## Facts

- Purchasers acquired roughly 30 acres in Santa Clara County and bought standard owner’s title insurance policies from two title insurers.
- The site had a long industrial history involving underground storage tanks and releases of hazardous substances into soil and groundwater.
- Public agency records before closing reflected contamination and regulatory attention.
- After closing, regulators required investigation and remediation; purchasers incurred substantial cleanup-related costs and faced the possibility of a future statutory lien to secure governmental cleanup expenses.
- Purchasers sought coverage, alleging (1) contamination and cleanup obligations were an “encumbrance” or made title “unmarketable,” and (2) the potential future cleanup lien was a covered title defect.
- The trial court sustained a general demurrer without leave to amend and dismissed the action; purchasers appealed.

## Issues

1. Whether environmental contamination and associated cleanup obligations constitute an “encumbrance” on title covered by standard title insurance.
2. Whether contamination and cleanup obligations render title “unmarketable” within policy coverage for unmarketability of title.
3. Whether the possibility of a future statutory cleanup lien is a present defect, lien, or encumbrance covered by the policies.

## Decision

- The Court of Appeal affirmed the dismissal after de novo review of the demurrer ruling.
- Existing hazardous substances on the land concern the property’s physical condition and value, not the state of legal title; therefore, they are not a covered “encumbrance” and do not make title “unmarketable.”
- A potential future statutory lien is not a present lien or encumbrance; absent an existing recorded or imposed lien, there is no covered title defect.

## Legal Principles

- Title insurance insures against specified defects in legal title (e.g., liens, easements, restrictive covenants), not against physical conditions of the land that affect value.
- “Marketability of title” addresses defects in the legal right to convey, not diminished market value caused by property conditions.
- Environmental cleanup duties, standing alone, do not create a third-party property interest in the land and are not an “encumbrance” within standard title policy coverage.
- Speculative or future risks (such as a possible later-filed cleanup lien) are not covered absent a present, existing title defect, lien, or encumbrance.

## Conclusion

The court held that standard title insurance does not cover losses from environmental contamination or remediation obligations because they relate to the land’s physical condition rather than defects in legal title, and the mere possibility of a future cleanup lien is not a present covered encumbrance.


Lick Mill Creek Apartments v. Chicago Title Insurance Co., 231 Cal. App. 3d 1654 (Ct. App. 1991)