ATG receives numerous claims each year relating to building code violations, many of which are denied. The basis for the denial is usually that no document has been recorded reflecting the building code violations. Title insurance policies do not cover building code violations. Agents should review both Covered Risk 5 of the Owner’s Policy of Title Insurance (“policy”) and Exclusion from Coverage 1(a)(ii) of the policy to understand why many of the building code claims are denied. 

Covered Risk 5 of the policy provides coverage for building code violations only if there is notice recorded. Specifically, Covered Risk 5 provides that ATG will defend or indemnify the insured against loss or damage sustained or incurred by reason of:

5.         The violation or enforcement of any law, ordinance, permit, or governmental regulation (including those relating to building and zoning) restricting, regulating, prohibiting, or relating to:

             . . .

(b) the character, dimensions, or location of any improvement erected on the Land.

            . . .

if notice, describing any part of the Land, is recorded in the Public Records setting forth the violation or intention to enforce, but only to the extent of the violation or enforcement referred to in that notice.   

Exclusion from Coverage 1(a)(ii) provides that  ATG will not pay loss or damage, costs, attorneys’ fees, or expenses that arise by reason of:

1.(a)  Any law, ordinance, permit, or governmental regulation (including those relating to building or zoning) restricting, regulation, prohibiting, or relating to:

            . . .

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

            . . .

or the effect of any violation of these laws, ordinances, or governmental regulations.This Exclusion 1(a) does not modify or limit the coverage provided under Covered Risk 5. 

For City of Chicago properties, the notice of violation will typically be a recorded document entitled "Recordings of Findings, Decision and Order." Other municipalities have similar documents. See Administrative Cases in the Chain of Title for information regarding when an administrative order can be waived.

When a city is attempting to enforce an administrative order, a case is typically filed in the county in which the city is located. A lis pendens notice would be recorded regarding the case.

If your client is concerned that there could be a building code violation and no document has been recorded, it would be prudent to contact the city to determine if there are any pending violations. If you have any questions regarding building code violations, please contact the ATG Underwriting Department, legal@atgf.com, 217.403.0020, or 312.752.1990.