First Tennessee Bank, National Ass'n v. Lawyers Title Insurance
282 F.R.D. 423
N.D. Ill.2012Background
- First Tennessee loaned $83,200 to Garrett secured by an ostensible second mortgage;
- Title insurance was purchased from Lawyers Title to insure against unknown senior liens;
- A superior lien was recorded by Countrywide;
- First Tennessee’s loan was actually secured by the third lien after the senior lien process;
- Garrett defaulted; foreclosure proceedings against the senior lien began; Lawyers Title refused to defend or indemnify;
- Plaintiffs filed an amended complaint with six counts; court granted Lawyers Title’s Rule 12(b)(6) motion to dismiss with prejudice
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Measure of losses under the title policy | Citicorp requires full loan coverage | Policy covers only the deficiency after foreclosure | Loss measured at foreclosure, not full loan amount |
| Whether Citicorp governs this policy | Citicorp applies; full protection | Citicorp distinguishable; policy limited to unknown senior liens | Citicorp not controlling; policy does not guarantee full loan value |
| Estoppel claims based on contract repudiation | Promissory estoppel applies despite contract | Existence of valid contract bars quasi-contract claims | Estoppel claims dismissed due to binding contract |
| Timing of when damages are sustained under Section 5(a)(iii) | Damages measured at discovery | Damages measured at foreclosure sale | Damages measured at foreclosure sale; ambiguity not borne out by policy text |
Key Cases Cited
- Citicorp Sav. of Illinois v. Stewart Title Guar. Co., 840 F.2d 526 (7th Cir. 1988) (title insurance covers loss from invalidity/unenforceability of lien; full loan amount at stake when lien voidable)
- First Midwest Bank v. Stewart Title Guaranty Co., 300 Ill. Dec. 69, 843 N.E.2d 327 (Ill. 2006) (title insurance generally insured against undiscovered defects/liens, not loan default loss)
- Karl v. Commonwealth Land Title Ins. Co., 20 Cal.App.4th 972, 24 Cal.Rptr.2d 912 (Cal.App. Ct. 1993) (losses not determined until foreclosure completion; insured against unknown senior liens)
- American States Ins. Co. v. Koloms, 177 Ill.2d 473, 227 Ill.Dec. 149, 687 N.E.2d 72 (Ill. 1997) (ambiguities in insurance contracts resolved in insured's favor; interpret terms as plain meaning)
- Outboard Marine Corp. v. Liberty Mut. Ins. Co., 154 Ill.2d 90, 180 Ill.Dec. 691, 607 N.E.2d 1204 (Ill. 1992) (interpretation of insurance contracts; emphasis on plain meaning)
- Prentice v. UDC Advisory Services, Inc., 271 Ill.App.3d 505, 207 Ill.Dec. 690, 648 N.E.2d 146 (Ill. App. 1995) (quasi-contract claims barred when express contract exists)