Economic lack of marketability relates to physical conditions affecting the use of the property, while title marketability relates to defects affecting legally recognized rights and incidents of ownership. The presence of hazardous material may affect the market value of land, but where no lien has been recorded, it does not affect the title to the land.
In early October 1986, Plaintiff Lick Mill Creek Apartments (Lick Mill) acquired a property. According to the records, there is a presence of hazardous substances on the subject property. Lick Mill purchased title insurance on the property from Chicago Title Insurance Company (Chicago Title), which conducted a survey of the land and noted the presence of pipes, tanks, and pumps. Chicago Title issued a policy covering loss or damage resulting from, among other things, unmarketability of title and encumbrance on the land. Lick Mill incurred costs for removal and clean-up of the hazardous substances in order "to mitigate plaintiffs' damages and avoid costs of compliance with government mandate." Then, claiming their expenses were a substitute, that is a payment made under threat of compulsion of law, for restitution to the State Hazardous Substance Account and "response costs" as defined under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), Lick Mill sought indemnity from Chicago Title for the sums expended in their cleanup efforts. Chicago Title, however, denied coverage. Lick Mill filed suit against Chicago Title and the trial court held that title insurance policies issued by Chicago Title did not provide coverage for the costs of removing hazardous substances from Lick Mill’s property.
Could Lick Mill claim coverage for the property's physical condition under the clause of the title insurance policies?
The Court on appeal rejected Lick Mill’s contentions that since the presence of hazardous substances on the property impaired its marketability, Chicago Title was obliged to pay cleanup costs, as they amounted to a lien upon the property. The Court found a distinction between marketability of title and the market value of the land itself. Therefore, the court held that Lick Mill could not claim coverage for the property's physical condition under the clause of the title insurance policies.