Federal Court Holds 99.9% Ownership Does Not Constitute Being “Wholly Owned”

The United States District Court for the Western District of Pennsylvania recently granted a title insurance company’s motion for summary judgment finding there was no longer coverage after the insured owner conveyed its property to its 99.9% owner. See Tithonus Partners II, LP v. Chicago Title Ins. Co., 2021 WL 4711284 (W.D. Pa. Oct. 8, 2021).  In 2012, Tithonus Tyrone, LP, purchased a property and obtained a title insurance policy from defendant.  The property contained an assisted living facility as well as vacant land.  In 2013, Tithonus Tyrone obtained refinancing from HUD for the property containing the assisted living facility and, in connection with the same, conveyed the 58 acres of vacant land for $22,500 to Tithonus Partners II, LP, who was the 99.9% owner and limited partner of Tithonus Tyrone. Tithonus Partners later subdivided the property and sold some of it to a third party.  In 2020, that third party commenced an action against Tithonus Partners based on the claim that some of the conveyed property was not owned by Tithonus Partners.  Tithonus Partners then made a title claim with defendant, who denied the claim because Tithonus Partners was not the insured under the policy.  Tithonus Partners brought this action against the defendant, and the parties cross-moved for summary judgment.

The Court granted defendant’s motion and denied Tithonus Partners’ motion.  Tithonus Partners argued that it was an insured based on two of the policy’s definitions of “Insured.”  First, it argued that it was a “successor[] to an Insured by dissolution, merger, consolidation, distribution, or reorganization.”  The Court rejected this claim, noting that another section of the policy refers to successors “to the Title of the Insured” rather than just “successors to an Insured” and that the latter definition only applies to situations in which the original insured no longer exists or undergoes “an existential alteration,” which is not the case here.  Second, Tithonus Partners claimed it was an insured under the definition that includes “a grantee of an Insured under a deed delivered without payment of actual valuable consideration conveying the Title . . . if the grantee wholly owns the named Insured.”  Tithonus Partners claimed that, as the 99.9% owner of the original insured, it should be deemed an insured under the policy.  Further, it noted that it is impossible for a limited partnership to be 100% owned by a single entity in Pennsylvania, so “[t]his is as close as a Pennsylvania limited partnership can be to ‘wholly owned.’”  The Court disagreed, finding that the unambiguous policy language requires 100% ownership, and that 99.9% ownership is insufficient.   “[T]he term ‘wholly owned’ as used in § 1(d)(i)(D)(2) is clear and unambiguous. It is not readily susceptible to different constructions. . . . Although Tithonus Partners argues that it is impossible for a limited partnership to be wholly owned, this was not specifically couched, nor does the Court construe it, as an argument that the term ‘wholly owned’ is ambiguous. Ambiguity must emanate from the contractual language itself, not from any party’s perception or interpretation of those term.”  Accordingly, the Court dismissed the action.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Michael Crowley at mcrowley@riker.com, Desiree McDonald at dmcdonald@riker.com, or Kevin Hakansson at khakansson@riker.com