Eminent Domain Insurance – Another Hefty Closing Fee?

According to a San Diego Business Journal article, a California insurance underwriter has created a new policy to insure against loss resulting from rezoning or condemnations through eminent domain. The policy is backed by certain underwriters at Lloyd’s of London.

The insurance is being developed in response to the U.S. Supreme Court decision KELO vs. New London, CT, an eminent domain case where the U.S. Supreme Court decided that it should be left to the discretion of the respective State as to whether local governments had the right to take private lands for either public use or private use. The case caused an uproar nationwide, followed by virtually all states reviewing their eminent domain statutes.

For under $300 per year, the policy will provide up to $200,000 loss of market value when the home is sold, plus up to $50,000 to relieve the expense of moving as a result of eminent domain. The Group hopes to market the policy through residential real estate and insurance industries, similar to buying property and casualty insurance or a homeowner’s warranty. A significant fee for an unlikely expense, I suspect. However, if lenders can be sold on the idea that there is a significant risk, it may become just another closing fee.