A degree of legal closure has settled following a failed New Orleans housing project and years of litigation.
The U.S. Court of Appeals for the Fifth Circuit affirmed the district court’s ruling in a dispute between the developer, Levy Gardens Partners, and its title insurance company, Commonwealth Land Title Insurance Company. The U.S. District Court for the Eastern District of Louisiana ordered Commonwealth to pay Levy Gardens $605,000 under their title insurance policy with Commonwealth. Levy Gardens sought a greater recovery and filed an appeal. Commonwealth sought to have the judgment nullified, claiming Levy Gardens was not entitled to any money under the title insurance policy.
Commonwealth agreed to cover a loss in value of the property’s title. The insurance policy contained a zoning endorsement which committed Commonwealth to insure against the risk that the land was misclassified as a multi-family housing zone. An insurance endorsement is an amendment to a policy that either adds or limits coverage. This endorsement expanded coverage to account for zoning errors. The policy in this case also required Levy Gardens to comply with any conditions, restrictions, or requirements in the zoning ordinances. The policy limit was more than $18 million.
Levy Gardens had originally obtained the proper City of New Orleans permits pursuant to a 1995 ordinance. The City Council of New Orleans thereafter issued an ordinance in 2008, requiring application of the most restrictive regulations to the property. Subsequent state court litigation then revealed a 1985 zoning ordinance which prohibited the multi-family housing proposed by Levy Gardens. Unfortunately for Levy Gardens, the 1995 ordinance did not override the 1985 ordinance. Citing the 1985 and 2008 ordinances, the state court issued a preliminary injunction. Levy Gardens had to cease construction until they successfully went through a “conditional use process” with the city to obtain exemption from the 1985 ordinance. The 1985 ordinance adversely affected the value of the property’s title.
After a back and forth with Commonwealth over the title insurance, Levy Gardens brought suit to collect on the insurance policy. On summary judgment, the district court found the policy covered the loss in value of the property’s title. The court then held a bench trial to determine damages. The court made five findings: (1) Levy Gardens was entitled to $605,000 to compensate for the difference in value before and after the 1985 ordiance applied to the property; (2) Commonwealth’s conduct in denying Levy Gardens’ claim under the policy did not warrant penalties under Louisiana law; (3) the zoning endorsement could not be read separately from the rest of the policy; (4) the policy’s language of “loss or damage” in the zoning endorsement was not ambiguous; (5) and Levy Gardens’ recovery is limited to the loss of value in the property due to the 1985 ordinance.
The appeals court affirmed in all respects.
Commonwealth argued to the Fifth Circuit that, despite the rulings from the state court, the 1995 ordinance superseded the 1985 restrictive ordinance. The appeals court, however, could not revisit this state law determination. The decision on the 1985 ordinance had already been made by the state courts. The federal courts were not in a position to change that decision. Levy Gardens, in turn, argued that they were entitled to a more expansive recovery. Levy Gardens sought compensation for the construction costs incurred before the discovery of the 1985 ordinance. The appeals court rejected Levy Gardens’ arguments and found no reversible error by the trial court. The clause covering the extent of liability was unambiguous. The policy covered the diminution in the value of the property’s value, no more and no less. The zoning endorsement was added to the policy to insure against any problems with the zoning ordinance. The endorsement was not intended to cover loss from use other than the loss of value in title. Finally, the appeals court accepted the lower court’s decision not to sanction Commonwealth. The Louisiana statutory penalties punish insurance companies for an unreasonable refusal to pay satisfactorily proven claims. The district court found, and the appeals court agreed, that Commonwealth had a good faith basis to deny payment.
Please contact the Berniard Law Firm for assistance with any insurance question or dispute.