Q & A | Will an Owner’s Policy provide insurance coverage for an illegal lot situation?

Q: Will an Owner’s Policy provide insurance coverage for an illegal lot situation (land division without compliance with the subdivision regulations and ordinances)?

A: No, due to an Exclusion from Coverage found in the promulgated language of the jacket that excludes coverage for any loss, damage, costs, expenses, attorney’s fees  and/or the effect of a violation, which arise due to any law, ordinance, permit or governmental regulation, including building and zoning ordinances and regulations, that restrict, regulate, or prohibit or relate to:

(i) the occupancy, use or enjoyment of the land;

(ii) the character, dimensions or location of any improvement erected on the land;

(iii) the subdivision of land; or

(iv) environmental protection.

This exclusion from coverage, however, does not limit the coverage provided elsewhere in the policy when there is a notice filed of record in the real property records describing a violation or intention to enforce any such law, ordinance, permit or governmental regulation that is not addressed at closing.  For example, we often see recorded notices of dilapidated structures or notice of abatement of nuisance which relate to other types of violations than an illegal lot situation.  These items should be reflected on Schedule C and releases obtained in connection with the closing.