Gildenhorn v. Columbia Real Estate Title Insurance

Smith, J., delivered the opinion of the Court. William Gildenhorn (Gildenhorn) sued Columbia Real Estate Title Insurance Company (Columbia) and District-Realty Title Insurance Corporation (District) in ■ a ³⁸⁹ five count declaration. 1 Count 1 was against the appellee, Columbia, for alleged breach of contract relative to its title policies 7883, issued July 28, 1966, and 7884, issued March 1, 1966.2 Count 2 was a claim for punitive damages against Columbia for this alleged breach of contract. Count 3 was against District for its alleged breach of contract on a title policy issued by it. Count 4 was a claim against District for punitive damages for its alleged breach.

Count 5 was against Columbia and District for conspiracy, about which we shall have more to say later. Within the time limited by rule, Columbia filed a special plea of limitations, followed by a motion for summary judgment. The trial judge ruled in favor of Columbia on all three counts against it, counts 1, 2, and 5. Pursuant to Maryland Rule 605 a, he made a finding that there was no just reason for delay and directed entry of a final judgment in favor of Columbia against Gildenhorn.

The first question with which we are here presented is whether the trial judge erred in concluding that, under a five year claim provision in the insurance policies, counts 1 and 2 were not seasonably filed. A subsidiary question to that is whether these policies are specialties. The second question is whether count 5, the conspiracy count, was timely filed. I Suit was filed on September 13, 1972.

The title policies pertained to deeds of trust on real estate owned by Rollin Hills Apartments, Inc., securing loans made by Gildenhorn. The trial judge summarized the pertinent facts relative to the first two counts of the declaration: “Gildenhorn alleges that Columbia breached its obligation to defend him against certain ‘title ³⁹⁰ challenges’ covered by the policies. The ‘title challenge’ involved was a suit brought by Rollin’s Trustee in Bankruptcy during February, 1967, in the U. S. District Court, seeking an injunction to prevent Gildenhorn from proceeding further to foreclose on the Rollin’s properties in the Prince George’s County Circuit Court. On March 13, 1967, the Trustee obtained the injunction against plaintiff’s foreclosure suits.

Thereafter counsel for plaintiff sent a written notice to defendant, dated March 23, 1967, requesting Columbia ‘to take whatever steps are necessary for the protection of Mr. Gildenhorn in accordance with your policies.’ This notice was restated in writing by Gildenhorn’s counsel to Columbia on June 26, 1967, but defendant did not act or defend as requested in both communications.” The two title policies issued by Columbia had the following testimonium clause: “IN WITNESS WHEREOF, Columbia Real Estate Title Insurance Company has caused its corporate name and seal to be hereunto affixed by its duly authorized officers.” Below that was printed the name of the corporation with facsimile signatures of the president and secretary below that. The corporate seal was printed over those signatures. To the left was a provision for countersignature. The policies had been countersigned by a representative of Maryland Title & Escrow Corporation.

Paragraph 5 of the conditions and stipulations of the two policies stated: “Notice of Loss — Limitation of Action. In addition to the notices required under paragraph 4 (b), a statement in writing of any loss or damage for which it is claimed the Company is liable under this policy shall be furnished to the Company within sixty days after such loss or damage shall ³⁹¹ have been determined, and no right of action shall accrue to the Insured under this policy until thirty days after such statement shall have been furnished, and no recovery shall be had by the Insured under this policy unless action shall be commenced thereon within five years after expiration of said thirty-day period. Failure to furnish such statement of loss or damage, or to commence such action within the time hereinbefore specified, shall be a conclusive bar against maintenance by the Insured of any action under this policy.” Gildenhorn reasons that Maryland Code (1957), Art. 57, § 3, provides a 12 year statute of limitations as to a specialty, that the policies in question are specialties, and that, because of the provisions of Code (1957, 1972 Repl. Vol.) Art. 48A, § 377B, the five year limitation provision in each policy is inapplicable.

Section 377B states: “All provisions and stipulations contained in any contract of insurance . . . , whatsoever, heretofore or hereafter issued, fixing the time in which suits or actions may be instituted under or upon any such contracts at a period of time less than that provided at the time of the issuance or delivery of any such contract by the laws or statutes of Maryland in respect of limitations are hereby declared to be against State public policy, illegal and void, and no court in this State shall give any effect to any provisions or stipulation in any such contract mentioned in this section; nor shall any defense to liability under any such contract be based upon any such shorter limitation period.” That section was enacted by Chapter 487 of the Acts of 1966, effective June 1, 1966. In the view we take of this case, we are not obliged to determine whether that section could be applicable to policy 7884, issued March 1, 1966. See, however, Ghingher v. Pearson, 165 Md. 273, 281-84 , 168 A. 105 (1933). Citing Leonardi v. Standard Acc.

Ins. Co. of Detroit, ³⁹² Mich., 212 F. 2d 887 (2d Cir. 1954), 18 G. Couch, Insurance § 75:80 (2d ed. Anderson 1968) states relative to applicability of contractual limitations: “An action by an insured to recover damages for breach of a contractual obligation to defend was not an action on the policy to recover upon any claim or for any loss under an insuring clause and thus was not barred by the contractual limitation of 2 years.” Id. at 760. In the latter case, Judge Medina said for the court: “The present action was not commenced until July 17, 1950, some four years after the entry of the judgment in favor of Gulf Oil against Leonardi.

Standard contends that recovery by Leonardi of the amount paid in settlement of the judgment is barred by Condition G of the Workmen’s Compensation and Employers’ Liability policy, which provides as follows: ‘No action shall lie against the company to recover upon any claim or for any loss under paragraph One (b) foregoing unless brought after the amount of such claim or loss shall have been fixed and rendered certain either by final judgment against this employer after trial of the issue or by agreement between the parties with the written consent of the company, nor in any event unless brought within two years thereafter.’ “But this action is brought by the insured to recover damages rising from the insurer’s breach of its contractual obligation to defend contained in paragraph Two (b), and is not an action on the policy ‘to recover upon any claim or for any loss under paragraph One (b)’ of the policy, against which the insurer expressly agreed to indemnify the insured. In Lawrence v. Massachusetts Bonding & Insurance Co., Sup., 1916, 160 N.Y.S. 883, 885 , ³⁹³ where this specific question was considered, Judge Irving Lehman wrote: ‘In determining the rights of the parties in this action it seems to me that the most important consideration is that the action is not brought to enforce the agreement to indemnify the plaintiff for loss and expenses, but is brought for damages for failure to defend an action.* * * The limitation in the policy is, I think, by its plain terms intended to cover an action for such loss and expenses, and is not intended to cover an action for damages caused by the breach of the covenant to defend. Inasmuch as the limitation applies only to actions brought to recover any loss or expense “under this policy,” against which the defendant expressly agreed to indemnify the plaintiff, while this action is brought to recover damages for breach of contract to defend, the present action is subject only to the limitation of the statute, and not to any limitation provided in the contract. * * * The contract never contemplated that the defendant would breach its contract, and it contains no provisions for an action for such breach of contract. Such an action, consequently, is governed by the ordinary rules of law governing actions for breach of contract.’ “We agree with this conclusion and the reasoning on which it is based.” Id. at 890-91 .

To similar effect, see 45 C.J.S. Insurance § 933 (1946) stating relative to the effect of failure or refusal to defend: “Insurer’s breach of contract by refusal to defend puts an end to its right to demand insureus compliance with the terms of the contract. .. .” Id. at 1059. Cases cited for that proposition include U.S.F. & G. v. Nat. ³⁹⁴ Pav. Co., 228 Md. 40 , 178 A. 2d 872 (1962); St. Louis Dressed Beef & P. Co. v. Maryland Casualty Co., 201 U. S. 173 , 26 S. Ct. 400 , 50 L. Ed. 712 (1906); and Missionaries of Co. of Mary, Inc. v. Aetna Cas. & S. Co., 155 Conn. 104 , 230 A. 2d 21 (1967), among others. In U.S.F. & G. v. Nat.

Pav. Co., supra, the company relied upon a provision relative to coverage which said that it would pay on behalf of the insured sums which the insured should “become legally obligated to pay as damages because of bodily injury,” and condition nine in the policy which provided that no action should lie against the company unless as a condition precedent thereto the insured had fully complied with the terms of the policy and there should be no action unless the amount of the insured’s obligation to pay had been finally determined either by judgment against the insured after trial or by written agreement of the insured, the claimant and the company. There was no judicial determination of liability and the company had not agreed to a settlement. Judge Sybert there said for the Court: “As pointed out in our recital of the facts, the insurance company was notified of the proposed settlement negotiations but declined by its silence to participate.

If it can be shown that the claim and potential liability faced by National was within the coverage of the schedule liability policy and if it is clear that National acted in good faith and with due care and prudence in settling the suit which U.S.F. & G. had an obligation to defend (which are two basic questions answered hereinafter), then appellant’s contention is without force. “It is settled law that where there is a denial of liability and a refusal to defend on the part of the insurer under the conditions described above, the insured is no longer bound by a provision of a policy prohibiting settlement of claims without the insurer’s consent, or a provision making the insurer’s liability dependent on the obtaining of a judgment against the insured. The insured under ³⁹⁵ such circumstances may make a reasonable compromise of the suit without losing his right to recover from the insurer under the policy. The majority of jurisdictions have so held, the cases being collected in an annotation, 49 A.L.R.2d 694 , 744 et seq. [Citing cases and authorities.] Such refusal to defend by the insurer has been held to constitute a waiver of similar restrictive provisions against the insured. [Citing cases and authorities.] “As we shall now proceed to point out, we feel that the claim of Keitz against National did come within the terms of the schedule liability policy; that U.S.F. & G. therefore had a duty to defend; that when it refused and National proceeded with reasonable prudence to settle the claim after notifying U.S.F. & G., the latter could no longer rely on provisions in the contract precluding a settlement without its consent or requiring a judgment against the insured.” Id. at 48-49. In St. Louis Dressed Beef & P. Co. v. Maryland Casualty Co., supra, an insurance company had failed to defend on the ground that its policy did not cover the accident or the claims.

The insured sued to recover the sum it paid in compromise of the claims. Mr. Justice Holmes said for the Court: “But there is another aspect of the eighth condition of the slip which requires a few words more. It is said that this condition expressly contemplates a breach of contract by the company, and defines the plaintiffs rights in that case. The words ‘no action shall lie against the company as respects any loss under this policy unless/ etc., certainly do contemplate a case in court in which the company may turn out to be in the wrong, and therefore technically guilty of a breach of contract.

But notwithstanding the contrary suggestion in Sanders v. Frankfort Marine, Accident & Plate Glass Ins. Co., 72 N.H. 485, 498, 499 , we think that ³⁹⁶ the only breach which that condition has in view is a refusal by the company to pay after the decision in a case of which it has taken charge, when, notwithstanding the judgment, it conceives itself to have a defense. The action referred to is an action for money alleged to be due under the policy. Contracts rarely provide in detail for their nonperformance.

It would be stretching the words quoted to a significance equally hurtful to both parties, and probably equally absent from the minds of both, to read them as having within their scope an initial repudiation of liability by the defendant and a requirement that in that event the plaintiff should be bound to try the case against itself, although it should be plain that by a compromise it could reduce its claim on the defendant as well as its own loss.” Id. at 182-83. (Emphasis added.) In Missionaries of Co. of Mary, Inc. v. Aetna Cos. & S. Co., supra, an owners’, landlords’, and tenants’ liability insurance policy had been issued. A negligence action was brought against the plaintiff by a person who was injured when he fell into an open ditch. The insurance company was requested to defend.

It refused to do so, contending the injury sustained was not covered under the policy. The court said: “The defendant having, in effect, waived the opportunity which was open to it to perform its contractual duty to defend under a reservation of its right to contest the obligation to indemnify the plaintiff, • reason dictates that the defendant should reimburse the plaintiff for the full amount of the obligation reasonably incurred by it. Arenson v. National Automobile & Casualty Ins. Co., 48 Cal.2d 528, 539 , 310 P.2d 961 .

The defendant, after breaking the contract by its unqualified refusal to defend, should not thereafter be permitted to seek the protection of that ³⁹⁷ contract in avoidance of its indemnity provisions.” Id. at 113-14. We conclude that since this was a suit for the breach of Columbia’s contract to defend, not a suit to recover for loss sustained as a result of “any defect in the execution of the mortgage described in [the title policy] ... or charge of said mortgage upon the estate referred to in [that] policy; or the invalidity or unenforceability of the lien of the mortgage upon said estate; or the title to the said estate . . .; or the unmarketability of the title of the mortgagor; or any defect in or lien or encumbrance on said title . . .,” the five year provision in the title policy is not applicable. Accordingly, we pass to the question of whether the policies were specialties, since if they were specialities, a twelve year statute of limitations is applicable. Code (1957) Art. 57, § 3, in force when this case’was decided, provides in pertinent part: “No bill ... or other specialty whatsoever . .. shall be good and pleadable, or admitted in evidence ... in this State after . .. the debt or thing in action is above twelve years’ standing Judge Chesnut pointed out in General Petroleum Corp. v. Seaboard Terminals Corp., 19 F. Supp. 882 (D. Md. 1937): “This statute of limitations does not itseL define what constitutes a specialty, nor is there any other Maryland statute so far as I am aware which does.

It is a well-known term of the common law which in Maryland and elsewhere by judicial decision denotes a legal instrument under seal.” Id. at 883-84 . See, e.g., W. Brantly, Contracts § 50 (2d ed. rev. 1922), and Mattare v. Cunningham, 148 Md. 309, 314-15 , 129 A. 654 (1925). The point was precisely recognized in the recodification embodied in Code, Courts and Judicial ³⁹⁸ Proceedings Article § 5-102 a, which became effective January 1,1974. In the early law it was held that a corporation could not contract except under its corporate seal.

This rule persisted, but was increasingly relaxed during the 19th century. Today, in the absence of charter or statute to the contrary, a corporation may bind itself by a writing not under seal to the same extent as an individual. As a result, the main purpose of the corporate seal now is as a prima facie authentication that the document is the act of the corporation and that the officers who have executed it have been thereunto duly authorized. This function of the corporate seal, however, must be distinguished from its use as a general seal. 2 S. Williston, Contracts § 271A (3d ed.

Jaeger 1959) (citing General Petroleum Corp. v. Seaboard Terminals Corp., supra); and 6 W. Fletcher, Cyclopedia of the Law of Private Corporations §§ 2466 and 2471 (rev. vol. Wolf 1968). The mere fact that the corporate seal appears on the instrument other than in the usual place of the private seal would not make the instrument a specialty in the absence of a recital affixing the seal or of extrinsic evidence showing an intention to have it serve the function of a general seal. In other words, it is a question of fact in any specific case as to whether the corporation has employed its corporate seal as a general seal or whether it has adopted any other permissible form of seal as convenient for the particular purpose.

Williston, op. cit. § 271A (citing General Petroleum Corp. v. Seaboard Terminals Corp., 23 F. Supp. 137 (D. Md. 1938)). Jackson v. Myers, 43 Md. 452 (1876), was relied upon by the trial judge and is relied upon here by Columbia. There the question was whether a note sued upon was to be treated as a negotiable promissory note, making the endorser liable, or as a specialty. It contained the printed corporate seal of the corporate maker.

The note had been executed by the duly appointed officers of the corporation. There was no statement or declaration in any part of the note that it was intended to be or was in fact executed under the corporate seal. The corporate seal printed by the printer at the time ³⁹⁹ the blank note was printed was the only thing that was supposed to have deprived the instrument of the quality of a promissory note. Judge Alvey there said for the Court: “Whether this printed symbol is a sufficient seal, or can be made sufficient by adoption, is a question that we need not now decide; for, even conceding it to be a sufficient representation of the corporate seal, still, we are of opinion that the note in question is a negotiable promissory note, by the endorsement of which in the ordinary manner liability attached to the endorser.” Id. at 464 .

The Court found from extrinsic evidence that there were a number of indicia that a negotiable promissory note was intended and that the printed representation of the corporate seal, even if conceded to be sufficient as a seal, was not