Eureka Inv. Corp., NV v. Chicago Title Ins. Co., Civ. A. No. 80-1014

CourtUnited States District Courts. United States District Court (Columbia)
Writing for the CourtStanley C. Morris, Jr., Roger E. Warin, Washington, D. C., for Chicago Title Ins. Co
PartiesEUREKA INVESTMENT CORPORATION, N. V., Plaintiff, v. CHICAGO TITLE INSURANCE COMPANY, Defendant. CHICAGO TITLE INSURANCE COMPANY, Plaintiff, v. EUREKA INVESTMENT CORPORATION, N. V., Defendant.
Decision Date14 January 1982
Docket NumberCiv. A. No. 80-1014,80-2021.

530 F. Supp. 1110

EUREKA INVESTMENT CORPORATION, N. V., Plaintiff,
v.
CHICAGO TITLE INSURANCE COMPANY, Defendant.

CHICAGO TITLE INSURANCE COMPANY, Plaintiff,
v.
EUREKA INVESTMENT CORPORATION, N. V., Defendant.

Civ. A. Nos. 80-1014, 80-2021.

United States District Court, District of Columbia.

January 14, 1982.


530 F. Supp. 1111
COPYRIGHT MATERIAL OMITTED
530 F. Supp. 1112
COPYRIGHT MATERIAL OMITTED
530 F. Supp. 1113
Stephen M. Sacks, Lawrence V. Stein, Washington, D. C., for Eureka Inv. Corp

Stanley C. Morris, Jr., Roger E. Warin, Washington, D. C., for Chicago Title Ins. Co.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

GESELL, District Judge.

These consolidated actions involve a dispute over a title insurance policy which

530 F. Supp. 1114
Eureka Investment Corporation, N.V. ("Eureka") secured in February, 1979, from Chicago Title Insurance Company ("CTI") to insure certain real property in the District of Columbia known as Carrollsburg Square

Eureka acquired an interest in this group of rental apartments and town houses with the intention of converting the units into condominiums and selling them to the public. Shortly after Eureka announced its plans to convert, the tenants, relying on certain statutory protections existing under the law of the District of Columbia, mounted a well-organized campaign to block the conversion by litigation and other means. Eureka's title policy specifically insured against loss or damage caused by any attempt by the tenants to enforce their statutory rights. CTI acknowledged that the tenant actions placed a cloud on title and agreed to pay Eureka's legal expenses in opposing the tenants. Over the course of the ensuing months Eureka's representatives held settlement discussions with the tenants and discussed the advisability of settlement and other options with CTI. For reasons that will appear, Eureka and CTI ultimately failed to agree on a common plan of action and Eureka entered into a settlement agreement with the tenants without the consent of CTI.

Following this rupture CTI filed an action in the Northern District of Illinois for a declaratory judgment that it had met its obligations under the policy and Eureka filed an action in this Court to recover the cost of the settlement and damages due to delay in converting Carrollsburg Square caused by the tenants. CTI's declaratory judgment action was transferred to this Court and the two cases were consolidated for trial. After a bench trial the Court must now determine whether Eureka's unilateral settlement with the tenants was permitted by the terms of the policy or excused by CTI's prior breach of the policy, and, if so, to what extent Eureka may recover the costs of the settlement and on its claim for delay damages.

I. BACKGROUND

The title insurance policy deviated from CTI's standard title insurance form in one respect which is the focus of this litigation. CTI's standard policy contains an exception for claims asserted by tenants. This provision was stricken in favor of a special Note II which provided:

The policy insures against loss or damage arising out of an enforcement or attempted enforcement of the rights, if any, of Tenants in the property pursuant to the provisions of Section 602 of the Rental Housing Act of 1977 (District of Columbia Law 2-54) or the Emergency Multi-Family Rental Housing Purchase Act of 1979, as the same may be amended.1

Section 602, as amended in October, 1978, provided that an owner of multi-family housing could not sell without giving the tenants advance notice and an opportunity to purchase the building and, where no eligible tenants organization existed, time to form a tenants organization capable of purchasing the building.

Eureka announced on April 30, 1979, that it intended to convert one of the large apartment buildings in the Carrollsburg Square complex. Promptly thereafter the tenants claimed that their rights under section 602 had been violated since the prior owner of Carrollsburg Square had not given the tenants advance notice of the sale to Eureka or the opportunity to organize a tenants association. On May 9, 1979, the tenants asked the District of Columbia Rent Administrator to conduct an investigation to determine whether their 602 rights had been violated. After a hearing the Rent Administrator dismissed the tenant petition. This decision was appealed, and on August 14, 1979, the D. C. Rental Accommodations Commission reversed the decision of the Rent Administrator in part and issued an order enjoining Eureka from proceeding

530 F. Supp. 1115
with the conversion. The Commission remanded the matter to the Rent Administrator to consider whether Rozansky & Kay Construction Company, which had assigned the purchase contract for Carrollsburg Square to Eureka, had violated the Rental Housing Act. Eureka then appealed the injunction to the D. C. Court of Appeals. A motion for summary reversal or stay pending appeal was denied and the order remained in effect until January 4, 1980, when the Commission vacated its order following the D. C. Court of Appeals grant of the Commission's request for a remand

By this time, however, the tenants had raised other legal obstacles to Eureka's conversion plans. The Rent Administrator on remand from the Commission concluded that Rozansky & Kay had violated section 602. Relying on this decision the tenants brought suit in the Superior Court of the District of Columbia to enjoin the conversion pending appeal. In addition, on December 27, 1979, acting on a tenant petition, the D. C. Department of Housing and Community Development sent a letter to Eureka threatening to issue a cease-and-desist order to prevent Eureka from proceeding with the conversion until questions surrounding the title were resolved.

The tenant actions had the effect of making the individual condominium units unmarketable and therefore prevented Eureka from proceeding with the conversion. Eureka vigorously opposed the tenants' actions and kept CTI fully and promptly advised of all the developments described above as they occurred. Upon receiving notice of the tenant actions, CTI promptly agreed that they were within the risks covered by Note II and agreed to pay all of Eureka's legal expenses in opposing the tenants.

As the prospect of a prompt resolution of the dispute with the tenants became more uncertain Eureka became convinced that settlement with the tenants was the wisest solution to its business problem. Eureka had always contemplated a quick sell-out to pay off loans needed for the purchase and to realize quick profit from the venture. While the tenants were not expected to succeed,2 Eureka believed it faced uncertain but potentially serious losses due to delay of its anticipated schedule for converting the apartments.

Commencing in the fall of 1979, Eureka held strenuous settlement negotiations with the tenants. By January, 1980, the tenants had reduced their demands to the point that Eureka believed it could arrange a reasonable settlement. During January and early February representatives of Eureka had several meetings with CTI officials to work out a basis upon which CTI would agree to issue "outsale" policies insuring title to individual condominium units so that closings could commence. CTI objected to the settlement on the ground that the amount Eureka was willing to pay the tenants was unreasonably high and refused to issue outsale policies based on the proposed settlement except on the condition, among others, that Eureka pay the entire cost of the settlement. CTI also refused Eureka's suggestion that it issue outsale policies so that sales of condominiums could proceed during the course of the litigation. Other possible solutions were discussed without agreement.3 CTI instead proposed that the litigation with the tenants be pursued to a final determination. This, like other alternatives, was rejected by Eureka.

Eureka, without obtaining the consent of CTI, entered into a settlement agreement on February 6, 1980, with the tenants' association

530 F. Supp. 1116
which was ratified by a large majority of the tenants. Eureka obtained a commitment from another title insurer to issue the necessary outsale policies. In accordance with the settlement agreement the major legal obstacles to conversion raised by the tenants were dropped. Thereafter, Eureka was able to close its sales of individual condominium units and to proceed with its sales efforts

II. LIABILITY

Clause 7(c) of the policy reads as follows:

No claim shall arise or be maintainable under this policy ... for liability voluntarily assumed by an insured in settling any claim or suit without prior written consent of the Company.

Despite its failure to obtain CTI's consent to the settlement Eureka argues that it is entitled to recover on the policy under either of two theories. First, Eureka argues that CTI's refusal to consent to the settlement with the tenants negotiated by Eureka was unreasonable and that, notwithstanding clause 7(c), an unreasonable refusal to settle by the insurer constitutes a breach of its duty to its insured. Alternatively, Eureka argues that it was free to settle without CTI's consent because CTI had previously breached the policy by denying liability for damages arising from delay of the project caused by the tenants' attempted enforcement of their rights.4

A. CTI Had No Duty To Settle

Eureka's argument that CTI had a duty to accept the settlement Eureka had negotiated even though CTI believed the settlement was excessive and inconclusive can be resolved in short order. As stated by the Court in Traders & General Ins. Co. v. Rudco Oil & Gas Co., 129 F.2d 621 (10th Cir. 1942):

It is well settled that if the potential loss is within the limits and coverage of the policy and the insurer accepts liability therefor, by agreeing to defend the claims or suits against its assured, and to pay the losses when established, the insurer is accorded the absolute control
...

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7 practice notes
  • Falmouth Nat. Bank v. Ticor Title Ins. Co., No. 90-1335
    • United States
    • United States Courts of Appeals. United States Court of Appeals (1st Circuit)
    • September 7, 1990
    ...Ins. Underwriting Ass'n, 399 Mass. 886, 900 n. 27, 507 N.E.2d 717, 725 n. 27 (1987); Eureka Inv. Corp., N.V. v. Chicago Title Ins. Co., 530 F.Supp. 1110, 1118 (D.D.C.1982), aff'd in relevant part and rev'd in part, 743 F.2d 932 In attempting to discern the expectations of the parties, Massa......
  • Broadhead v. Hartford Cas. Ins. Co., Civ. A. No. J86-0667(L).
    • United States
    • United States District Courts. 5th Circuit. Southern District of Mississippi
    • April 16, 1991
    ...(insured may settle claim without consent of insurer if insurer denies liability); Eureka Inv. Corp., N.V. v. Chicago Title Ins. Co., 530 F.Supp. 1110 (D.C.1982) aff'd in part, rev'd in part, 743 F.2d 932 (D.C.Cir.1984) (policy provisions prohibiting out-of-court settlements between insured......
  • Eureka Inv. Corp., N.V. v. Chicago Title Ins. Co., Nos. 82-1156
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • September 14, 1984
    ...second principle is concerned. 8 8 J. WIGMORE, supra, at 603, 604. 9 Eureka Investment Corp., N.V. v. Chicago Title Insurance Co., 530 F.Supp. 1110, 1125 10 Id. at 1127. 11 See Manes v. Dowling, 375 A.2d 221, 224 (D.C.1977); Pemberton v. OvaTECH, Inc., 669 F.2d 533, 541 (8th Cir.1982) (appl......
  • Habecker v. Clark Equipment Co., Civ. A. No. 1:CV-86-0352.
    • United States
    • United States District Courts. 3th Circuit. United States District Court of Middle District of Pennsylvania
    • August 25, 1992
    ..."some injury" was binding); see also In re Eagson Corp., 37 B.R. 471 (Bankr.Pa.1984); Eureka Investment Corp. v. Chicago Title Ins. Co., 530 F.Supp. 1110, 1117 The court believes that Clark's admission through counsel at the second trial must be read more broadly than Clark urges. As an ini......
  • Request a trial to view additional results
7 cases
  • Falmouth Nat. Bank v. Ticor Title Ins. Co., No. 90-1335
    • United States
    • United States Courts of Appeals. United States Court of Appeals (1st Circuit)
    • September 7, 1990
    ...Ins. Underwriting Ass'n, 399 Mass. 886, 900 n. 27, 507 N.E.2d 717, 725 n. 27 (1987); Eureka Inv. Corp., N.V. v. Chicago Title Ins. Co., 530 F.Supp. 1110, 1118 (D.D.C.1982), aff'd in relevant part and rev'd in part, 743 F.2d 932 In attempting to discern the expectations of the parties, Massa......
  • Broadhead v. Hartford Cas. Ins. Co., Civ. A. No. J86-0667(L).
    • United States
    • United States District Courts. 5th Circuit. Southern District of Mississippi
    • April 16, 1991
    ...(insured may settle claim without consent of insurer if insurer denies liability); Eureka Inv. Corp., N.V. v. Chicago Title Ins. Co., 530 F.Supp. 1110 (D.C.1982) aff'd in part, rev'd in part, 743 F.2d 932 (D.C.Cir.1984) (policy provisions prohibiting out-of-court settlements between insured......
  • Eureka Inv. Corp., N.V. v. Chicago Title Ins. Co., Nos. 82-1156
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • September 14, 1984
    ...second principle is concerned. 8 8 J. WIGMORE, supra, at 603, 604. 9 Eureka Investment Corp., N.V. v. Chicago Title Insurance Co., 530 F.Supp. 1110, 1125 10 Id. at 1127. 11 See Manes v. Dowling, 375 A.2d 221, 224 (D.C.1977); Pemberton v. OvaTECH, Inc., 669 F.2d 533, 541 (8th Cir.1982) (appl......
  • Habecker v. Clark Equipment Co., Civ. A. No. 1:CV-86-0352.
    • United States
    • United States District Courts. 3th Circuit. United States District Court of Middle District of Pennsylvania
    • August 25, 1992
    ..."some injury" was binding); see also In re Eagson Corp., 37 B.R. 471 (Bankr.Pa.1984); Eureka Investment Corp. v. Chicago Title Ins. Co., 530 F.Supp. 1110, 1117 The court believes that Clark's admission through counsel at the second trial must be read more broadly than Clark urges. As an ini......
  • Request a trial to view additional results

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