• Federal Court In Texas Holds Coverage For Claims Alleging City Failed To Approve Zoning Permit Excluded By Inverse Condemnation Exclusion
  • November 28, 2012 | Author: George B. Hall
  • Law Firm: Phelps Dunbar LLP - New Orleans Office
  • A federal court in Texas recently held that coverage for claims that a municipality had deprived a property owner of the use, benefit and enjoyment of land is excluded under an inverse condemnation exclusion. City of College Station, Tex. v. Star Insurance Company, 2012 WL 4867568 (S.D. Tex. Oct. 12, 2012).

    A developer purchased a parcel of land with the intent to develop it into a shopping center and requested that the City rezone the property for commercial use. The City initially denied the request, but subsequently approved it subject to, according to the developer, unprecedented conditions that “severely restricted . . . access” to the property. The developer sued the City, alleging that the zoning restrictions deprived it of the use, benefit and enjoyment of the land. The City notified its insurer of the suit, but defended and settled the claims itself. The City then sought reimbursement of its defense costs and that part of the settlement amount exceeding a self-insured retention. The insurer denied coverage on the basis of an inverse condemnation exclusion for liability “actually or allegedly arising out of or caused or contributed to by or in any way connected with the principle of eminent domain, condemnation proceeding, inverse condemnation, dedication by adverse use or adverse possession, by whatever name called.”

    The court concluded that because the claims against the City arose out of its refusal to rezone the property as requested, the claim constituted an inverse condemnation claim for which coverage was excluded. The court also noted that even though the developer had asserted a number of other causes of action, it concluded that because none of those causes of action could exist independently of the claim that the City failed properly to rezone the property, and that the exclusion excluded coverage for those claims as well.