Paragraph 7(a) barred the insureds’ claim because the insurer pursued litigation and ultimately established insured title within a reasonable time after notice.
- Paragraph 7(b) independently barred recovery because the only final determination in the title litigation confirmed, rather than defeated, the insureds’ title.
- The policy did not require the insurer to pay consequential damages (lost sale price and Wayland-loan interest) arising from delay while the insurer exercised its contractual right to litigate and cure.
- The insureds remained bound by the policy terms despite delivery after closing, absent proof supporting rescission, fraud, or a statutory violation.

## Legal Principles

- Title insurance is an indemnity contract for covered title losses as defined by the policy, not a continuing guarantee that title will always be marketable.
- Where a title policy gives the insurer the contractual option to cure a defect or establish title, successful cure within a reasonable time after notice can eliminate any maintainable claim under the policy.
- A litigation-pending clause may bar claims until a final determination, and when the final determination is favorable to insured title, the contractual trigger for indemnity based on an adverse determination does not occur.
- Consequential losses caused by delay (such as a failed sale or interim financing costs) are not recoverable when the policy’s cure provisions apply and the insurer successfully establishes title within the contractual standard.
- Absent legally sufficient grounds to avoid the contract, insureds are bound by limitations contained in the delivered policy even if they did not review them at purchase.

## Conclusion

The court enforced the title policy’s cure and litigation-bar provisions to hold that the insurer owed no indemnity for the insureds’ claimed diminution in sale price or interim loan interest because the insurer diligently litigated and ultimately established good title within a reasonable time, and the final judgment confirmed rather than impaired the insureds’ title.


Hatch v. First Am. Title Ins. Co., 895 F. Supp. 10 (D. Mass. 1995)