The case involves IDC Properties, Inc. appealing a summary judgment granted to Chicago Title Insurance Company regarding a title insurance dispute under Rhode Island law. The appeal was heard by the United States Court of Appeals for the First Circuit, with the court affirming in part and reversing in part the lower court's decision.
Key facts include the establishment of the Goat Island South Condominium in January 1988 by Globe Manufacturing Co., which was later amended by the First Amended and Restated Declaration (FAR Declaration). The FAR Declaration identifies five "Master Units," which are designated portions of the condominium for separate ownership or occupancy. Two of these units, referred to as the "West Unit" and "South Unit," consist solely of undeveloped land and are central to this dispute.
The Rhode Island Condominium Act defines a "unit" as a physical portion of the condominium designated for separate ownership or occupancy, indicating that both "Units" and "Master Units" in the FAR Declaration fit this definition. Additionally, the Act stipulates that areas outside designated units are common elements, which are subject to shared ownership among unit owners. The Act also outlines "special declarant rights," allowing developers certain privileges, including the ability to create units or common elements within a condominium.
Globe reserved a development right in the FAR Declaration to create a condominium of up to eight residential units in the West Unit but did not reserve a similar right for the South Unit. IDC retained the right to construct additional buildings on any Master Unit, while the Goat Island South Condominium included a "Reserved Area" not part of any Master Unit. Globe retained the right to withdraw the Reserved Area from the condominium or convert it into a sixth Master Unit, with these rights expiring on December 31, 1994. In 1992, Globe transferred its interests in the Goat Island South Condominium to Island Development Corporation (IDC), which held those interests until April 1994, when it recorded the Third Amendment, extending the expiration of development rights to December 31, 1999. IDC acquired Island Development Corporation's interests on October 19, 1994, and obtained a title insurance policy insuring against defects in rights regarding the South Unit, West Unit, and development rights, with exclusions for matters created by the insured. IDC adopted further amendments in November and December 1994, again extending the expiration of development rights to December 15, 2015. On December 29, 1994, IDC recorded the Sixth Amendment to convert the Reserved Area into the "North Unit," although no development had occurred by that date. In 1997, IDC sought title insurance for the North Unit, receiving a $5 million offer from Commonwealth Land Title Insurance Co. while CTIC declined coverage. IDC accepted Commonwealth’s offer, and in 1998, constructed a banquet hall in the Reserved Area.
On May 29, 1999, the Sub-Condominiums associations initiated a lawsuit against Island Development Corporation (IDC) and its president, Thomas Roos, in Rhode Island state court. The plaintiffs contended that IDC failed to adhere to the Rhode Island Condominium Act when extending the development rights deadlines in the Third, Fourth, and Fifth Amendments, rendering these amendments void ab initio. Consequently, they argued that IDC's reserved interest in undeveloped units had lapsed, vesting fee simple title in the associations. They sought a declaration that the amendments were void and that IDC had no ownership interest or voting rights in the disputed master units, or alternatively, compensatory damages. The state court granted partial summary judgment to the plaintiffs on counts relevant to the appeal, which IDC subsequently appealed to the Rhode Island Supreme Court. The Supreme Court affirmed the lower court's judgment, determining IDC's attempts to extend the development rights were futile due to the lack of unanimous consent from all unit owners as mandated by the Condominium Act. The Court ruled that IDC's development rights expired on December 31, 1994, and its improvement rights did not permit construction. It concluded that the disputed parcels vested in fee simple to the unit owners as tenants in common. Following this decision, the defendants petitioned for reargument, which was granted by the Court.
On April 8, 2005, the Court reaffirmed its earlier decisions regarding the Rhode Island Condominium Act, clarifying that a "substantial completion" criterion must be met for the valid creation of condominium units. The Court determined that the South, West, and North Units were not validly created due to unmet substantial completion requirements, thus classifying them as "common elements" of the Goat Island South Condominium. Following this ruling, on July 8, 2005, IDC filed a claim with CTIC for coverage under its Policy, citing losses related to the prior court decisions. CTIC denied this claim on January 28, 2008. While IDC's appeal was pending, Commonwealth sued IDC for a declaratory judgment regarding potential losses from IDC's development rights. Subsequently, IDC sued CTIC in Newport County Superior Court, which CTIC removed to the District of Rhode Island, where IDC alleged breach of contract, breach of good faith, statutory violations, and unjust enrichment, seeking damages, punitive damages, and attorney's fees.
After discovery, CTIC's motion for summary judgment was denied, but its motion to strike IDC's expert report was granted. CTIC later argued that IDC could not prove damages without expert testimony, prompting IDC to submit a supplemental expert report, which was allowed by the District Court. However, the Court ruled that IDC was excluded from Policy coverage and that Commonwealth was not liable for IDC's losses, declaring the Policy void due to IDC's material nondisclosures. In September 2020, CTIC filed a third motion for summary judgment, which the District Court granted concerning the North Unit but denied for the South and West Units. Following a motion for reconsideration, the Court granted final judgment for CTIC on all claims. IDC now appeals the summary judgment decision and the exclusion of its original expert report.
Summary judgment is deemed appropriate when no reasonable factfinder could favor the plaintiff based on the evidence presented. The District Court's application of this standard is reviewed de novo. The case involves IDC's claims related to the North Unit, where the District Court granted summary judgment to the defendants. The court concluded that IDC’s title coverage included the right to withdraw or convert a Reserved Area into a Master Unit by December 31, 1994, but determined that IDC was required to substantially complete all structural components of the North Unit before exercising this conversion right under the Rhode Island Condominium Act. The court found that IDC had not completed any buildings for the North Unit prior to its conversion, concluding that IDC did not correctly exercise its development right and thus had no insurance against that error.
On appeal, IDC argues this ruling was erroneous, claiming that CTIC insured a title with a latent defect because it believes it could never achieve the outcome guaranteed by the insured development right due to prohibitions in the Condominium Act. IDC asserts that its title included the right to create a Master Unit above the Reserved Area and contends that this right was void at the time it was insured, based on the interpretation of the Condominium Act in prior Rhode Island Supreme Court cases. However, the court clarified that these decisions only prohibited IDC from creating a Master Unit before substantial completion of the necessary buildings, not thereafter. Additionally, IDC argues that CTIC insured its right to create a Master Unit for future development without fulfilling the substantial completion requirement, thereby providing insurance for a right that was legally invalid. IDC supports this argument by citing evidence suggesting it reasonably believed it could record an amendment to create a new unit in the Reserved Area without meeting the substantial completion prerequisite.
Rhode Island law prohibits reliance on a party's belief regarding an insurance contract’s content; instead, it mandates that the literal language of the policy be applied unless ambiguity is found. Key case law, including Van Hoesen v. Lloyd's of London and Koziol v. Peerless Ins. Co., emphasizes interpreting insurance policies strictly within their documented terms. IDC does not argue that the policy is ambiguous but asserts that the policy should cover its belief regarding the right to create a unit without satisfying a substantial completion requirement.
Schedule A of the policy indicates that it insures "all right, title, and interest" in the Goat Island South Condominium as established by the FAR Declaration, confirming that the right to create the North Unit is insured. However, it does not clarify if this right is subject to any substantial completion limitations. IDC references Section 6.3(b) of the FAR Declaration, which grants the right to convert a reserved area into a master unit, but the text does not address whether this right includes the ability to create the North Unit without meeting substantial completion.
Similarly, Section 2.3 of the FAR Declaration pertains only to rights concerning a validly created master unit and does not confer rights for creating one. Furthermore, provisions in the condominium endorsement of the policy do not support IDC’s claims, as one provision addresses losses due to the failure of identified units to comply with Rhode Island condominium statutes, but the North Unit was not listed as it had not yet been created at the time of the policy issuance.
The absence of a "failure of [a] unit identified in [the Policy]" negates IDC's argument regarding insurance coverage. The second provision of the policy insures against non-compliance of the FAR Declaration with the Rhode Island Condominium Act, affecting unit titles. IDC contends there was non-compliance due to rulings from the Rhode Island Supreme Court, specifically in America I and America II, which clarified that an airspace Master Unit cannot be created before the substantial completion of the buildings. While America II determined that IDC did not meet the substantial completion requirement, it did not establish that compliance was impossible when creating the North Unit. Therefore, IDC's title to the North Unit was not impacted by the FAR Declaration’s compliance with the Condominium Act, as the FAR Declaration does not address the substantial completion requirement.
Regarding the South Unit, both parties agree that CTIC insured the title and that IDC experienced a loss of that title. CTIC argued for summary judgment, claiming IDC suffered no damages because it could not develop the South Unit, thus rendering its title valueless. Initially, the District Court rejected this argument, affirming IDC's right to improve the unit. However, upon CTIC's motion for reconsideration, the District Court acknowledged that IDC lacked the necessary development rights as determined by the Rhode Island Supreme Court, concluding the South Unit had "zero" economic value.
IDC contends that the District Court improperly assessed the South Unit's value solely based on the defect insured against by the Policy. While the FAR Declaration reserves development rights to IDC perpetually, the Rhode Island Supreme Court's interpretation of the Condominium Act limits those rights. Nonetheless, whether CTIC insured IDC's right to develop the South Unit must be determined from the Policy and the FAR Declaration, rather than solely from the Supreme Court's rulings.
CTIC acknowledges that the FAR Declaration reserved to IDC the right to construct buildings on the South Unit indefinitely, despite Rhode Island law prohibiting such a perpetual reservation. The language in Section 2.3 clearly states that the owner of the South Unit has the right to "construct buildings and other improvements" within its boundaries. CTIC argues that the insurance policy does not cover IDC's development of the vacant South Unit in compliance with the Condominium Act, yet fails to cite any specific provision in the policy that supports this limitation. The case focuses on whether the title's value is affected by this reserved construction right, independent of the legality of exercising that right under the Condominium Act. The insurance policy insures the title with the construction right, despite it being voided by the Act. The analysis must rely on the literal language of the policy unless ambiguity is found. Various case law reinforces that title insurers cannot deny loss due to defects in title when they have contracted to insure against such defects. There is record evidence suggesting that the reserved right to construct buildings does confer value to IDC's title to the South Unit, supported by an expert report that evaluates potential development and market conditions. Consequently, the summary judgment in favor of CTIC regarding IDC's claims for the South Unit is reversed. Additionally, the same reasoning applies to the West Unit, where Section 2.3(b) of the FAR Declaration grants IDC the right to construct buildings, and CTIC does not dispute this right.
Evidence in the record supports assigning value to the right to construct buildings in the West Unit, based on an expert report that considers the FAR Declaration, regional real estate conditions, and unique aspects of the West Unit. CTIC's claim that it did not insure IDC's compliance with the Condominium Act lacks policy support. The District Court's summary judgment was erroneous due to this oversight.
Furthermore, the District Court incorrectly ruled that there was no genuine material fact regarding IDC's loss of value upon losing title to the South and West Units. This prompted a review of IDC's challenge to the exclusion of its initial expert report, which assessed the units' value in 2005—the date when the title defect was resolved. After this report was excluded, IDC submitted a revised valuation for 1997, indicating a significant decrease in value. The District Court's decision to grant CTIC's motion in limine was reviewed for abuse of discretion, with any legal error constituting such abuse.
The District Court based its exclusion on two reasons: it believed 1997 was the appropriate valuation date per Overholtzer v. Northern Counties Title Insurance Co., which suggests that property damages should be assessed at the defect's discovery. Additionally, the court found the expert's valuation assumptions contradicted the Condominium Act's unanimity requirement for development decisions. IDC contends that both grounds for exclusion were erroneous.
IDC argues that the District Court erred in applying the unanimity requirement and claims that the Policy specifies when property value should be measured, contradicting the Overholtzer ruling. IDC cites Section 9(b) of the Policy, which states that CTIC is not liable for loss or damage until a final court determination adverse to the title occurs. However, this section pertains to the timing of CTIC's compensation responsibility, not the measurement date for that compensation. The language does not create ambiguity warranting further interpretation. Although IDC suggests that Rhode Island law would require a strict construction in its favor due to alleged ambiguity in the Policy, it fails to provide convincing reasons for deviating from the Overholtzer precedent, which is the majority rule. IDC references two states that support its view, but no compelling evidence is presented that Rhode Island would follow this approach or reject Overholtzer, especially since jurisdictions applying the ambiguity principle still adhere to Overholtzer. The excerpt concludes that there is no indication of other states adopting IDC’s preferred approach.
A policy term deemed ambiguous must be interpreted against the insurance company that drafted it. An insurance contract is considered ambiguous if it allows for multiple reasonable interpretations, leading to a requirement that the language be construed in favor of the insured. This principle aligns with precedents such as the Overholtzer rule. The court affirmed the District Court’s grant of CTIC's motion in limine and the partial summary judgment regarding the North Unit. However, it reversed the summary judgment concerning the South and West Units. The parties are responsible for their own costs.
