IN THE UNITED STATES DISTRICT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

NATIONWIDE LIFE INSURANCE :

COMPANY, :

: CIVIL ACTION

Plaintiff, :

:

v. :

: NO. 05-281

COMMONWEALTH LAND TITLE :

INSURANCE COMPANY, :

:

Defendant. :

MEMORANDUM

BUCKWALTER, S.J. February 17, 2011

Currently pending before the Court are Defendant Commonwealth Land Title Insurance

Company’s Motion for Summary Judgment and Plaintiff Nationwide Life Insurance Company’s

Cross-motion for Summary Judgment. For the following reasons, Plaintiff’s Motion is granted in

part and denied in part, and Defendant’s Motion is denied in its entirety.

I. FACTUAL AND PROCEDURAL BACKGROUND

In 1988, the Franklin Mills Mall (the “Mall”) in Philadelphia County was being

developed by Liberty Mills Limited Partnership (“Liberty Mills”). On June 28, 1988, in

connection with that development, Liberty Mills entered into a Master Declaration and

Agreement of Easements, Covenants, Conditions and Restrictions with Liberty Mills Residual

Limited Partnership (the “Master Declaration”). (Am. Compl. ¶ 7; Answer ¶ 7.) This Master

Declaration governed all stores in the Mall, including the property at issue in this case, located at

1933 Franklin Mills Circle, a/k/a 4301 Byberry Road Unit M3, Philadelphia, Pennsylvania (the
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“Property”). (Def.’s Mot. Summ. J., Ex. 5.) The Master Declaration provided that “[n]o

Occupant shall use or permit the use of its Property within the Total Parcel for any use or

operation which is . . . substantially inconsistent with and/or materially detrimental to the

operation of a shopping center and other complementary developments.” (Id. at 36.) Included

among such “detrimental” uses or operations were: (a) any use which emits an obnoxious odor,

noise or sound; (b) any use which is physically damaging to other portions of the Franklin Park

Development or which is dangerous; (c) any assembly or manufacturing operation; (d) any trailer

court, mobile home park, junk yard, stock yard, or animal raising operation (other than pet shops

and veterinarians); (e) any dump or disposal; (f) any warehouse; (g) any central laundry, dry

cleaning plant, or laundromat (not including a facility providing on-site services oriented to pickup and delivery by the ultimate consumer); (h) a mortuary; (i) an establishment selling or

exhibiting pornography; (j) a flea market; and (k) an activity which unreasonably physically

interferes with the business of any party or other occupant. (Id. at 36-37.) In addition, no

occupant of the Mall was to use or permit the use of its property for: (a) a night club, disco, or

dance hall; (b) a lot for the sale of new or used cars; (c) a motor vehicle repair or service shop, or

a car wash; or (d) a pool or billiards hall (unless operated as a part of a large-scale recreation or

entertainment facility). (Id. at 37.)

Thereafter, on August 15, 1988, a company by the name of PMI Associates (“PMI”)

purchased a parcel of the Mall from Liberty Mills. (Am. Compl. ¶ 8; Answer ¶ 8.) At that time,

PMI and Liberty Mills entered into a Declaration of Restrictions (the “Declaration of

Restrictions”). (Am. Compl. ¶ 9; Answer ¶ 9; Def.’s Mot. Summ. J., Ex. 6.) The Declaration of

Restrictions set forth an “Operating Covenant,” which applied to a period of three years after the
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opening of the business on the Property. (Def.’s Mot. Summ. J., Ex. 6, 6-7.) Such restrictions

required that the Property be operated as a Phar-Mor variety or general merchandise retail store,

which would include the sale of health and beauty aids, pharmaceuticals, video tapes,

housewares, pre-packaged food items, greeting cards, automotive supplies, books and magazines,

and school supplies and stationary. (Id.) After the expiration of this Operating Covenant period,

the Declaration of Restrictions provided the following:

Buyer shall have the right to use the Property and/or the building for any single

retail use which is (1) permitted under all applicable laws, ordinances, orders,

rules, regulations and requirements of all governmental authorities having

jurisdiction over the Shopping Center Project, (2) consistent with and permitted

under the Master Declaration, and (3) compatible with an enclosed super-regional

discount specialty retail shopping center (or such other type of shopping center as

may be operated by Seller within the Shopping Center Project in the future);

provided, however, that in no event shall Buyer use the Property and/or the

building for any of the purposes listed on Exhibit 3 [listing the types of stores

already in the Mall]; and provided further, however, that Buyer shall not change

the use of the Property from a variety or general merchandise store (as described

above) without prior written consent of Seller (which shall not be unreasonably

withheld or delayed if the proposed use otherwise satisfies the foregoing

requirements of this sentence.) In no event shall the Property be used or occupied

for any purpose or in any manner other than as set forth in this [paragraph]. With

respect to the foregoing restrictions on the use of the Property, Buyer hereby

acknowledges and agrees that the Property is part of the larger Shopping Center

Project, and that Seller has a substantial interest in the ownership and operation of

the Shopping Center Project. Accordingly, Seller desires to insure that the

Property being conveyed to Buyer will be used in a manner consistent with the

plans and designs of Seller (for both the appearance and the operation of the

Shopping Center Project) and not in a manner that would injure or adversely

affect the remaining portions of the Shopping Center Project and/or the operation

thereof. Buyer hereby further acknowledges the legitimacy of these objections,

and acknowledges and agrees that its acceptance of the use restrictions set forth in

this Sub-paragraph 2(A) is a material inducement to Seller to convey the Property

to Buyer, by virtue of its need to protect the legitimate objectives more

particularly described above.

(Id. at 7 (emphasis added).)
4

Aside from the foregoing language, the Declaration of Restrictions contained several

other provisions pertinent to the present dispute. First, it set forth a “Repurchase Option,” which

granted Franklin Mills Associates Limited Partnership (“Franklin Mills”), the successor-ininterest to Liberty Mills, (Def.’s Mot. Summ. J., Ex. 3, Dep. of Gregg Goodman, 11:1-17:5, Aug.

18, 2010 (“Goodman Dep.”)), the right to buy back the property from PMI under certain

circumstances. (Def.’s Mot. Summ. J., Ex. 6, 9-12.) It stated specifically that “[i]f at any time

after the expiration of the Buyer’s three (3) year covenant to operate its building as provided in

Sub-paragraph 2(B) above, Buyer or any occupant of the Property desires to cease conducting

business to the public in its building on the Property, then Seller may, at its sole option,

repurchase the property . . .” (Id. at 10.) In addition, the Declaration required PMI to pay to

Franklin Mills annual assessments for the purpose of (1) contributing to the funding of the

Promotion Fund used to advertise and promote businesses in the Mall and (2) maintaining the

Common Areas (“CAM charges”). (Id. at 13-15.) According to the Declaration, “[n]o sale or

transfer shall relieve the owner of the Property . . . from liability for any Annual Assessments.”

(Id. at 14.) Finally, the Declaration of Restrictions provided that “[a]ll of foregoing covenants,

conditions, restrictions and easements shall be covenants running with the land, and shall be

binding upon the parties hereto and their respective representatives, successors and assigns, and

all subsequent owners and occupants of the Property . . . .” (Id. at 30.)

In 2001, PMI took out a $3.5 million loan from Plaintiff Nationwide Life Insurance

Company (“Nationwide”) using the above Property as security (the “Mortgage”). (Am. Compl.

¶¶ 13-14; Answer ¶¶ 13-14; Def’s Mot. Summ. J., Ex. 4.) The Mortgage explicitly stated that

PMI “covenants and warrants with and to Lender that, subject to the Permitted Exceptions (as
 The only other “Permitted Exceptions” referenced were (1) the License agreement between

1

Franklin Mills and PMI and (2) rights granted Philadelphia Electric Company. (Id. at Bates No.

3642.)

5

hereinafter defined), Borrower is indefeasibly seized of the Property and has good right, full

power, and lawful authority to convey and encumber all of the same as aforesaid.” (Def.’s Mot.

Summ. J., Ex. 4, at Bates No. 3608.) In the “Permitted Exceptions” attachment, the Mortgage

explicitly referenced both the Master Declaration and the Declaration of Restrictions. (Id. at 1

Bates No. 3642.) 

In connection with this Mortgage, Nationwide purchased a title insurance policy (the

“Policy”) from Defendant Commonwealth Land Title Insurance Company (“Commonwealth”). 

(Def.’s Mot. Summ. J., Ex. 2.) The Policy contained several crucial provisions. First, it

encompassed what is known as an American Land Title Association 9 Endorsement (the “ALTA

9 Endorsement”), covering Nationwide against, among other things, loss or damage sustained by

reason of:

1. The existence at Date of Policy of any of the following:

(a) Covenants, conditions or restrictions under which the

lien of the mortgage referred to in Schedule A can be

divested, subordinated or extinguished, or its validity

priority or enforceability.

(b) Unless expressly excepted in Schedule B

. . .

(2) Any instrument referred to in Schedule B as

containing covenants, conditions or restrictions on

the land which, in addition, (i) establishes an

easement on the land; (ii) provides a lien for

liquidated damages; (iii) provides for a private

charge or assessment; (iv) provides for an option to

purchase, a right of first refusal or the prior approval

of a future purchaser or occupant.
6

(Id. at Bates No. 591.) Second, it contained the referenced Schedule B, entitled “Exceptions

from Coverage,” which stated as follows: 

SCHEDULE B

EXCEPTIONS FROM COVERAGE

. . .

PART I

. . .

This policy does not insure against loss or damage (and [Commonwealth] will not

pay costs, attorney’s fees or expenses) which arise by reason of

. . . 

4. Master Declaration and Agreement of Easements, Covenants, Conditions and

Restrictions between Liberty Mills Limited Partnership and Liberty Mills

Residual Limited Partnership dated June 28, 1988 and recorded June 30, 1988 in

Deed Book FHS 1111, page 508 (“The Master Declaration”), as Amended by First

Amendment to Master Declaration, dated February 5, 1990 and recorded in Deed

Book FHS 1576, page 347.

5. Declaration of Restrictions between Liberty Mills Limited Partnership and PMI

Associates dated August 15, 1998 and recorded in Deed Book GHS 1155, page

206, and First Amendment to Declaration of Restrictions between Franklin Mills

Associates Limited Partnership and PMI Associates dated December 5, 1989 and

recorded December 21, 1989 in Deed Book FHS 1518, page 541.

(Id. at Bates No. 587.)

PMI eventually defaulted on the balance of its loan in 2003 and, in lieu of facing

foreclosure proceedings, it conveyed the Property to Nationwide by fee simple deed. (Am.

Compl. ¶¶ 19-20; Answer ¶¶ 19-20.) In an effort to recoup its losses, Nationwide attempted to

sell the Property to Ironwood Real Estate, LLC (“Ironwood”), who agreed to purchase the

property for $3,800,000. (Pl’s Mot. Summ. J., Ex. E, Aff. of Jennifer Thrasher ¶ 12, Oct. 18,

2010 (“Thrasher Aff.”).) Ironwood was a company that acquired and developed shopping
7

centers. (Def.’s Mot. Summ. J., Ex. 9, Dep. of Jeremy Fogel, 24:8-22, June 30, 2010 (“Fogel

Dep.”).) It sought to lease the space to Lincoln Technical Institute for use as a technical school. 

(Id. at 43:21-44:24.) Because Ironwood was a “tenant driven” company, it was only interested in

the Property if it had a user to occupy it. (Id. at 125:10-126:17.) Thus, Nationwide contacted

Franklin Mills to formally request that it (1) execute a waiver of its right of first refusal and

option to purchase the Property and (2) approve Ironwood as the buyer of the Property. 

(Thrasher Aff. ¶¶ 16-17.) Franklin Mills, however, invoked its rights under the Declaration of

Restrictions and stated that it did not consent to either the sale of the Property to Ironwoood or

the lease to Lincoln Tech. (Def.’s Mot. Summ. J., Ex. 8, Dep. of Jennifer Thrasher, 36:16-37:14,

42:12-43:11, July 13, 2010 (“Thrasher Dep.”); Thrasher Aff. ¶ 18.) As a result, Ironwood

refused to complete its purchase of the property. (Thrasher Aff. ¶ 22; Fogel Dep. 126:8-17.) 

Although Nationwide and its local broker Fameco made several more attempts to find buyers

acceptable to Franklin Mills, they were unsuccessful. (Thrasher Aff. ¶¶ 26-27.) Finally,

Nationwide attempted to sell the Property back to Franklin Mills for $1.00 in order to obtain a

release of the duty to pay CAM charges. (Id. ¶ 29; Goodman Dep. 35:7-36:21, 51:2-21.) 

Franklin Mills, however, agreed to accept ownership only if Nationwide would pay it an

additional $200,000. (Thrasher Aff. ¶ 30.) Nationwide subsequently made efforts to reduce the

assessed value of the Property for tax purposes, and the City of Philadelphia assigned it a fair

market value of $450,000. (Id. ¶ 32.)

Thereafter, Nationwide submitted a claim for coverage to Commonwealth, alleging that

Franklin Mills’s rights of refusal were covered restrictions that made the property unusable and

unsalable. (Am. Compl. ¶ 33; Answer ¶ 33; Thrasher Aff. ¶ 35.) Commonwealth denied the
8

claim for coverage by letter dated April 13, 2004. (Am. Compl. ¶ 34; Answer ¶ 34; Thrasher

Aff. ¶ 37; Pl.’s Mot. Summ. J., Ex. B, Dep. of James Conmy, 47:19-49:12 & Ex. 4, July 14, 2010

(“Conmy Dep.”).) In light of its disagreement with the coverage decision, Nationwide initiated a

lawsuit against Commonwealth in this Court seeking both a declaratory judgment and money

damages. (Compl. ¶¶ 4-5.) Commonwealth filed a motion to dismiss the case in its entirety. On

October 19, 2005, the Court dismissed the litigation, holding that, by listing the Declaration of

Restrictions under the “Exceptions from Coverage” section in Schedule B of the Policy, the

Policy “expressly excepted” any loss or damage arising from that Declaration. Nationwide Life

Ins. Co. v. Commw. Land Title Ins. Co., No. CIV.A.05-281, 2005 WL 2761492, at *7 (E.D. Pa.

Oct. 19, 2005). Nationwide subsequently sought reconsideration, but the Court denied the

motion and further held that Plaintiff Nationwide bore the burden of proper diligence before

issuing the mortgage to PMI. Nationwide Life Ins. Co. v. Commw. Land Title Ins. Co., No.

CIV.A.05-281, 2006 WL 1192998, at *3 (E.D. Pa. May 3, 2006).

Nationwide appealed to the United States Court of Appeals for the Third Circuit. 

Originally, the appeal was stayed pending the outcome of another case brought by Nationwide

against Franklin Mills claiming that the relevant restrictions in the Declaration were

unenforceable. See Compl., Nationwide v. Franklin Mills, No. CIV.A.04-5049 (E.D. Pa. Oct.

27, 2004). That latter case, however, settled without any ruling on the substantive issues. 

Stipulation of Dismissal, Nationwide v. Franklin Mills, No. CIV.A.04-5049 (E.D. Pa. Feb. 28,

2008). Thereafter, via decision issued January 28, 2009, the Third Circuit reversed the District

Court’s dismissal of this matter. Nationwide Life Ins. Co. v. Commonw. Land Title Ins. Co., 579

F.3d 304 (3d Cir. 2009). The Appeals Court reinterpreted the Policy considering not only the
9

text of the contract, but also its purpose and industry custom and practice. Upon doing so, it

found that, “[t]o except expressly from ALTA 9 Endorsement coverage a right of refusal or other

restrictions noted in paragraph 1(b)(2) of the Endorsement, an insurer must list those restrictions

specifically in Schedule B. It is not enough for the insurer merely to list in some part of Schedule

B the document in which the restrictions are embedded.” Id. at 317 It went on to hold that,

“Commonwealth bore the burden of detecting the restrictions stated in the Declaration, and had

to list those restrictions explicitly as exceptions to avoid covering loss from them.” Id. at 319.

Under Third Circuit mandate, the parties returned to this Court. Plaintiff filed a First

Amended Complaint on November 12, 2009, alleging claims for breach of contract, bad faith,

and a declaratory judgment. (Am. Compl. ¶¶ 48-57.) The parties have now completed discovery

and filed the current Cross-motions for Summary Judgment.

II. STANDARD OF REVIEW

Summary judgment is proper “if the pleadings, the discovery and disclosure materials on

file, and any affidavits show that there is no genuine issue as to any material fact and that the

movant is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(c)(2). A factual dispute is

“material” only if it might affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477

U.S. 242, 248 (1986). For an issue to be “genuine,” a reasonable fact-finder must be able to

return a verdict in favor of the non-moving party. Id. 

On summary judgment, the moving party has the initial burden of identifying evidence

that it believes shows an absence of a genuine issue of material fact. Conoshenti v. Pub. Serv.

Elec. & Gas Co., 364 F.3d 135, 145-46 (3d Cir. 2004). It is not the court’s role to weigh the

disputed evidence and decide which is more probative, or to make credibility determinations. 
10

Boyle v. County of Allegheny, 139 F.3d 386, 393 (3d Cir. 1998) (citing Petruzzi’s IGA

Supermkts., Inc. v. Darling-Del. Co. Inc., 998 F.2d 1224, 1230 (3d Cir. 1993)). Rather, the court

must consider the evidence, and all reasonable inferences which may be drawn from it, in the

light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,

475 U.S. 574, 587 (1986) (citing United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)); Tigg

Corp. v. Dow Corning Corp., 822 F.2d 358, 361 (3d Cir. 1987). If a conflict arises between the

evidence presented by both sides, the court must accept as true the allegations of the non-moving

party, and “all justifiable inferences are to be drawn in his favor.” Anderson, 477 U.S. at 255.

Although the moving party bears the initial burden of showing an absence of a genuine

issue of material fact, it need not “support its motion with affidavits or other similar materials

negating the opponent’s claim.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). It can meet

its burden by “pointing out . . . that there is an absence of evidence to support the nonmoving

party’s claims.” Id. at 325. Once the movant has carried its initial burden, the opposing party

“must do more than simply show that there is some metaphysical doubt as to material facts.” 

Matsushita Elec., 475 U.S. at 586. “[T]he non-moving party must rebut the motion with facts in

the record and cannot rest solely on assertions made in the pleadings, legal memoranda, or oral

argument.” Berckeley Inv. Group. Ltd. v. Colkitt, 455 F.3d 195, 201 (3d Cir. 2006). If the

nonmoving party “fails to make a showing sufficient to establish the existence of an element

essential to that party’s case, and on which that party will bear the burden at trial,” summary

judgment is appropriate. Celotex, 477 U.S. at 322. Moreover, the mere existence of some

evidence in support of the nonmovant will not be adequate to support a denial of a motion for
11

summary judgment; there must be enough evidence to enable a jury to reasonably find for the

nonmovant on that issue. Anderson, 477 U.S. at 249-50.

Notably, “[t]he rule is no different where there are cross-motions for summary judgment.” 

Lawrence v. City of Philadelphia, 527 F.3d 299, 310 (3d Cir. 2008). As stated by the Third

Circuit, “‘[c]ross-motions are no more than a claim by each side that it alone is entitled to

summary judgment, and the making of such inherently contradictory claims does not constitute

an agreement that if one is rejected the other is necessarily justified or that the losing party

waives judicial consideration and determination whether genuine issues of material fact exist.’” 

Id. (quoting Rains v. Cascade Indus., Inc., 402 F.2d 241, 245 (3d Cir. 1968)).

III. DISCUSSION

The parties’ Cross-motions for Summary Judgment raise a multitude of common issues

that bear equally on their merits. Accordingly, in lieu of engaging in a separate – and likely

duplicative – discussion of the two Motions, the Court addresses their commonly raised issues in

joint fashion, remaining cognizant of each party’s individual burden of proof.

A. Whether the Law of the Case Doctrine Forecloses Commonwealth’s

Argument that the ALTA 9 Covers Only Certain Limited Provisions

Prior to reaching the substantive dispute regarding the meaning of the Policy in this case,

the Court must confront the preliminary – and perhaps most contentious – issue of whether

Defendant’s contract interpretation is barred by the “law of the case” doctrine. Although the

Court engaged in a cursory discussion of this topic when ruling upon Plaintiff’s Motion in

Limine to exclude Defendant’s expert’s report, a more thorough review of the issue is warranted

given the parties extensive summary judgment briefing.
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“The ‘law of the case’ doctrine reflects courts’ general reluctance to reconsider matters

soundly decided.” Falor v. G & S Billboard, No. CIV.A.04-2373, 2008 WL 5190860, at *2

(D.N.J. Dec. 10, 2008). “The doctrine is designed to protect traditional ideals such as finality,

judicial economy and jurisprudential integrity.” In re City of Philadelphia Litig., 158 F.3d 711,

717-18 (3d Cir. 1998). It provides that “when a court decides upon a rule of law, that rule should

continue to govern the same issues in subsequent stages in the litigation.” In the Matter of Resyn

Corp., 945 F.2d 1279, 1281 (3d Cir. 1991) (quotations omitted). In other words, “once an issue

has been decided, parties may not relitigate that issue in the same case.” Waldorf v. Shuta, 142

F.3d 601, 616 n.4 (3d Cir. 1998). 

With this well-established proposition, however, comes the equally well-settled corollary

that a trial court “may consider, as a matter of first impression, those issues not expressly or

implicitly disposed of by the appellate decision.” Bankers Trust Co. v. Bethlehem Steel Corp.,

761 F.2d 943, 950 (3d Cir. 1985). Thus, the trial court is “free to make any order or direction in

further progress of the case, not inconsistent with the decision of the appellate court, as to any

question not settled by the decision.” Id.; see also Resyn Corp., 945 F.2d at 1282 (noting that

issues raised but not reached on a prior appeal are not within the law of the case doctrine). 

Moreover, it is abundantly clear that “[t]he doctrine does not apply to dicta.” United Artists

Theatre Circuit, Inc. v. Twp. of Warrington, Pa., 316 F.3d 392, 397 n.4 (3d Cir. 2003). Thus

“[g]ratuitous statements in an opinion that do not implicate the adjudicative facts of the case’s

specific holding do not have the bite of precedent. They bind neither coordinate nor inferior

courts in the judicial hierarchy. They are classic obiter dicta: ‘statement[s] of law in the opinion
 Notably, this doctrine “is a rule that is subject to the discretion of the court applying it.” Coca- 2

Cola Bottling Co. of Shreveport, Inc. v. Coca-Cola Co., 988 F.2d 414, 429 (3d Cir. 1993). “The

law-of-the-case doctrine does not limit the jurisdictional power of trial judges to reconsider

issues previously decided by a predecessor judge from the same court, but it does recognize, as a

matter of comity, that a successor judge should not lightly overturn the decision of his

predecessor in a given case.” United States v. Wecht, 619 F. Supp. 2d 213, 222 (W.D. Pa. 2009)

(citing Fagan v. City of Vineland, 22 F.3d 1283, 1290 (3d Cir. 1994)). “Accordingly, it has been

said that a matter previously ruled upon should be revisited only in ‘extraordinary

circumstances,’ as where, e.g.: 1) the predecessor judge is unavailable; 2) new evidence becomes

available; 3) a supervening new law has been announced; or 4) the earlier decision was clearly

erroneous and would create manifest injustice.” Id.

13

which could not logically be a major premise of the selected facts of the decision.’” U.S. v.

Warren, 338 F.3d 258, 265 (3d Cir. 2003) (quotations omitted).2

As set forth above, Defendant denied coverage for Plaintiff’s claim and subsequently

moved to dismiss the lawsuit against it on the ground that loss arising from the Master

Declaration and Declaration of Restrictions was “expressly excepted” under the terms of the

Policy. Although this Court originally agreed with that argument, the Third Circuit reversed and

remanded the case. In lieu of further challenging the Third Circuit’s interpretation of “expressly

excepted,” Defendant currently contends that the ALTA 9 Endorsement never extended coverage

in the first place to Plaintiff’s loss. It explains that the ALTA 9 Endorsement in the Policy only

provides insurance for loss or damage if an instrument – like the Master Declaration or the

Declaration of Restrictions – contains direct restraints on alienation such as an option to

purchase, a right of first refusal, or a right of approval of a future purchaser, and if the claimed

damage or loss results directly from such provisions. According to Defendant, Nationwide

suffered no such harm on account of any such right contained in either the Master Declaration or

the Declaration, but rather only from the use restrictions – also known as indirect restraints on
14

alienation – within those documents. In turn, it concludes that such use restrictions are not

covered under the ALTA 9 Endorsement. 

Plaintiff now insists that the entire meaning of the ALTA 9 Endorsement has been fully

and conclusively determined by both this Court’s ruling on the Motion to Dismiss and the Third

Circuit’s subsequent decision. It argues that both opinions expressly noted that the ALTA 9

Endorsement covers the entirety of the instruments at issue in this case, from which the claimed

damage to Nationwide’s property interest arose. According to Plaintiff, any contrary

interpretation is foreclosed by the law of the case doctrine.

This argument, however, fails in multiple respects. First, this Court made no essential

holding regarding the ALTA 9 Endorsement’s scope of coverage when granting the motion to

dismiss. Moreover, the Third Circuit’s decision was clearly limited to an interpretation of the

phrase “expressly excepted” within the ALTA 9 Endorsement. Finally, any commentary by the

Third Circuit as to the proper interpretation of the ALTA 9 Endorsement’s scope of coverage was

nothing more than dicta not covered by the law of the case doctrine. The Court expands upon

each of these bases below.

1. The District Court Made No “Essential Holding” that the ALTA 9

Endorsement Provides Coverage for an Instrument Referred to

Schedule B

Plaintiff initially claims that the District Court, in ruling on the Motion to Dismiss, found

that “[t]he ALTA 9 Endorsement provides coverage for an instrument referred to in Schedule B,

if that instrument provides for an option to purchase, a right of first refusal, or the prior approval

of a future purchaser or occupant, unless that instrument is expressly excepted in Schedule B.” 
15

Nationwide Life Ins. Co., 2005 WL 2716492, at *7 (emphasis in original). Highlighting the first

phrase of that sentence – “[t]he ALTA 9 Endorsement provides coverage for an instrument

referred to in Schedule B” – Plaintiff argues that “[t]his essential holding was not disturbed by

the court of appeals.” (Pl.’s Resp. Def.’s Mot. Summ. J. 3.) 

Such an argument constitutes a misreading of the Court’s opinion and disregards the

context in which the statement was made. Defendant’s brief in support of its motion to dismiss

argued that “even if the Declaration is ‘an option to purchase, right of first refusal, or prior

approval of a future purchaser or occupant,’ under the first prong of the test, it is ‘expressly

excepted by Schedule B,’ under the second prong of the test, and therefore, is not afforded

coverage under the ALTA 9 Endorsement.” Nationwide Life Ins. Co., 2005 WL 2716492, at *6

(emphasis added). This Court proceeded under this same assumption regarding the scope of the

ALTA 9 Endorsement’s coverage and then dismissed the case solely on the grounds that the

Declaration had, in fact, been “expressly excepted” by Schedule B. Id. at *7. Clearly, this Court

made no ruling on the present scope of coverage issue which the Third Circuit could either affirm

or leave undisturbed.

2. The Third Circuit Expressly Limited Its Holding to a Determination

of the Words “Expressly Excepted”

That same restriction of holding equally applies to the Third Circuit’s decision. Given

the limited bounds of the District Court’s opinion, the only issue before the Court of Appeals was

the meaning of the words “expressly excepted,” a fact which it explicitly acknowledged at the

very outset of its opinion, as follows:
16

To decide this case, we interpret the standard-form policy drafted by the American

Land Title Association (“ALTA”) and used by Commonwealth. In particular, we

determine what a title insurer must do to except restrictions from coverage under a

specific endorsement to the policy. The District Court held that an insurer can do

so merely by listing in a schedule of exceptions to the policy the document in

which the restrictions are found. Because we believe that an insurer must list the

actual restriction in such a schedule to except them, we reverse.

Nationwide, 579 F.3d at 306.

Thereafter, the Third Circuit spent the substance of its opinion reviewing the meaning of

the term “expressly excepted,” while effectively disregarding the merits of Commonwealth’s

footnote argument that the ALTA 9 Endorsement covers only prior-approval-of-future-purchaser

restrictions, and not use restrictions. Indeed, via the very first footnote to the opinion, the Third

Circuit remarked:

Commonwealth disputes that the Declaration contains a prior-approval-of-future -

purchaser restriction, arguing instead that Nationwide seeks simply to evade the

Declaration’s use restrictions. Commonwealth accepts, however, that because this

case was decided at the motion to dismiss stage in the District Court, the

allegations in Nationwide’s complaint “must be accepted as true for purposes of

this appeal.”

Id. at 306 n.1. As such, the Third Circuit proceeded on the same assumption as Commonwealth

that such coverage existed unless “expressly excepted” by Schedule B. Upon engaging in a

thorough discussion of the text and purpose of the policy, as well as industry custom associated

with the ALTA 9 endorsement, the Court of Appeals ultimately held that:

To except expressly from ALTA 9 Endorsement coverage a right of refusal or

other restrictions noted in paragraph 1(b)(2) of the Endorsement, an insurer must

list those restrictions specifically in Schedule B. It is not enough for the insurer

merely to list in some part of Schedule B the document in which the restrictions

are embedded. Commonwealth thus failed to “expressly except[]” from ALTA 9
17

Endorsement coverage loss from the restrictions contained in the Declaration, and

should cover Nationwide’s claim.

Id. at 317. Via this finding, the Third Circuit determined, not that the ALTA 9 Endorsement

extended coverage to the loss, but only that “[w]hen Commonwealth issued its title insurance

policy to Nationwide, it failed to except expressly the restrictions contained in the Declaration

under paragraph 1(b)(2) of the policy’s ALTA 9 Endorsement.” Id. at 319. It is this holding to

which the law of the case doctrine applies.

3. The Third Circuit’s Commentary as to the Scope of Coverage of the

ALTA 9 Endorsement Was Nothing More than Dicta

Despite the strict confines of the appellate decision, Plaintiff references multiple passages

from that opinion that comment on both the ALTA 9 Endorsement’s scope of coverage and

whether paragraph 1(b)(2) of that Endorsement expressly provided title coverage for the

restrictions that caused damage to Nationwide. According to Plaintiff, the following statements

by the Third Circuit constitute binding holdings:

Because Franklin Mills based its refusal on the Declaration’s restrictions,

Commonwealth’s calling them another name – use restrictions rather than a priorapproval-of-future purchaser restriction or some other right of refusal, see supra

nn.1 & 2 – is irrelevant. Though we need not decide whether use restrictions

necessarily are restrictions on the approval of future purchasers of property, they

are deemed so here because that is the practical effect of Franklin Mills’s actions

in this case. (In any event, use restrictions are, like prior-approval-of-futurepurchaser restrictions, among the important items of information lenders and

owners seek in obtaining title insurance policies).

Nationwide, 579 F.3d at 306 n.3.
18

[We] hold that paragraph 1(b)(2) of the ALTA 9 Endorsement extends coverage

to loss from an instrument in either part of Schedule B unless the insurer takes

express exception to the specific restrictions stated in the instrument. 

Id. at 311.

[B]ecause the Declaration is an “instrument referred to in Schedule B as

containing . . . restrictions on the land which . . . provides for an option to

purchase, a right of first refusal or the prior approval of a future purchaser or

occupant,” loss arising from it is covered under paragraph 1(b)(2) of the ALTA 9

Endorsement “[u]nless expressly excepted in Schedule B.”

Id. at 309-10.

In sum, the text, purpose, and industry usage of the ALTA 9 Endorsement

convince us that the District Court erred in granting Commonwealth's motion to

dismiss. . . . Commonwealth thus failed to “expressly except[ ]” from ALTA 9

Endorsement coverage loss from the restrictions contained in the Declaration, and

should cover Nationwide’s claim.

Id. at 317.

When taken in such isolated form, these passages create the deceptive appearance that the

Third Circuit definitively ruled on the current issues of coverage. Reading them in the context of

the entire opinion, however, this Court finds them to be classic obiter dicta. As to the first

quoted passage, it was made in a footnote within the “Factual and Procedural Background”

section of the opinion with no case citation, evidentiary sources, or reference to industry treatises. 

In addition, the Court placed a caveat on its remark, noting that it “need not decide whether use

restrictions necessarily are restrictions on the approval of future purchasers of property.” Id. at

306 n.1 (emphasis added). Such precatory statements, which are “not necessary to the actual

holding of the case,” are “properly considered dicta, and are not binding.” Kool, Mann, Coffee &
19

Co. v. Coffey, 300 F.3d 340, 355 (3d Cir. 2002); see also In re Conston, Inc., 181 B.R. 769, 774-

75 (D. Del. 1995) (noting that while dicta may be “instructive as to the position of a particular

appellate panel, it is not binding on the lower Court”). 

The next three remarks are similarly consistent with only the appellate court’s holding

that to remove a restriction from ALTA 9 coverage, the insurer must “expressly except” it in

Schedule B. As indicated above, at the outset of the opinion, the Third Circuit expressly noted

that Commonwealth assumed, solely for purposes of deciding the “expressly excepted” issue,

that the ALTA 9 Endorsement covered the restrictions contained in the Declaration. Nationwide,

579 F.3d at 306 n.1. Thereafter, prior to starting any substantive discussion of the case, the Third

Circuit made clear that “[f]or purposes of our opinion, ‘restrictions’ include defects in title, liens,

easements, encumbrances, conditions and covenants (such as the rights at issue in this case)

affecting the insured property.” Id. at 308 n.4 (emphasis added). In doing so, it offered no legal

interpretation of paragraph 1(b)(2) of the ALTA 9 Endorsement and made no statement or

implication that this assumption became part of its holding or mandate. Working under the

assumption that the ALTA 9 Endorsement provided insurance coverage for the restrictions

affecting the encumbered Property, the Third Circuit then proceeded to discuss the meaning of

“expressly excepted.” Accordingly, the above-mentioned remarks were made solely for the

purpose of emphasizing what an insurer must do to expressly except a right of refusal or other

restriction from ALTA 9 Endorsement coverage. 

 This interpretation of the Third Circuit’s comments finds ample support in the procedural

posture of the case and the briefing presented to the Third Circuit. As repeatedly discussed, the

case was originally dismissed by the District Court at the earliest stages of the litigation without
 In its Motion for Summary Judgment, Nationwide argues: 3

The court of appeals further wrote that “because the Declaration [of Restrictions]

is an ‘instrument referred to in Schedule B as containing . . . restrictions on the

land which . . . provides for an option to purchase, a right of first refusal or the

prior approval of a future purchaser or occupant loss’ arising from it is covered

under paragraph 1(b)(2) of the ALTA 9 Endorsement.” Id. at 310 (emphasis

added). Thus, the language of the ALTA 9 as recognized by the mandate of the

court of appeals, requires only that Nationwide prove it was damaged by an

instrument, not by a specific provision in the instrument.

(Pl.’s Mem. Supp. Mot. Summ. J. 15.) Plaintiff’s quotation of the Third Circuit, however, leaves

off the closing language of the sentence, stating “[u]nless expressly excepted in Schedule B.” 

20

any discovery and based on a very limited issue. In its opening brief to the Third Circuit,

Plaintiff focused solely and entirely on whether the District Court’s interpretation of the phrase

“expressly excepted” was proper, without any argument as to whether the ALTA 9 Endorsement

covered the rights at issue. (Nationwide’s Opening Br., App. No. 06-2890.) Defendant’s

responsive brief followed suit by focusing on the identical issue. Although Defendant raised its

scope-of-coverage argument by way of a footnote, it conceded that “[b]ecause the allegations of

the Complaint must be accepted as true for purposes of this appeal . . . whether or not a right of

first refusal, an option to purchase, or approval of a future purchaser is really at issue does not

affect the question for resolution by this Court on appeal.” (Commonwealth Opening Br., App.

No. 06-2890, at 4 n.2 (emphasis added).) Plaintiff did not contest this statement in its subsequent

briefs and did not discuss the scope of ALTA 9 coverage. Ultimately, the appellate court had

before it no evidence or legal argument to assist with an independent determination of such an

issue. As neither party raised, researched, or briefed this issue on appeal, the Third Circuit

clearly could not have intended that its gratuitous comments regarding the scope of the ALTA 9

Endorsement would constitute the law of the case.3
Nationwide, 579 F.3d at 510. This closing phrase is crucial because it was that point that the

Third Circuit was emphasizing and ultimately holding. The previous statement about the

Declaration being an instrument covered by paragraph 1(b)(2) of the ALTA 9 Endorsement was

part of the Third Circuit’s initial assumptions and was not based on any legal briefing or other

finding by the Court.

21

Finally, the Third Circuit’s mandate to this Court is inconsistent with the notion that it

ruled on the proper interpretation of the ALTA 9 Endorsement’s scope of coverage. Plaintiff

seizes on the appellate court’s language that “Commonwealth thus failed to ‘expressly except[ ]’

from ALTA 9 Endorsement coverage loss from the restrictions contained in the Declaration, and

should cover Nationwide’s claim.” Nationwide, 579 F.3d at 317 (emphasis added). This

highlighted comment, however, was made solely in the context that to the extent Commonwealth

denied coverage based solely on the “expressly excepted” provision, it erred in its coverage

decision. The Third Circuit neither found that Nationwide was entitled to judgment on its

Complaint nor remanded only for a calculation of damages. Rather, it simply reversed the

District Court’s dismissal of the case and remanded “for further proceedings consistent with this

opinion.” Id. at 319. Had the Third Circuit wished to conclusively decide all issues of coverage,

it would have said so.

In short, the Court agrees that the Third Circuit’s opinion as to the meaning of “expressly

excepted” now constitutes the law of the case. To the extent, however, that the Third Circuit

casually commented on any additional matters – particularly whether the ALTA 9 Endorsement

extended coverage to the restrictions at issue in this case – this Court deems such statements nonbinding dicta.

B. Whether Nationwide Has Suffered Loss or Damage on Account of Rights

Covered by the Policy
22

Having found that the law of the case doctrine does not dictate the scope of coverage

under the ALTA 9 Endorsement, the Court turns to the first substantive issue between the parties

– whether Nationwide’s loss was ever covered under the ALTA 9 Endorsement to the Policy. 

Commonwealth, on the one hand, argues that it was not Franklin Mills’s right to approve who

purchases the Property that has been the source of Nationwide’s alleged inability to sell or lease

the Property. Rather, it is the fact that no proposed use of the Property has conformed with the

Declaration of Restrictions. Because the ALTA 9 Endorsement allegedly covers only loss or

damage that arises from the invocation of direct restraints on alienation, such as the priorapproval-of-future-purchaser restrictions, and not from the existence of a use restriction, the

Policy does not insure Nationwide’s alleged loss. Nationwide, on the other hand, counters that

the ALTA 9 Endorsement covers the entirety of the encumbrances and restrictions contained

within the Master Declaration and the Declaration of Restrictions. As these two documents

encompass both use and prior approval of future purchaser restrictions, and as Nationwide

suffered damages from each type of encumbrance, it claims that it is entitled to coverage under

the Policy.

Resolution of these competing positions requires consideration of three main questions:

(1) what type of restrictions or encumbrances are covered by paragraph 1(b)(2) of the ALTA 9

Endorsement; (2) whether the Declaration of Restrictions falls within the ALTA 9

Endorsement’s scope of coverage, and (3) whether Nationwide’s losses, i.e. its inability to sell

the Property, was occasioned by items within the scope of ALTA 9 coverage. The Court takes

each inquiry in turn.

1. The ALTA 9 Endorsement’s Scope of Coverage
 Although Plaintiff continues to dispute the admissibility of Mr. Nielsen’s expert report, this 4

Court conclusively ruled, on January 20, 2011, that all but Sections I and II of the “Opinions”

section of Mr. Nielsen’s report was admissible. Nationwide Life Ins. Co. v. Commw. Land Title

Ins. Co., No. CIV.A.05-281, 2011 WL 204619 (E.D. Pa. Jan. 20, 2011).

23

Our first inquiry examines the purely legal question of the scope of coverage of paragraph

1(b)(2) of the ALTA 9 Endorsement. As noted above, Defendant contends that paragraph 1(b)(2)

only provides coverage for prior-approval-of-future-purchaser restrictions, which are entirely

separate from use restrictions. In support, it cites to its expert J. Bushnell Nielsen, who opined 4

that “the custom and practice in the land title industry is to classify a purchaser approval right,

option to purchase or right of first refusal as a direct restraint on alienation which is a condition

to the grant of title, and to classify use restrictions as encumbrances on title, which are indirect

restraints only.” (Def.’s Resp. Mot. in Limine, Ex. A, Report of J. Bushnell Nielsen, 10

(“Nielsen Report”).) Mr. Nielsen further found, based on the “custom and practice in the land

title industry,” that “paragraph 1(b)(2)’s reference to an option to purchase, right of first refusal

or right to approve a purchaser or occupant is a reference to restraints on alienation that are not

use restrictions. This assurance of the ALTA 9 Endorsement indemnifies the insured against loss

suffered due to the existence of any such rights that are ‘in addition’ to the use restrictions

excepted in Schedule B.” (Id. at 11-12.)

Defendant’s limited interpretation, however, is undermined by basic tenets of contract

jurisprudence. In Pennsylvania, “the interpretation of insurance contracts is a question of law

that properly may be decided by the court rather than a jury.” Gamble Farm Inn, Inc. v. Selective

Ins. Co., 656 A.2d 142, 143 (Pa. 1995). If possible, a court should interpret the policy so as to

avoid ambiguities and give effect to all of its provisions. Pellegrino Food Prods. Co., Inc. v. Am.
24

Auto. Ins. Co., 655 F. Supp. 2d 569, 575 (W.D. Pa. 2008). The Pennsylvania Supreme Court has

frequently reiterated the principle that extrinsic evidence of the intent of parties to a contract may

be utilized by a court to interpret ambiguous language. Hutchison v. Sunbeam Coal Corp., 519

A.2d 385 (Pa. 1986) (citing Herr Estate, 161 A.2d 32, 34 (Pa. 1960)). In the context of insurance

policies, “[w]here a provision of a policy is ambiguous, the policy provision is to be construed in

favor of the insured and against the insurer, the drafter of the agreement. . . . Where, however,

the language of the contract is clear and unambiguous, a court is required to give effect to that

language.” Standard Venetian Blind Co. v. Am. Empire Ins. Co., 469 A.2d 563, 566 (Pa. 1983);

see also Bateman v. Motorists Mut. Ins. Co., 590 A.2d 281, 283 (Pa. 1991).

It is well-established that in construing the terms of a contract, the court must read the

contract in its entirety, giving effect to all of the contractual language if at all possible. Whole

Enchilada, Inc. v. Truckers Prop. Cas. Co. of Am., 581 F. Supp. 2d 677, 690 (W.D. Pa. 2008). 

“The Court should not consider individual terms removed from their context, but should instead

consider the entire contractual provision to determine the intent of the parties.” NorFab Corp. v.

Travelers Indem. Co., 555 F. Supp. 2d 505, 509 (E.D. Pa. 2005). In addition, “[n]o provision

within a contract is to be treated as surplusage or redundant if any reasonable meaning consistent

with the other parts can be given to it.” Sparler v. Fireman’s Ins. Co. of Newark, N.J., 521 A.2d

433, 438 n.1 (Pa. Super. Ct. 1987).

Applying such principles, the Court finds that the language of the ALTA 9 Endorsement

is clear and unambiguous. As repeatedly set forth above, the relevant portion of the ALTA 9

Endorsement states that Commonwealth insures Nationwide 
 Plaintiff’s report from its expert, Stuart Ebby, reaches the same conclusion. Nonetheless, Mr. 5

Ebby’s opinion references no sources and appears to be only an inadmissible conclusion of law

that attempts to apply the Policy terms to Nationwide’s loss. Accordingly, it does not factor into

the Court’s legal interpretation of the Policy.

25

against loss or damage sustained by reason of . . . [t]he existence at Date of Policy

of . . . [a]ny instrument referred to in Schedule B as containing covenants,

conditions, or restrictions on the land which, in addition, (i) establishes an

easement on the land; (ii) provides a lien for liquidated damages; (iii) provides for

a private charge or assessment; (iv) provides for an option to purchase, a right of

first refusal or the prior approval of a future purchaser or occupant.

(Def.’s Mot. Summ. J., Ex. 2, at ALTA 9 Endorsement ¶ 1(b)(2).) A plain reading of this

language indicates that it covers against loss sustained by reason of the existence of “an

instrument referred to in Schedule B,” which, in this case, could be either the Declaration of

Restrictions or the Master Declaration. For that “instrument” to be covered, it must further

contain (1) covenants, conditions, or restrictions on the land, as well as (2) an easement on the

land, a lien for liquidated damages, a private charge or assessment, an option to purchase, a right

of first refusal, or a prior approval of a future purchaser or occupant. Any loss arising as a result

of any portion of that instrument – and not from any particular provision contained therein – falls

within the scope of the ALTA 9 Endorsement coverage.5

Defendant’s contrary argument, as bolstered by Mr. Nielsen’s Report, simply reads out of

the provision the phrase “instrument referred to in Schedule B.” Indeed, while spending an

inordinate amount of time defining industry custom and practice as to the meaning of “covenants,

conditions, and restrictions” and clarifying the difference between direct restraints on alienation

and indirect restraints on alienation, Mr. Nielsen seems to completely disregard the term

“instrument” in favor of a finding that the Endorsement coverage is limited to particular types of
 In the opinion on Plaintiff’s Motion in Limine, the Court expressly ruled that Mr. Nielsen’s 6

legal conclusions were precluded from consideration during summary judgment review. 

Nationwide Life Ins. Co. v. Commw. Land Title Ins. Co., No. CIV.A.05-281, 2011 WL 204619,

at *13-15 (E.D. Pa. Jan. 20, 2011) Thus, to the extent Mr. Nielsen attempts to interpret the scope

of the Endorsement based on its language, rather than simply opine on the meaning of certain

words or phrases under industry custom and practice, his opinion is a conclusion of law, which is

inadmissible under the Federal Rules of Evidence. See Smith v. Cont’l Cas. Co., No. CIV.A.07-

1214, 2008 WL 4462120, at *1 (E.D. Pa. Sep. 30, 2008) (recognizing that expert testimony as to

industry customs and practice may be helpful so long as expert does not engage in legal

construction of insurance policy terms), aff’d, 347 Fed. Appx. 812 (3d Cir. 2001).

 Alternatively, Defendant makes the policy argument that, “[i]f Nationwide is correct in its 7

reading of the Policy, a title insurer would be obligated to provide coverage for any and all

encumbrances in an instrument expressly excepted on Schedule B if that title insurer failed to

identify even a single ALTA 9 (1)(b)(2) encumbrance. This is not how Schedule B and ALTA 9

were intended to operate. Such a rule would render title insurance policies prohibitively

cumbersome documents and essentially meaningless as a result.” (Def.’s Reply Supp. Mot.

Summ. J. 4-5.) The Court is unswayed by this contention. As the Third Circuit has expressly

held, title insurance companies should bear “the burden of detecting the restrictions stated in the

declaration” and “list[ing] those restrictions explicitly as exceptions to avoid covering loss from

them.” Nationwide, 579 F.3d at 319. Under this principle, it would be reasonable for the ALTA

9 Endorsement to fully cover listed instruments and then place the burden on the title insurance

company to explicitly except out the provisions of those instruments they wish to avoid covering.

26

restrictions. By its plain language, however, the Endorsement only defines what types of 6

instruments are covered and then clearly insures against any loss sustained from the instrument

itself. Had the Endorsement meant otherwise, it would have eliminated the language “any

instrument” and simply insured Nationwide against loss resulting from any “covenants,

conditions, or restrictions on the land [referred to in Schedule B] which, in addition . . . provide[]

for an option to purchase, a right of first refusal or the prior approval of a future purchaser or

occupant.” In such a case, Mr. Nielsen’s conclusion that the Endorsement covered only direct

restraints on alienation that are not use restrictions would become relevant. Because the Court

must give effect to all contractual language, however, Mr. Nielsen’s interpretation does not

withstand judicial scrutiny.7
 Notably, Mr. Nielsen opines that, under industry custom and practice, the phrase “covenants,

8

conditions or restrictions” in the ALTA 9 Endorsement refers only to use restrictions. (Nielsen

Report 10.) Plaintiff has disputed this conclusion on the ground that Pennsylvania law uses the

terms “covenants,” “conditions,” and “restrictions” interchangeably to refer to a wide variety of

real estate encumbrances. (Pl.’s Mem. Supp. Mot. in Limine 8-9 (citing cases).) For purposes of

this opinion only, the Court takes Mr. Nielsen’s definition of “covenants, conditions or

restrictions” as true.

27

In short, the Court finds that the ALTA 9 Endorsement provides insurance coverage for

any loss arising from any instrument referenced in Schedule B that contains both covenants,

conditions, or restrictions, as well as, among other items, an option to purchase, a right of first

refusal, or a prior approval of a future purchaser or occupant. The Endorsement does not restrict

its coverage to specific provisions within such instruments.

2. Whether the Declaration Falls Within ALTA 9's Scope of Coverage

The second step in the coverage inquiry is whether the Declaration of Restrictions falls

within the scope of the ALTA 9 Endorsement. As noted above, to come within the

Endorsement’s bounds, the instrument must contain “covenants, conditions or restrictions on the

land” and must provide for an easement on the land, a lien for liquidated damages, a private

charge or assessment, or an option to purchase, a right of first refusal, or the prior approval of a

future purchaser or occupant. No genuine issue of material fact exists on these points.

As to the “covenants, conditions, or restrictions on the land,” the Pennsylvania Supreme 8

Court has defined a restrictive covenant as “a private agreement, usually in a deed or lease, that

restricts the use or occupancy of real property, especially by specifying lot sizes, building lines,

architectural styles, and the uses to which the property may be put.” Vernon Twp. Volunteer Fire

Dept. Inc. v. Connor, 855 A.2d 873, 875 n.2 (Pa. 2004) (citing BLACK’S LAW DICTIONARY 371
28

(7th ed. 1999)). The Restatement provides that “[a]n otherwise invalid servitude is valid even if

it indirectly restrains alienation by limiting the use that can be made of property, by reducing the

amount realizable by the owner on sale or other transfer of the property, or by otherwise reducing

the value of the property.” RESTATEMENT (THIRD) OF PROPERTY (SERVITUDES) § 3.5 (2000); see

also J.C. Penney Co., Inc. v. Giant Eagle, Inc., 813 F. Supp. 360, 368 (W.D. Pa. 1992) (holding

that restrictive covenants are presumptively valid and enforceable). “Unlike direct restraints on

alienation, which directly interfere with the process of conveying land, and have long been

understood and constrained by the common law, indirect restraints may have no overall negative

effects on the wealth of a society overall or more narrowly, on the value of its land resources. On

the contrary, they may result in an overall increase in wealth.” RESTATEMENT (THIRD) OF

PROPERTY (SERVITUDES) § 3.5 cmt. a. “The only requirement is that there be a rational

justification for creating it as a servitude.” Id. Importantly, “[r]estrictive covenants that ‘run

with the land’ bind subsequent owners of the property, and property purchasers have a duty to

become aware of recorded restrictions in the chain of title even absent actual notice.” Greens at

Greencastle Ltd. P’ship v. Greencastle GIBG LLC, No. CIV.A.06-1708, 2009 WL 3182841, at

*3 (M.D. Pa. Sept. 28, 2009).

Direct restraints on alienation, on the other hand, “include absolute prohibitions on some

or all types of transfers, including leases, prohibitions on transfer without the consent of another,

prohibitions on transfer to particular persons, requirements of transfer to particular persons,

options to purchase land, and rights of first refusal.” RESTATEMENT (THIRD) OF PROPERTY

(SERVITUDES) § 3.4 cmt. b (2000) (emphasis added). Whereas indirect restraints on alienation

(i.e. use restrictions) are valid unless they lack a rational basis, “[d]irect restraints on alienation . .
29

. are valid only if reasonable.” Id. “The test for direct restraints is more stringent because they

clearly interfere with the process of conveying land and have long been subjected to common-law

controls, which often have been more stringent than a reasonableness test.” Id. § 3.4 cmt. b. “A

prohibition on transfer of property without the consent of another is an unreasonable restraint on

alienation unless there is strong justification for the prohibition, and, unless the consent can be

withheld only for reasons directly related to the justification for the restraint.” Id. cmt. d.

The Declaration of Restrictions in this case undoubtedly contains both types of

encumbrances. First, the Court finds – and Commonwealth expressly admits – that the

Declaration encompasses use restrictions/indirect restraints on alienation. The Declaration itself

states as follows:

2. Use Restrictions and Operating Covenant.

A) Use. Subject to the provisions of this Sub-paragraph 2(A), Buyer

shall use and occupy the Property (and the building to be

constructed thereon) only for the purposes of a variety or

general merchandise store.

(Def.’s Mot. Summ. J., Ex. 6, at 6.) The provisions following this paragraph then specify the

products and merchandise to be displayed and offered for sale and other usages of the Property

prior to the expiration of the three year Operating Covenant. (Id.) Upon the expiration of that

Operating Covenant period, the Declaration goes on to indicate that:

Buyer shall have the right to use the Property and/or the building for any single

retail use which is (1) permitted under all applicable laws, ordinances, orders,

rules, regulations and requirements of all governmental authorities having

jurisdiction over the Shopping Center Project, (2) consistent with and permitted

under the Master Declaration, and (3) compatible with an enclosed super-regional

discount specialty retail shopping center (or such other type of shopping center as
 Plaintiff argues that the Declaration of Restrictions also contains a “private charge or 9

assessment” in the form of CAM charges, also bringing it within the coverage of paragraph

1(b)(2)(iii) of the ALTA 9 Endorsement. As the Court finds that the Declaration already falls

within paragraph 1(b)(2)(iv) of the Endorsement, we need not reach the merits of this contention. 

Nevertheless, the availability of CAM charges as insurable policy losses is discussed later in this

opinion. See infra § III.D.4.

30

may be operated by Seller within the Shopping Center Project in the future);

provided, however, that in no event shall Buyer use the Property and/or the

building for any of the purposes listed on Exhibit 3, attached hereto and made a

part hereof; and provided further, however, that Buyer shall not change the use of

the Property from a variety or general merchandise store (as described above)

without the prior written consent of Seller (which shall not be unreasonably

withheld or delayed if the proposed use satisfies the foregoing requirements of

this sentence. In no event shall the Property be used or occupied for any purposes

or in any manner other than as set forth in this Sub-paragraph 2(A) [indicating that

the Property shall be used to sell health and beauty aids, pharmaceuticals, video

tapes, video cassettes, video disks, and other such pre-recorded video products].

(Id. at 6-7 (emphasis added).) As Commonwealth expressly concedes, this language

“unquestionably deals with how the Property can be used, not who can use the Property.” (Def.’s

Mem. Supp. Mot. Summ. J. 23.)

Moreover, the Declaration of Restrictions unequivocally contains a right-of-approval-offuture-purchaser restriction. Specifically, paragraph 7(c) states that: 9

Except as provided in this Sub-paragraph 7(c), no sale, transfer or conveyance by

Buyer of all or any part of the Property (or any interest therein and/or

improvements thereon) shall be deemed to release Buyer from any of its

obligations under this Declaration. If, after the expiration of Buyer’s covenant to

operate its building as provided in Paragraph 2 above, Buyer sells, transfers or

conveys the Property in its entirety (together with all improvements thereon and

any easements and appurtenances thereto), Buyer shall be released from all

liability under this Declaration and cease to be a party hereto from and after the

date upon which the transferee shall become liable for the terms, conditions,

covenants and agreements in this Declaration thereafter to be kept, observed and

performed by Buyer, but only on the condition that:
31

(1) All of the provisions of sub-sections (i) through (iii) of Subparagraph 7(B) above are complied with by Buyer and transferee;

and

(2) The transferee, any general partner of the transferee (if the

transferee is a partnership) or any guarantor of the transferee

(which guarantor executes a guaranty in favor of Seller that is

reasonably satisfactory, in form and substance, to Seller) has a net

worth (according to its published, audited financial statement, or

according to a statement certified to Seller by an independent

certified public accountant) of at least Five Million Dollars

($5,000,000.00) for its most recently completed fiscal year, and is

reasonably experienced in the operation of a retail store similar to

that which Buyer is required to operate (or cause to be operated)

pursuant to Paragraph 2 above.

(Def.’s Mot. Summ. J., Ex. 6, 19-20, ¶ 7(c).) Defendant admits that this provision provides

Franklin Mills with “the right to disapprove a prospective purchaser of the Property if that

purchaser or ‘any general partner . . . or any guarantor of the [purchaser]’ has a net worth of less

than five million dollars or lacks sufficient retail experience.” (Def.’s Mem. Supp. Mot. Summ.

J. 24-25.)

Finally, the Declaration of Restrictions includes an option to purchase, which states in

pertinent part:

If at any time after the expiration of Buyer’s three (3) year covenant to operate its

building as provided in Sub-paragraph 2(B) above, Buyer or any occupant of the

Property desires to cease conducting business to the public in its building on the

Property, then Seller may, at its sole option, repurchase the Property in the same

manner as indicated in Sub-paragraph 2(D) above . . . with the sole exception that

the Property shall be repurchased by Seller for a sum equal to the appraised fair

market value of the Property (as defined in Sub-paragraph 2(F) below).

(Def.’s Mot. Summ. J., Ex. 6, 10, ¶ 2(E).)
32

Given the evidence before the Court – as well as Commonwealth’s corroborating

admissions – the Court finds that the Declaration of Restrictions falls within the scope of ALTA

9 Endorsement coverage.

3. Whether Plaintiff Suffered Any Damages Due to Provisions Within

the Declaration of Restrictions

Finally, the Court must determine whether Plaintiff has in fact suffered any “loss or

damage sustained by reason of” the Declaration of Restrictions. The Court again finds no

genuine issue of material fact precluding a summary judgment ruling on this question.

 Both parties agree that Nationwide had identified Ironwood as a potential purchaser of

the Property. Further, all evidence of record suggests that Franklin Mills expressly relied on the

provisions of the Declaration of Restrictions to thwart Nationwide’s sale to Ironwood. 

Specifically, Jeremy Fogel, Ironwood’s president, noted that the provisions of the Declaration of

Restrictions – including use, prior approval, and option to repurchase restrictions – were the

catalyst behind the failed Nationwide/Ironwood transaction:

Q. Okay. And if you look at Paragraph 1 [of an exhibit e-mail], and down at

the bottom of the page and David McLaughlin’s E mail, it says, “I don’t

think we can be any more specific about the nature of the amendments at

this time. Preliminarily, we need to know Liberty Mills’ position on the

purchase option issues before we can begin addressing the use

restrictions.” Do you know why he put the purchase options – purchase

option issues ahead of the use restriction issues?

A. Because I think we were well-aware that the use restriction would require

some sort of sales pitch to the Mills, and if they were going to elect to

purchase the property, what was the point of getting that preparation in

place? So, in this case, in a linear manner we wanted to first make sure
33

that Mills would waive its rights. If they would, then we would go address

the use issues.

Q. Okay. So, if Mills didn’t waive rights to repurchase the property, then

there was no reason to proceed forward?

A. That’s correct.

(Fogel Dep. 137:25-138:2.)

Q. In order to go forward with your deal did you understand that the Mills

Corp had to approve Lincoln Tech as your tenant?

A. I think the answer’s the same as the prior, I believe, the documents clearly

gave that use as a restricted use, or it wasn’t listed as the approved uses, so

we made the assumption that the Mills would have to approve it as a use.

. . .

Q. Now, in this deal, were you asking, was Nationwide or you, asking Mills

to approve the use of the property as a school, or were you asking them to

approve, specifically approve, the occupation of the space by the tenant,

Lincoln Tech?

A. They would be the same thing to me. We would be asking for the Mills to

agree to have Lincoln Tech occupy the space for their intended use.

Q. Okay.

A. If they – actually, looks like, just as a separate item, they approved the sale

to Ironwood. In my mind, that doesn’t mean they are approving the use of

the sale to Ironwood and approving the use. So, they very well may have

said I don’t want – the example from before, they very well – there’s a

document we looked at before that said that Lincoln – that said the Mills

agreed to allow Ironwood to buy the property. I don’t infer from that

statement that they also are allowing us to put Lincoln Tech in the space. 

They are separate. So, just because they approved our right to purchase

the property doesn’t mean they are letting us after we buy it stick Lincoln

Tech in there. All it means is I now own a vacant building I can’t put

Lincoln Tech in. So, in that same context here, it – they are the same. 

They – if they approved the use of a vocational school, to me that means I

can have Lincoln Tech occupy the space.

(Id. at 147:1-149:15.)
34

Q. Would you buy this property now on – would Ironwood buy this property

now, the former Phar-Mor property?

A. If Lincoln Tech hadn’t found a home and if the Mills would agree to it,

absolutely.

Q. How about if not, just as a vacant property?

A. No.

Q. At any price?

A. Probably not, because the document that governs it is so restrictive that I

don’t know what I would – we would have had concern – frankly, I’m

surprised – we may have had this conversation – that if we had done the

deal with Lincoln Tech and they closed up and we now own this building,

we would have been so limited based on the documentation that if we

were able to get them to approve Lincoln Tech, looking back, hopefully,

eight years wiser, I should have been concerned about what our exit

strategy would be if that tenant ever crapped out.

(Id. at 153:3-21.)

Q. Okay. If the operating easement agreements that we have been discussing

here, the master declaration and the PMI restrictions were not in place,

could Ironwood have closed this deal?

A. It’s hard to say. My first reaction is absolutely, although I don’t think we

ever finished our due diligence because we were hung up on those issues. 

But clearly from the amount of time we spent on it, those were the two

most significant items. Looking at the actual title report, it looks like

there’s only twelve or so items, which is surprising. It’s hard to

affirmatively say that, though.

Q. But there’s nothing else out there that you are aware of that would have been an

impediment to the sale, is there?

A. Not that I’m aware of.

Q. Is it fair to say that the existence of these instruments is what prevented the

sale of this property from Nationwide to Ironwood?

A. Yes.

(Id. at 157:8-158:4.)
35

Further, Jennifer Thrasher, of Nationwide, testified that Nationwide’s inability to close

the deal with Ironwood arose directly from the Declaration of Restrictions’s provisions:

Q. Would you say Nationwide’s failure, or should I say inability to sell or

lease the property is in the broad strokes why this lawsuit was brought and

the damage it seeks?

A. Yes.

Q. And I just want to make sure I understand from your testimony, has that

inability been solely on account of what Franklin Mills will or will not

permit, or I should say, has or has not permitted?

A. I know of no other obstacles other than the Franklin Mills restrictions,

permissions.

(Thrasher Dep. 31:1-12.)

Q. Was the ability of Franklin Mills to say their [Ironwood’s] net worth, that

purchaser’s net worth is not enough, was that the reason any of the sales or

leases did not go through?

A. No.

Q. Was their exercise of a right to approve what the potential purchaser or

lesser was going to use the property for the reason the sale didn’t go

through?

A. Yes.

Q. And is that the only thing that’s not caused these sales or leases to go

through?

A. Yes.

(Thrasher Dep. at 43:17-44:5.)

Finally, Plaintiff’s expert, Reaves C. Lukens, opined that the property is subject to

significant use restrictions, which “severely limit the marketability and adversely impact the

value of the property.” (Pl.’s Mot. Summ. J., Ex. H.) He reported that “[t]he restrictions in place

are extremely onerous” and that he made “an exhaustive, but unsuccessful, search of the market
 Plaintiff offers a plethora of evidence demonstrating that it suffered damages not only from the 10

use restrictions contained within the Declaration of Restrictions, but also from Declaration of

Restrictions’s provisions regarding Franklin Mills’s right to approve a future purchaser, option to

repurchase, and private assessment. As the Court has found that the ALTA 9 Endorsement

covers any loss or damage arising from the actual Declaration – unless expressly excepted in

36

looking for examples of similarly restricted retail stores which sold or were leased.” (Id.) 

Further, he was unable “to identify a single potential user for the property that would likely be

deemed acceptable to the Franklin Mills Advisory Council (FMAC),” suggesting that the

property’s value is “nominal at best.” (Id.)

Commonwealth does not dispute that Nationwide’s damages were caused by provisions

in the Declaration of Restrictions, but rather challenges what type of restrictions within the

Declaration were the source of Nationwide’s damages, as follows:

Put differently, the only reason Franklin Mills can have for rejecting a potential

purchaser is if that purchaser does not intend to abide by the use restrictions set

forth in the Master Declaration and the Declaration of Restrictions. Franklin

Mills thus does not control who operates a business on the Property, but only what

that business is, and whether the operation of that business is in accordance with

the Master Declaration and the Declaration of Restrictions. So, to repeat, the

problem here (and the source of Nationwide’s claimed harm) is that Franklin

Mills has never been presented with a potential tenant whose proposed use of the

Property is consistent with the terms of the instrument at issue. 

(Def.’s Mem. Supp. Mot. Summ. J. 20; see also id. at 22 (“Only [u]se [r]estrictions [a]re the

[s]ource of Nationwide’s [a]lleged [l]osses.”).) Commonwealth again asserts that because the

ALTA 9 Endorsement covers only direct restraints on alienation and not use restrictions, Plaintiff

has not suffered any covered loss. 

As discussed in detail above, however, this argument offers a distinction without a

difference. The ALTA 9 Endorsement, in this case, clearly covers the entirety of the 10
Schedule B – there is no need to determine the precise source of Nationwide’s damages.

 Plaintiff also contends that the Master Declaration falls within the ALTA 9 Endorsement’s 11

scope of coverage. Having already found coverage for Plaintiff’s losses sustained as a result of

the Declaration of Restrictions, and as any losses from the Master Declaration are identical, the

Court does not separately address this document.

37

Declaration of Restrictions, unless the particular restriction or type of loss was “expressly

excepted,” as previously defined by the Third Circuit. Because the Declaration of Restrictions

falls within the confines of the ALTA 9 Endorsement, and because the evidence reveals that

Nationwide suffered damages sustained by reason of such an instrument, Nationwide is entitled

to coverage under the Policy.11

C. Whether Nationwide “Assumed” or “Agreed to” the Encumbrances at Issue,

Thereby Making All Loss or Damage Arising Therefrom Excluded from

Coverage

In an alternate effort to avoid liability to Plaintiff, Defendant argues that even if coverage

under the ALTA 9 Endorsement existed, Plaintiff assumed or agreed to the encumbrances

contained in the Master Declaration and Declaration of Restrictions at the time it issued the

mortgage to PMI. In turn, Defendant contends that coverage for loss or damage arising from

those encumbrances is expressly excluded under Exclusion 3(a) of the Policy.

Under Pennsylvania law, “exceptions to an insurer’s general liability are interpreted

narrowly against the insurer.” Morrison v. Wells Fargo Bank, N.A., 711 F. Supp. 2d 369, 387

(M.D. Pa. 2010); see also Selko v. Home Ins. Co., 139 F.3d 146, 152, n.3 (3d Cir. 1998) (holding

that, under Pennsylvania law, exclusions and ambiguities in the policy are strictly construed

against the insurer). Thus, “[t]he burden of establishing exclusion from coverage rests with the
38

insurance company.” Bragman v. Commw. Land Title Ins. Co., 421 F. Supp. 99, 103 n.6 (E.D.

Pa. 1976) (citing Daburlos v. Commercial Ins. Co. of Newark, N. J., 521 F.2d 18 (3d Cir. 1975)),

aff’d, 561 F.2d 493 (3d Cir. 1977); see also West Am. Ins. Co. v. Lindepuu, 128 F. Supp. 2d 220,

227 (E.D. Pa. 2000) (“Exclusions are strictly construed against the insurer.”); Ticor Title Ins.

Co. of Cal. v. FFCA/IIP, 898 F. Supp. 633, 639 (N.D. Ind. 1995) (holding that insurer has the

burden of establishing that Exclusion 3(a) excludes the risk).

Exclusion 3(a) of the Policy at issue provides, in pertinent part, as follows:

The following matters are expressly excluded from the coverage of this policy and

[Commonwealth] will not pay loss or damage, costs, attorneys fees or expenses

which arise by reason of:

3. Defects, liens, encumbrances, adverse claims or other matters: (a) created,

suffered, assumed or agreed to by the insured claimant . . .

(Def.’s Mot. Summ. J., Ex. 2 at Bates No. 582.) The dispute between the parties focuses not on

the terms “created” or “suffered,” but rather on whether Plaintiff “assumed” or “agreed to” the

encumbrances for which it now seeks coverage. Unfortunately, the meaning of these latter terms

has yet to obtain affirmative judicial review within the Third Circuit. Multiple treatises have

wrestled with the scope and meaning of the exclusion and have almost uniformly held that the

“assumed” or “agreed to” requires something more than mere negligence. As discussed in the

American Law Reports:

In cases involving a discussion of a clause excepting defects, liens, or

encumbrances created, suffered, assumed, or agreed to by the insured, it has been

held that the insurer may not escape liability under the clause where the insured

was merely negligent in bringing about his own loss or was innocent of any

conduct causing the loss. . . . On the other hand, the insurer has been held relieved

of any liability by reason of a clause excepting defects, liens, or encumbrances

created, suffered, assumed, or agreed to by the insured, where the defect, lien, or
39

encumbrance resulted from the intentional misconduct or inequitable dealings of

the insured himself. . . .

Apart from any considerations of misconduct on the part of the insured, the

exception clause under discussion herein has also been held applicable to relieve

the insurer of any liability in cases where the insured either expressly or impliedly

assumed or agreed to various defects, liens, or encumbrances in the course of

purchasing the property involved.

87 A.L.R.3d § 515 (2010) (footnotes omitted). 

Further, commentary within American Jurisprudence (Second) states:

A title insurance policy which excludes from coverage adverse claims “created,

suffered, assumed or agreed to by the insured” requires a conscious, deliberate, or

affirmative act to create an adverse claim. . . . Where the defect, lien, or

encumbrance is brought about by some accidental, merely negligent, or innocent

conduct of the insured, not intended to create a cloud on the title, such defect, lien,

or encumbrance is not considered as having been created, suffered, assumed, or

agreed to by the insured. . . .

43 AM. JUR. 2D INSURANCE § 530 (2010) (emphasis added).

Despite the dearth of Third Circuit jurisprudence interpreting this exclusion, appellate

courts outside the Third Circuit have similarly agreed that “[w]here the defect was caused by

mere negligence or by the innocent conduct of the insured, Exclusion 3(a) . . . [is] not generally

applicable.” Id. As persuasively described by the Sixth Circuit, “an insured does not assume an

assessment against property merely because he agreed to take the property ‘subject to’ any

assessments. . . . ‘Assume,’ under this definition requires knowledge of the specific title defect

assumed. . . . And ‘agreed to’ carries connotations of ‘contracted,’ requiring full knowledge by

the insured of the extent and amount of the claim against the insured’s title. As with the other

terms, this definition implies some degree of intent.” Am. Sav. & Loan Ass’n v. Lawyers Title
 Many other courts have followed suit. See, e.g., Chicago Title Ins. Co. v. Resolution Trust

12

Corp., 53 F.3d 899, 905 (8th Cir. 1995) (“This type of exclusion bars coverage where there has

been misconduct or inequitable behavior on the part of the lender, where the lender assumes or

agrees to liens, or where the lender stands to receive an inequitable windfall if the insurer settles

lien claims in order to protect the mortgage priority.”); Mercantile-Safe Deposit and Trust Co. v.

Chicago Title Ins. Co., No. CIV.A.05-2217, 2007 WL 892103, at *8 (D. Md. Mar. 20, 2007)

(“The insurer . . . may not avoid liability based on mere negligence of the insured in bringing

about the loss.”); Ticor Title Ins. Co. of California v. FFCA/IIP 1988 Prop. Co., 898 F. Supp.

633, 639 (N.D. Ind. 1995) (“[F]or Exclusion 3(a) to apply as an exception to coverage, the

insured must have manifested some element of intent to ‘create, suffer, assume or agree to’ a

defect in title.”); Sims v. Sperry, 835 P.2d 565, 571 (Colo. App. 1992) (“[W]e have already

concluded that 3(a) requires the insured to intend the defect to occur. Intent implies knowledge

of the intended defects by the insured.”); Omega Ltd. P’ship v. First Am. Title Ins. Co., No.

111149, 1992 WL 885041, at *1 (Va. Cir. Ct. 1992) (“Here, the defendant argues that the

plaintiff constructively agreed to the defect, because it should have known of the defect if the

surveyor, acting as plaintiff’s agent, properly performed his job. This is rejected, because the

contract language should be strictly construed against the writer of the contract. Therefore, this

exclusion should only apply where the insured specifically agreed to the defect not being

covered. To hold otherwise, would give the insurer a benefit for which he had not bargained. 

Here, it is admitted that there was no actual agreement.”); Bourland v. Title Ins. Co. of Minn.,

627 S.W.2d 567, 571 (Ark. App. 1982) (“The cases uniformly declare that the words ‘agreed to’

connote ‘contracted.’ The evidence properly viewed does not indicate that appellants agreed to

the defect in their title but steadfastly denied knowledge of it.”); Arizona Title Ins. & Trust Co. v.

Smith, 519 P.2d 860, 863 (Ariz. 1974) (“[O]ur policy of construing ambiguities in favor of the

insured leads us to require Actual knowledge on the part of the insured as to the Full extent and

amount of the assessment before the exclusion would become operative.” (capitalization in

original)).

40

Ins. Corp., 793 F.2d 780, 784 (6th Cir. 1986) (some internal citations and quotations omitted). 

Similarly, the Eighth Circuit has found that “the insurer can escape liability only if it is

established that the defect, lien or encumbrance resulted from some intentional misconduct or

inequitable dealings by the insured or the insured either expressly or impliedly assumed or agreed

to the defects or encumbrances in the course of purchasing the property involved. The courts

have not permitted the insurer to avoid liability if the insured was innocent of any conduct

causing the loss or was simply negligent in bringing about the loss.” Brown v. St. Paul Title Ins.

Co., 634 F.2d 1103, 1107 n.8 (8th Cir. 1980).12
41

Defendant argues that Plaintiff expressly knew of the encumbrances in the Master

Declaration and the Declaration of Restrictions, and thus “assumed” those encumbrances within

the meaning of Exclusion 3(a). In particular, Defendant points out that when Nationwide

originally made its loan to PMI, taking the subject Property as collateral, it prepared and issued

the requisite mortgage documents. The mortgage contract stated that “Borrower [PMI]

covenants and warrants with and to Lender [Nationwide] that . . . the Property is free and clear of

all liens and encumbrances of any kind, nature or description, save and except only . . . [for]

those matters set forth in Exhibit ‘B’ attached hereto and made a part hereof (collectively referred

to herein as the ‘Permitted Exceptions’).” (Def.’s Mot. Summ. J., Ex. 4, 4.) Exhibit B, which

listed the “Permitted Exceptions,” thereafter specifically referenced both the Master Declaration

and the Declaration of Restrictions with their respective recording numbers. (Id. at Ex. B.) 

Defendant now argues that “[o]nly if Nationwide and its agent did not read any of their own

documents relating to the collateral for Nationwide’s $3.5 million loan to PMI, or did not look at

the Policy it purchased from Commonwealth, could Nationwide not have known of the existence

of the Declaration of Restrictions, the Master Declaration, and their relevant provisions. 

Nationwide can reasonably make no such claim.” (Def.’s Mem. Supp. Mot. Summ. J. 31-32.) In

turn, Defendant concludes that Nationwide necessarily “assumed or agreed” to such

encumbrances for purposes of Exclusion 3(a). (Id.)

Defendant’s argument, however, fails on several grounds. First, as noted above,

“[a]ssume” under Exclusion 3(a) requires “knowledge of the specific title defect assumed,” while

“agreed to” means explicitly contracted with full knowledge by the insured of the extent of the

encumbrance. Am Sav. & Loan Ass’n, 793 F.2d at 784 (emphasis added). Defendant fails to
 Defendant’s Reply Brief in support of its Motion for Summary Judgment quotes Plaintiff’s 13

counsel’s argument to the Third Circuit for the proposition that he “misled” the Third Circuit as

to how much Nationwide knew. (Def.’s Reply Br. Supp. Mot. Summ. J. 14 n.13.) Nothing in

this footnote supports such an argument.

 Notably, the Policy itself defines “knowledge” as “actual knowledge, not constructive 14

knowledge or notice which may be imputed to an insured by reason of the public records as

defined in this policy or any other records which impart constructive notice of matters affecting

the land.” (Def.’s Mot. Summ. J., Ex. 4, at § 1(c).)

42

produce any evidence that Plaintiff had knowledge of the “specific title defect assumed.”13

Indeed, nothing in the record suggests that Plaintiff possessed actual knowledge of the contents

of such instruments, that the instruments were ever included as part of the underwriting file, or

that the specific encumbrances contained in those documents were ever revealed to Nationwide. 

Rather, its evidence reflects only that the Master Declaration and the Declaration of Restrictions

were listed in the mortgage documents and underwriting file as instruments containing

encumbrances on the title. Mere knowledge of the Declaration of Restrictions or Master

Declaration as public documents affecting the land does not impute to Nationwide accrued

knowledge of the contents of those documents for purposes of the Exclusion. If anything, 14

Plaintiff was simply negligent in failing to read the documents and determine what encumbrances

were contained therein, which is clearly “not sufficient to establish a policy exclusion under the

terms of 3(a).” Mercantile-Safe Deposit and Trust Co., 2007 WL 892103, at *9.

Second, and perhaps more importantly, Defendant’s argument both disregards the very

purpose behind Plaintiff’s purchase of the title insurance policy and ignores the fundamental

underpinnings of the Third Circuit’s decision. It is well-established that “[t]itle insurance

protects homebuyers and mortgagors against losses arising out of defects in title that existed at

the time of the sale or mortgage.” In re Pa. Title Ins. Antitrust Litig., No. CIV.A.08-1202, 2010
43

WL 4974942, at *2 (E.D. Pa. Nov. 30, 2010). “Before a title insurer issues a policy, a title

insurance agent, independent attorney, or employee of the title insurance company must search

and examine public records in order to identify any potential defects, such as liens or

encumbrances.” Id. (citing 40 PA. CONS. STAT. § 910-7). As a result, “the title insurer’s function

is primarily to prevent losses by reducing the insured’s ignorance of the state of title to the lowest

possible level, and only secondarily to pay losses when some element of ignorance has not been

eliminated by the title search and examination.” Id. (internal quotations omitted). 

In its previous opinion in this case, the Third Circuit expressly addressed who bore the

burden of detecting title restrictions and encumbrances contained in a publicly recorded

document. It recognized that “[s]ince the first land title insurance company opened in 1876,

‘[o]ne of the big talking points for title insurance is that it relives the investor from title work,

examinations and worry therefrom, as well as affording protection.’” Nationwide, 579 F.3d at

318 (citation omitted). When Nationwide paid Commonwealth to review its interest in the title

to the Property, it “discharged its ‘burden of completing proper diligence’ to the extent that

Commonwealth did not expressly except such restrictions from coverage in Schedule B of the

policy.” Id. at 319. It further noted that “Commonwealth bore the burden of detecting the

restrictions stated in the Declaration, and had to list those restrictions explicitly as exceptions to

avoid covering loss for them.” Id. 

To now accept Defendant’s argument regarding the application of Exclusion 3(a) would

effectively turn these principles on their head. Although the mortgage documents and

underwriting file between Nationwide and PMI identified the Declaration of Restrictions and the

Master Declaration, they did not specify what types of liens, encumbrances, and title defects were
 None of the cases that Commonwealth cites support its argument that Exclusion 3(a) applies. 15

See Lawyers Title Ins. Corp. v. Research Loan & Inv. Corp., 361 F.2d 764, 767-69 (8th Cir.

1966) (noting that although there was no evidence of plaintiff’s actual knowledge of defect, court

found that plaintiff had assumed defects by taking a deed without applying for title insurance

before the closure of the deal; had plaintiff “applied for the insurance prior to closing the deal . . .

it would be reasonable to conclude that [plaintiff] was relying on the title insurer to advise it of

the true state of the record title and intended to assume, in the context of the policy condition,

only those obligations which the title search revealed.”); Nat’l Credit Union Admin v. Ticor Title

Ins. Co., 873 F. Supp. 718, 726-27 (D. Mass. 1995) (finding that knowledge of three senior

officers who intentionally created and agreed to a second mortgage position was imputed to the

company at the time it got its second title policy, thereby implicitly acknowledging that actual

knowledge is necessary for Exception 3(a) to apply); First Nat. Bank of Minneapolis v. Fidelity

Nat’l Title Ins. Co., 425 F. Supp. 105, 112 (D. Neb. 1977) (reversed by Eighth Circuit, 572 F.2d

44

contained in those instruments. To that end, and simultaneously with the issuance of the

mortgage, Nationwide hired Commonwealth: (1) to review the title of the Property, including

the public records identified in the mortgage documents; (2) to notify Nationwide of any specific

encumbrances on the property; and (3) if it chose not to insure those encumbrances, to expressly

except them on Schedule B. In other words, Nationwide placed substantial reliance on

Commonwealth’s professed ability to reveal defects in the title. To the extent Commonwealth

failed to expressly except the specific encumbrances found in such documents, the Third Circuit

determined that it was liable for any loss sustained as a result of them. Allowing Commonwealth

to invoke Exclusion 3(a) of the Policy at this juncture would end-run those dictates and re-shift

the burden back to Nationwide to comb through public records, read, and interpret the precise

impact of the documents. To quote from the Third Circuit, it “surpasses strange” to think that

Nationwide would pay an extra premium for an ALTA 9 Endorsement to cover an instrument,

that will nonetheless be excluded by the Policy on the grounds that it was mentioned in the

underwriting file for Nationwide’s mortgage to PMI – the very transaction Commonwealth was

hired to review. Id. at 313. 15
155, 162-63 (8th Cir. 1978), which held that insured’s knowledge that prior encumbrances

existed “will not absolve the insurer from liability for them unless the insurer also establishes by

a preponderance of the evidence that the [insured] agreed that its mortgage would occupy a

secondary position to the purchase money mortgages”); First Am. Title Ins. Co. v. Kessler, 452

So.2d 35, 39-40 (Fl. Dist. Ct. App. 1984) (finding genuine issue as to whether insured knew

enough about defect in title as to “assume” or “agree to” that defect for purposes of the

exclusion); Cohen v. Sec. Title and Guar. Co., 562 A.2d 510, 512 (Conn. 1989) (finding, in case

where plaintiffs discovered that the legal description contained in the contract of sale and

proposed deed included more property than plaintiffs had intended to buy and the sellers had

intended to sell and where plaintiffs knew about discrepancy in legal description, that plaintiffs

had suffered no loss since they received exactly what they paid for and that, in any event, plaintiff

acquiesced to discrepancy in legal description by not bringing it to the attention of the seller; thus

they were deemed to have “agreed to receive a defective deed.”); Buffington v. Atlanta Title &

Trust Co., 159 S.E. 297, 297 (Ga. Ct. App. 1931) (not discussing Exclusion 3(a)); Smith v.

Lawyers Title Ins. Corp., 76 Pa. D.&C. 88, 91-92 (1949) (finding that insured had “created” the

defect in title from which it suffered loss; no discussion of terms “assumed” or “agreed to”).

 Plaintiff also makes an argument of statutory interpretation, arguing that Exclusion 3(b) 16

presupposes that an insured’s knowledge of a recorded defect is not sufficient to exclude

coverage. In light of our finding that Exclusion 3(a) does not apply, the Court need not address

this argument.

45

In short, the Court finds that Exclusion 3(a) does not apply in this case. Defendant has

16

produced no evidence – let alone evidence sufficient to create a genuine issue of material fact –

that Plaintiff had actual knowledge of the specific title defects on the Property when it gave the

mortgage to PMI. Absent actual knowledge, Plaintiff cannot be deemed to have “assumed” or

“agreed to” such encumbrances.

D. Damages Available to Plaintiff

Having thus found that Plaintiff is unequivocally entitled to coverage under the Policy,

the Court must now determine whether summary judgment is appropriate on the precise amount

of damages owed to Plaintiff. Four categories of damages are at issue: (1) Nationwide’s
46

maximum potential recovery at trial under the Policy; (2) pre-judgment interest; (3)

consequential damages; and (4) CAM charges. The Court takes each category separately.

1. Limits on Policy Damages

The Policy’s “DETERMINATION AND EXTENT OF LIABILITY” section provides as

follows:

This policy is a contract of indemnity against actual monetary loss or

damage sustained or incurred by the insured claimant who has suffered loss or

damage by reason of matters insured against by this policy and only in the extent

herein described.

(a) The liability of the Company under this policy shall not exceed the

least of

(i) the Amount of Insurance stated in Schedule A or, if applicable, the

amount of insurance as defined in Section 2(c) of these Conditions

and Stipulations.

(ii) the amount of the unpaid principal indebtedness secured by the

insured mortgage as limited or provided under Section 8 of these

Conditions and Stipulations or as reduced under Section 9 of these

Conditions and Stipulations, at the time of loss or damage insured

against by this policy occurs, together with interest thereon; or

(iii) the difference between the value of the insured estate or interest as

insured and the value of the insured estate or interest subject to the

defect, lien or encumbrance insured against by this policy.

(b) In the event the insured has acquired the estate or interest in the manner

described in Section 2(a) of these Conditions and Stipulations or has

conveyed the title, then the liability of the Company shall continue as set

forth in Section 7(a) of these Conditions and Stipulations.

(c) The Company will pay only those costs, attorney’s fees and expenses

incurred in accordance with Section 4 of these Conditions and

Stipulations.
 In its Motion for Summary Judgment, Plaintiff originally cites to paragraph 2(c) of the Policy 17

for purposes of establishing its maximum potential recovery. This provision, however, deals

only with the continuation of insurance in the event that Plaintiff takes title to the subject

Property and dictates what the maximum amount of insurance would be. (Def.’s Mot. Summ. J.,

Ex. 2, ¶ 2(c).) Paragraph 7 explicitly sets forth limitations on Defendant’s liability in the event of

title damages and, as such, is the proper paragraph to consider on this issue. (Id. ¶ 7.) Plaintiff

appears to concede as much in its Response to Defendant’s Motion for Summary Judgment.

 Neither party contemplates or discusses the fact that the “amount of insurance” may have 18

changed upon Nationwide’s taking title to the Property pursuant to paragraph 2(a) and (c) of the

Policy. As set forth in footnote 17, supra, paragraph 2(c) provides an alternate calculation for the

“amount of insurance” after the insured acquires the property by “conveyance in lieu of

foreclosure.” (Def.’s Mot. Summ. J., Ex. 2, ¶¶ 2(a), (c).)

 Notably, Commonwealth does not agree with Lukens’s 2010 appraisal. Rather, based on its

19

own expert appraiser, John Doyle, it concludes that there is no difference between the value of

the Property with and without the subject encumbrances. (Def.’s Mem. Supp. Mot. Summ. J. 36

n.30 & Ex. 18.) Commonwealth concedes, however, and this Court agrees, that “this is not a

dispute the Court could or should resolve at summary judgment.” (Id. at 36 n.30.)

47

(Def.’s Mot. Summ. J., Ex. 2 at Conditions and Stipulations § 7.)17

Citing to this provision, Commonwealth argues that its “Extent of Liability” is limited to

the least of: (a) the amount of insurance stated in Schedule A – which is $3.5 million; (b) the 18

amount of the unpaid principal indebtedness secured by the insured mortgage, which the parties

appear to agree is $3,132,748.75; or (c) the difference between the value of the Property as

insured and the value of the Property subject to the various encumbrances upon that Property. 

With respect to this latest measure of damages, Commonwealth references the report of

Nationwide’s expert, Reaves Lukens, who estimated that the Property, as of September 17, 2010,

was worth $2,250,000 as unencumbered and was of nominal value with the restrictions. (Def.’s

Mot. Summ. J., Ex. 17 at 2.) As the difference between these two values – $2,250,000 – is the

least of the three measures of damages, it purportedly constitutes the limitation on the extent of

Commonwealth’s Policy liability.19
As a side note, Plaintiff contends that the Doyle report is inadmissible because Plaintiff

did not receive a copy of it until Commonwealth filed its Motion for Summary Judgment on

October 18, 2010, which was well after the deadline for the exchange of expert reports. As

explained by Defendant, however, Doyle’s report was a rebuttal to Nationwide’s 2010 appraisal

report, which Nationwide did not provide to Commonwealth until September 24, 2010. Because

Commonwealth sent the Doyle report to Plaintiff’s counsel seven days after receipt of the 2010

appraisal by Lukens, it is, under Fed. R. Civ. P. 26(a)(2)(D)(ii), timely and not excludable.

48

In response, Nationwide suggests multiple different calculations for the proper amount of

Policy damages. In its Motion for Summary Judgment, Nationwide contends that

Commonwealth “is liable for at least the full amount of the policy proceeds, $3,500,000, due to

damages caused by the Master Declaration and by the Declaration of Restrictions in preventing

the sale to Ironwood and in rendering the Property worthless.” (Pl.’s Mem. Supp. Mot. Summ. J.

17.) Subsequently, in its Response to Nationwide’s Motion for Summary Judgment, Plaintiff

argues that “‘[d]amages for breach of contract are to be determined as of the time of the

occurrence of the breach.’” (Pl.’s Resp. Def.’s Mot. Summ. J. 25 (citing Edwards v. Wyatt, 330

Fed. Appx. 342, 351 (3d Cir. 2009) (quoting 22 AM. JUR.2D Damages § 78 (2008))).) It reasons

that, although its own expert opines that the current value of the Property, without restrictions is

$2.25 million, that appraisal is inapplicable because it does not represent the value of the

Property at the time of the breach, but rather is reflective of “the worst economic downturn since

the Great Depression.” (Id. at 25.) It concludes that because, at the time of the breach, a willing

buyer, i.e. Ironwood, would have paid $3.8 million in an arms length transaction and the value of

the encumbered property was zero due to it inability to be sold, Nationwide’s insured losses are

at least $3,800,000. (Id. at 26.)
 The Court notes that Plaintiff’s expert, Mr. Lukens, originally estimated that, as of 2005, the 20

Property was worth $750,000 as encumbered by the Declaration of Restrictions and $3,000,0000

as unencumbered. (Def.’s Reply Br. Supp. Mot. Summ. J. 16 & Ex. 1.) The difference between

these two values would be $2,250,000 and, thus, the least of the damages possibilities under the

Policy ¶ 7(a)(iii). Both parties fail to discuss these figures and neither party explains why this

valuation should not apply. Nonetheless, the Court leaves this issue for jury resolution.

49

Under the summary judgment standard of Fed. R. Civ. P. 56, the Court simply cannot,

given the parties’ conflicting evidence, make any determination as to the maximum recovery

amount at this time. Commonwealth, the party moving for summary judgment on the limitation

of damages question, has failed to establish the absence of a factual issue regarding the correct

value of the Property, particularly since it offers no evidence of valuation at the time of the

breach. By the same token, Nationwide, while demanding $3,800,000 in Policy damages based

20

solely on what Ironwood would have paid for the Property, fails to explain why none of the other

measures of damages set forth in paragraph 7(a) of the Policy – the least of which sets the extent

of liability – should apply. Given the lack of clarity in the parties’ briefing and evidence, the

Court declines to impose any limitation on or fixation of Policy damages at this juncture.

2. Prejudgment Interest

As an additional part of its damages claim, Plaintiff seeks pre-judgment interest. 

Although Commonwealth does not dispute Nationwide’s entitlement to such interest in the event

it prevails, Commonwealth argues that that interest award should be limited. It reasons that from

roughly June 2006 through February 2008, Nationwide’s appeal of this case was stayed before

the Third Circuit, at Nationwide’s request, while Nationwide pressed its suit against Franklin

Mills. Only after Nationwide settled that suit was the stay lifted, leaving the appeal to proceed.

Commonwealth now avers that it should not be held liable for any potential pre-judgment interest
 Plaintiff explains that the original loan to PMI, and thus the amount of Policy coverage, was

21

$3,500,000, but that it could have sold the property to Ironwood for $3,800,000. Accordingly, it

suffered a lost profit in the amount of $300,000.

50

for the twenty-month period of stay requested by Nationwide. Nationwide, however, denies

unilaterally making the request for the stay, but rather contends that both parties agreed to the

stay at the request of the mediator.

Again, the Court cannot resolve this issue on summary judgment. Issues of fact remain as

to who requested the stay, what the terms of the stay were, and how much of the delay was

occasioned by Plaintiff’s individual actions. See Nat’l R.R. Passenger Corp. v. New Castle

County, 636 F. Supp. 1482, 1487 (D. Del. 1986) (“[W]hen the plaintiff or claimant is solely

responsible for delaying in bringing the litigation to fruition, courts have reduced or denied

prejudgment interest.”). Accordingly, the Court declines to consider the amount of pre-judgment

interest at this time. 

3. Consequential Damages

As a third element of damages, Nationwide also seeks judgment in the amount of

$1,436,575.14 to compensate it for losses “flowing from” Commonwealth’s breach. Such

damages include both the lost profits from its thwarted sale to Ironwood in the amount of

$300,000, as well as management fees, marketing costs, taxes, repairs, insurance, utilities, 21

common area maintenance charges, and capital expenditures. Defendant responds with three

separate arguments. First, it contends that consequential damages are not recoverable as a matter

of law in an insurance action where there is no finding that the insurer acted in bad faith. 

Second, it asserts that none of the extra-contractual amounts sought by Nationwide are amounts
 Defendant cites to Sicalides v. Hartford Cas. Ins. Co., 94 Fed. App’x 882, 883 (3d Cir. 2004) 22

for the proposition that “[i]n order to recover consequential damages for breach of an insurance

contract, there must be some bad faith conduct on the part of the insurance company.” When

making this statement, however, the Third Circuit was merely quoting what the District Court

had held. Because the Third Circuit decided the appeal on the basis of collateral estoppel only, it

expressly noted that it “need not resolve the question whether the District Court was correct in

concluding that consequential damages are only recoverable if an insurer has breached the

contract in bad faith.” Id. (emphasis added).

51

that were known, foreseeable, or reasonably flowed from Commonwealth’s alleged breach of

contract. Finally, it claims that the Policy itself forecloses recovery of compensatory, i.e.

consequential, damages.

a. Whether Consequential Damages Are Recoverable As a Matter

of Law

Defendant first argues that an insured such as Nationwide, cannot, as a matter of law,

recover consequential damages for breach of an insurance policy where there is no showing that

the insurer acted in bad faith. As there has been no such finding in this case, Defendant argues

that any claims for consequential damages must be excluded.

Although the Third Circuit has yet to clearly decide this issue, several other state and 22

federal courts within this Circuit have implicitly recognized that consequential damages for

breach of an insurance contract are only available where there has been evidence of bad faith on

the part of the insurer. See, e.g., Amitia v. Nationwide Mut. Ins. Co., No. CIV.A.08-335, 2009

WL 111578, at *4 (M.D. Pa. Jan. 15, 2009) (“[C]ompensatory damages are not recoverable under

the bad faith statute per se. They are available to anyone who establishes bad faith, because such

bad faith is also a breach of the underlying contract for which the compensatory damages are
 Clearly, consequential damages are available for a statutory claim of bad faith under 42 23

Pa.C.S. § 8371. Although an insurer may not recover such damages based on section 8371, that

section “‘does not alter [the insured’s] common law contract rights.’” Ash v. Cont’l Ins. Co.,

932 A.2d 877, 884 (Pa. 2007) (citing BirthCenter, 787 A.2d at 376). Thus, “‘where an insurer

acts in bad faith, by unreasonably refusing to settle a claim, it breaches its contractual duty to act

in good faith and its fiduciary duty to its insured.’”

 See infra § III.E 24

52

proper.”); Henderson v. Nationwide Mut. Ins. Co., 169 F. Supp. 2d 365, 368 (E.D. Pa. 2001) (“If

Plaintiff proves [that defendant insurer acted in bad faith], he may be entitled to compensatory

and/or consequential damages.”); Birth Center v. St. Paul Cos., Inc., 787 A.2d 376, 389 (Pa.

2001) (holding that in a bad faith breach of insurance contract claim, an insured may recover

traditional contract damages, including consequential damages); Corch Constr. Co. v. Assurance

Co. of Am., 64 Pa. D. & C.4th 496, 518 (2003) (“Where an insurer acts in bad faith, the insured

is entitled to recover such damages sufficient to return it to the position it would have been in but

for the breach.”).23

Given this jurisprudence, the Court agrees that, in order for Plaintiff to recover

consequential damages from Defendant, it must establish that Defendant acted in bad faith. As

set forth in detail below, however, a genuine issue of material fact remains on the question of 24

Commonwealth’s bad faith. Therefore, although such consequential damages are available in the

event of a showing of bad faith, final resolution of their recoverability in this case must rest with

the trier of fact.

b. Whether the Claimed Consequential Damages Were

Reasonably Foreseeable
53

“[C]onsequential damages are those damages that naturally and proximately flow from

the breach or that were foreseeable at the time of contract formation.” Mextel, Inc. v. AirShields, Inc., No. CIV.A.01-7308, 2005 WL 226112, at *35 (E.D. Pa. Jan. 31, 2005). “To prove

consequential damages from breach of contract, plaintiff must establish that ‘(1) they were such

as would naturally and ordinarily result from the breach, or (2) they were reasonably foreseeable

and within the contemplation of the parties at the time they made the contract, and (3) they can

be proved with reasonable certainty.’” Nationwide Mut. Ins. Co. v. CPB Int’l, Inc., 562 F.3d

591, 597 (3d Cir. 2009) (quoting Ferrer v. Trustees of Univ. of Pa., 825 A.2d 591, 610 (Pa.

2002)). In other words, “[f]oreseeability is a key element in the recovery of consequential

damages.” Altronics of Bethlehem, Inc. v. Repco, Inc., No. CIV.A.89-4918, 1991 WL 133518,

at *12 (E.D. Pa. July 15, 1991).

Defendant argues that none of the extra-contractual amounts sought by Nationwide are

amounts that were known, foreseeable, or reasonably flowed from Commonwealth’s alleged

breach of contract. For example, it notes that Nationwide’s claimed lost profits arose before

Nationwide made a policy demand and, thus, could not have been a consequence of any alleged

breach of contract by Commonwealth. Further, the remaining expenses sought by Nationwide

such as taxes, CAM charges, and the cost of pursuing a tax-appeal are owner-related expenses

which do not flow from any alleged failure on Commonwealth’s part to compensate Nationwide

under the policy, but rather from Nationwide’s pre-claim decision to take title by deed in lieu of

foreclosure.

Plaintiff, in response, argues that had Commonwealth properly and timely disclosed the

defects at issue in this case, Nationwide could have avoided all damages by refusing to initially
54

make the loan. Moreover, according to Plaintiff, had Commonwealth indemnified Nationwide

when Nationwide made its claim, Nationwide could have simply tendered the Property to

Franklin Mills and avoided all future obligation for taxes and CAM charges.

In support of their respective positions, neither party engages in extensive legal analysis,

case citation, or presentation of evidentiary support. Given this general lack of briefing, the

Court must find that a genuine issue of material fact exists as to whether the claimed damages

were such as would naturally and ordinarily result from the breach, or were reasonably

foreseeable and within the contemplation of the parties at the time they made the contract.

c. Whether the Policy Forecloses Recovery of Consequential

Damages

In its last general argument against consequential damages, Commonwealth contends that

paragraph 7 of the Policy – previously cited at length – contains an explicit limitation of coverage

for costs, attorneys’ fees, and expenses. According to Commonwealth, such a provision

forecloses recovery of any consequential costs or expenses incurred by the insured.

Defendant’s interpretation of this provision stands on tenuous grounds. Primarily,

nothing within the Policy expressly excludes or limits consequential damages. Moreover, and

more importantly, paragraph 7 refers only to limits of available “policy” coverage. The

consequential damages that Plaintiff now seeks, however, are based, not on policy coverage, but

on Defendant’s alleged bad faith breach of contract. In Pennsylvania, a duty of good faith and

fair dealing is implied in an insurance contract. Smith v. Lincoln Ben. Life Co., No. CIV.A.08-

1324, 2009 WL 789900, at *11 (W.D. Pa. Mar. 23, 2009). To that end, under Pennsylvania law,

a plaintiff may bring a cause of action for breach of the contractual duty of good faith and fair
 Plaintiff presents evidence regarding the specific amounts of its consequential damages. As 25

the Court leaves open the question of whether Commonwealth acted in bad faith, it is not yet

clear whether Nationwide is entitled to any such damages. In the event a finding of bad faith is

made at trial, evidence of the amount of consequential damages may be presented at that time. 

 See Thrasher Dep. 65:23-66:6 (noting that Nationwide only paid CAM charges after it took 26

title to the Property).

 Notably, Plaintiff’s legal basis for seeking reimbursement of CAM charges is – much to the 27

frustration of this Court – unclear. In both its Amended Complaint and its Response to

Defendant’s Motion for Summary Judgment, Plaintiff classified its request for CAM charges as

insurable Policy losses. (Am. Compl. ¶ 49-53; Pl’s Resp. Def.’s Mot. Summ. J. 22-24.) In its

55

dealing in the insurance context, permitting an insured to recover compensatory, i.e.

consequential, damages for an insurer’s failure to act in good faith. Id. Accordingly, the Court

rejects this portion of Defendant’s argument.25

4. CAM Charges

In its final element of damages, Nationwide requests reimbursement of the CAM charges

it has paid since taking title to the Property. As noted above, the Declaration of Restrictions

encumbering the Property at issue required PMI to pay to Franklin Mills annual assessments for

the purpose of maintaining the common areas. (Def.’s Mot. Summ. J., Ex. 6, 13-15.) The

Declaration of Restrictions provided that no sale or transfer relieved the owner of the Property

from liability for any Annual Assessments. (Id. at 13-14.) Defendant now contends that: (1)

Nationwide assumed or agreed to the obligation to pay CAM charges since it only became

obligated on such assessments after electing to take title to the Property by deed in lieu of

foreclosure and (2) CAM charges are not clouds on title that constitute insurable damages or 26

losses for which Commonwealth is liable under the Policy.27
Memorandum in Support of its Motion for Summary Judgment, however, Plaintiff requested

CAM charges as foreseeable compensatory damages over the Policy face amount. (Pl.’s Mem.

Supp. Mot. Summ. J. 18.) To the extent Plaintiff seeks CAM charges as only consequential

damages, Defendant’s arguments are irrelevant. Each of its contentions go only to what was

covered under the Policy and not what damages are recoverable as foreseeable losses for

Defendant’s bad faith breach of contract. 

56

With respect to the Defendant’s first argument, it asserts that CAM charges are excluded

under Exclusion 3(a) of the Policy since Nationwide assumed or agreed to the obligation to pay

CAM charges by taking title to the Property by deed in lieu of foreclosure. For the same reasons

set forth above, however, the Court must again disagree. As with the other encumbrances on the

Property, there is no evidence that, when Nationwide either provided the mortgage to PMI or

took title by deed in lieu, it knew about the specific title defects, in particular Franklin Mills’s

right to charge a private assessment. Although Nationwide did not suffer any damages or loss

due to these CAM assessments until after it took the Property from PMI, it is undisputed that the

charges pre-existed the Title Policy’s effective the date. The duty thus fell on Commonwealth to

identify the existence of these particular charges and then expressly except out coverage for them

in the event that Nationwide took over the Property.

Defendant alternatively asserts that, under Pennsylvania law, “[t]he sole object of title

insurance is to cover possibilities of loss through defects that may cloud or invalidate titles.” 

Rood v. Commw. Land Title Ins. Co., 936 A.2d 488, 492 (Pa. Super. Ct. 2007) (quoting

Foehrenbach v. German-Am. Title & Trust Co., 66 A. 561, 563 (Pa. 1907)). It avers that unlike

an encumbrance, lien, or easement, the CAM charges for which Nationwide seeks recovery

neither diminish the value of the insured property nor affect the validity of Nationwide’s title to
57

the Property. Because the CAM charges do not cloud title to the Property, they are not insurable

“damage or loss” for which Commonwealth is liable under the Policy.

This argument gives the Court somewhat more pause. “A defect in ownership or title is

said to exist when the aggregate of rights, privileges, and powers known as ownership is subject

to the claims of others.” U.S. v. City of Flint, Gensesee County, State of Mich., 346 F. Supp.

1282, 1284 (D. Mich. 1972) (quoting “Title Insurance: Duty To Search,” 71 YALE L.J. 1161

(1962)). “Barring explicit exclusion in the title insurance policy, such policies generally have

been held to include coverage for assessments existing at the time that the insurance is issued,

but not to cover assessments which are rendered after that time, even though the right to levy the

assessment existed at the time of the insurance.” 11 COUCH ON INSURANCE § 159:36 (3d ed.

2010). Thus, “a policy insuring against ‘loss or damage’ by reason of defective title or

encumbrance covers loss to the insured from the payment of an assessment against the property

which constituted a lien at the time the insurance was taken, if not expressly excepted, although

the insured had, in his or her contract of purchase, agreed to pay the assessment, and had

knowledge of the existence of the lien.” Id.

The language of the documents at issue in this case fail to provide the Court with enough

information to grant summary judgment to either party on the request for CAM charges. The

Declaration of Restrictions, which existed at the time the Title Policy was issued, clearly

indicated that the CAM charges, “shall be charges and continuing liens upon the Property,

binding upon Buyer and all successors in title to the Property. The liens of the Annual

Assessments [CAM charge] provided for herein shall be subordinate to the lien of any first

mortgage or deed of trust upon the Property . . . .” (Def.’s Mot. Summ. J., Ex. 6, at 14 (emphasis
 Notably, Defendant’s argument on this point consists of only two short paragraphs with no on- 28

point case citation. Plaintiff’s responsive argument fares no better, consisting of one short

paragraph with no case citation. 

 In an effort to argue that the Policy specifically insured against such CAM charges, Plaintiff 29

references the ALTA 9 Endorsement’s statement that Commonwealth insures Nationwide against

loss or damage sustained by reason of “[a]ny instrument referred to in Schedule B as containing

covenants, conditions or restrictions on the land which, in addition . . . provides for a private

charge or assessment.” (Def.’s Mot. Summ. J., Ex. 2, ALTA 9 Endorsement § 1(b)(2)(iii).) As

set forth earlier in this opinion, however, this provision only insures against loss from “any

instrument” that contained private charges or assessments, not against such assessments

themselves. To hold otherwise would contradict the earlier interpretation of this provision.

58

added).) Crucially, however, the Declaration of Restrictions goes on to state that “[s]ale or

transfer of the Property shall not affect the Annual Assessments liens; provided, however, that

after the period of redemption has expired after the sale or transfer of the Property pursuant to a

foreclosure of any first deed of trust or mortgage by any bank, savings and loan association,

insurance company or other institutional lender, the liens of the Annual Assessments shall be

extinguished (but not the obligation to pay the same) as to payments which became due prior to

such sale.” (Id. (emphasis added).) The plain language of the Title Policy at issue thereafter

explicitly excludes from coverage any liens “attaching or created subsequent to Date of Policy,”

such as a lien for non-payment of CAM charges. (Def.’s Mot. Summ. J., Ex. 2, at Exclusion

3(d).) 

Despite these obviously relevant provisions, neither party even references the

aforementioned language within the Declaration of Restrictions, let alone provides any 28

guidance as to what was intended by its inclusion. Moreover, neither party provides any 29

discussion of what the “period of redemption is” or whether Nationwide’s taking of the Property

by deed instead of foreclosing on the Property, “extinguished” the “liens of Annual
 Defendant also contends that Nationwide’s claim for real estate taxes is also specifically 30

excluded under the Policy and does not constitute an insurable claim. Nationwide, however,

expressly concedes that it is not seeking real estate taxes as insurable losses covered by the Title

Policy, but rather is claiming them as foreseeable consequential damages stemming from

Commonwealth’s breach of the title insurance contract.

59

Assessments.” Finally, neither party sets forth the basic facts surrounding Plaintiff’s obligation

for and payment of the CAM charges for which it seeks recovery, including whether a lien for

CAM charges existed at the time it took title to the Property or whether its request for CAM

charges consists only of payments made to sustain its ownership of the Property.

In sum, to the extent Plaintiff seeks CAM charges as insurable policy losses, genuine

issues of material fact preclude a grant of summary judgment on this issue. Given the cursory

arguments of this issue by both parties, the Court lacks sufficient guidance to determine whether

or not the CAM charges fell within the scope of Policy. Accordingly, the Court denies this

portion of both Motions for Summary Judgment.30

E. Whether Nationwide’s Claim for Bad Faith Should Be Dismissed

Finally, the parties dispute whether Nationwide should be held liable for bad faith breach

of contract under 42 Pa.C.S. § 8371. Plaintiff seeks a judgment from this Court that Defendant

clearly acted in bad faith, while Defendant contends that this claim must be dismissed for lack of

evidence.

The Pennsylvania bad faith statute states:

§ 8371. Actions on insurance policies

In an action arising under an insurance policy, if the court finds that the insurer

has acted in bad faith toward the insured, the court may take all of the following actions:
60

(1) Award interest on the amount of the claim from the date the claim was made

by the insured in an amount equal to the prime rate of interest plus 3%.

(2) Award punitive damages against the insurer.

(3) Assess court costs and attorney fees against the insurer.

42 PA. CONS. STAT. § 8371. Section 8371 does not define “bad faith.” In the context of

insurance litigation, however, Pennsylvania courts have universally accepted the following

definition: 

‘Bad faith’ on the part of the insurer is any frivolous or unfounded refusal to pay

proceeds of policy; it is not necessary that such refusal be fraudulent. For

purposes of an action against an insurer for failure to pay a claim, such conduct

imports a dishonest purpose and means a breach of a known duty (i.e., good faith

and fair dealing), through some motive of self-interest or ill will; mere negligence

or bad judgment is not bad faith.

 

Adamski v. Allstate Ins. Co., 738 A.2d 1033, 1036 (Pa. Super. Ct. 1991) (quoting BLACK’S LAW

DICTIONARY 139 (9th ed. 1990)) (emphasis added). Thus, to establish bad faith under the statute,

the Superior Court has set forth a two-part test, both parts of which must be established by clear

and convincing evidence: “(1) the insurer lacked a reasonable basis for denying coverage; and

(2) the insurer knew or recklessly disregarded its lack of a reasonable basis.” Id. (citing Terletsky

v. Prudential Prop. and Cas. Ins. Co., 649 A.2d 680, 688 (Pa. Super. Ct. 1994)); see also Nw.

Mut. Life Ins. Co. v. Babayan, 430 F.3d 121, 137 (3d Cir. 2005). Under Pennsylvania law, the

presence or absence of bad faith does not depend on the legal correctness of the basis for an

insurer’s denial of an insured’s claim. Jung v. Nationwide Mut. Fire Ins. Co., 949 F. Supp. 353,

359-60 n.7 (E.D. Pa. 1997). “If it did, the need for an independent analysis of an insured’s bad

faith claim would disappear, as the applicable section 8371 claim would turn specifically on the

underlying coverage determination.” Employers Mut. Cas. Co. v. Loos, 476 F. Supp. 2d 478,
61

496 (W.D. Pa. 2007). The Third Circuit has thus held that, “[a] reasonable basis is all that is

required to defeat a claim of bad faith.” J.C. Penney Life Ins. Co. v. Pilosi, 393 F.3d 356, 367

(3d Cir. 2004). “[Q]uestionable conduct giving the appearance of bad faith is not sufficient to

establish a bad faith refusal to provide coverage if the insurer had a reasonable basis for denying

the claim.” Post v. St. Paul Travelers Ins. Co., 609 F. Supp. 2d 382, 385 (E.D. Pa. 2009).

The Third Circuit, in J.C. Penney Life Ins. Co. v. Pilosi, expanded on the “clear and

convincing” standard and found that it “requires that the plaintiff show ‘that the evidence is so

clear, direct, weighty and convincing as to enable a clear conviction, without hesitation, about

whether or not the defendants acted in bad faith.’” J.C. Penney, 393 F.3d at 367 (quoting Bostick

v. ITT Hartford Group, Inc., 56 F. Supp. 2d 580, 587 (E.D. Pa. 1999)). As a result, it remarked

that “the plaintiff’s burden in opposing a summary judgment motion is commensurately high in

light of the substantive evidentiary burden at trial.” Id. (citing Kosierowski v. Allstate Ins. Co.,

51 F. Supp. 2d 583, 588 (E.D. Pa. 1999). In that case, the defendant insurer had engaged in some

conduct that “may have created the appearance of bad faith.” Id. at 367. For example, although

its marketing material claimed that coverage applied broadly to certain items, company officials

testified that these statements were either “probably false” or “not necessarily totally true.” Id. 

In addition, the defendant insurer took inconsistent positions in different cases on whether the

individual requirements of the policy were satisfied. Id. Nonetheless, the Third Circuit found

“insufficient evidence from which a jury reasonably could conclude that it was unreasonable for

[the insurer] to deny the [plaintiff’s claim].” Id. at 367-68. It reiterated that “a reasonable basis

[to deny coverage] defeats a claim of bad faith.” Id. at 368.
62

Applying the same clear and convincing standard to the present case, the Court declines

to grant summary judgment in favor of either party. Plaintiff argues that when Commonwealth

initially denied coverage to Nationwide, it relied on the same interpretation of the ALTA 9

Endorsement that it later asserted before this Court. The Court of Appeals found this

interpretation incorrect and inconsistent with the one reasonable interpretation of the Policy. 

Further, Plaintiff contends that Commonwealth knew or recklessly disregarded its lack of a

reasonable basis to deny Nationwide’s claim by deviating from its own guidelines and

communications of underwriting guidance to agents as to the meaning of the term “expressly

excepted.”

Defendant responds that the Third Circuit never held, as a matter of law, that the defense

interpretation of the policy was unreasonable, only that it was incorrect. Moreover, according to

Defendant, the undisputed facts of record demonstrate no bad faith by Commonwealth in

connection with the handling of the subject claim. No discovery took place in this case prior to

remand by the Third Circuit, no court had previously addressed the meaning of the language in

the ALTA 9 Endorsement before this case, and no evidence exists showing that Commonwealth

had ever before handled an ALTA 9, § 1(b)(2) claim prior to this suit.

Upon review of the record before the Court, only three facts are certain. First, this Court

initially agreed with Defendant that Nationwide’s claim was expressly excepted from coverage

and so held in the opinion on the Motion to Dismiss. Second, when the Court of Appeals took

on this novel issue of law – one not yet addressed by other courts – it did not find, as a matter of

law, that Commonwealth’s or this Court’s interpretation was unreasonable, only that the

interpretation was in error in light of the text, purpose, and industry usage of the ALTA 9
63

Endorsement. Third, since returning to this Court, the parties have, for the first time, engaged in

substantial discovery. Some of the newfound evidence obtained by such discovery suggests, but

far from conclusively establishes, that Commonwealth may have recklessly disregarded a known

lack of a reasonable basis and continued to deny coverage. In light of competing proofs as to the

existence of guidelines unequivocally interpreting the scope of the ALTA 9 Endorsement, this

Court cannot find either clear and convincing evidence of Commonwealth’s bad faith or a blatant

absence of any evidence of bad faith on Commonwealth’s part. Accordingly, the Court foregoes

a summary judgment ruling this issue of bad faith. 

IV. CONCLUSION

Based upon the foregoing, the Court now finds that summary judgment is proper only in

part. Combining the holding of the Third Circuit in this matter with our own interpretation of the

Policy language at issue, the Court finds no question that the Policy issued by Commonwealth to

Nationwide covers – without exclusion – the loss suffered by Nationwide as a result of its

inability to sell the subject Property, together with appropriate prejudgment interest. While

Defendant has spun some creative arguments regarding the appropriate policy interpretation, both

the spirit of the appellate court’s opinion and a plain language reading of the ALTA 9

Endorsement require this Court to find in favor of broader coverage. Nonetheless, as to the

proper amount of damages available under the Policy, the Court holds that the multitude of issues

of material fact preclude any precise determination at the summary judgment level. Indeed, the

parties implicitly recognize as much in light of their scant briefing and evidentiary submissions
64

on these issues. In addition, because the issue of Commonwealth’s bad faith remains an

unresolved issue of fact requiring resolution by a jury, the Court declines to rule on the

availability and amount of claimed consequential damages. 

Therefore, the Court enters judgment in favor of Nationwide on its claim of breach of

contract (Count I), and enters a declaratory judgment in favor of Nationwide on its claim that the

ALTA 9 Endorsement affords some coverage for Nationwide’s losses suffered as a result of

Franklin Mills’s refusal to approve Ironwood as a purchaser of the Property (Count IV in part). 

We decline, however, to decide as a matter of law whether Nationwide is entitled to recovery on

its breach of contract claim for refusal to insure losses due to CAM charges (Count II), whether

Nationwide can prevail on its bad faith claim (Count III), or what amount of damages is owed to

Nationwide. An appropriate order follows: