Home Federal Savings Bank v. Ticor Title Insurance
695 F.3d 725
7th Cir.2012Background
- Home Federal provided up to $95.5 million construction loan for an ethanol plant; TICOR issued title insurance with a mechanic's lien endorsement.
- Wilhelm filed a $6 million mechanic's lien claiming priority over Home Federal's mortgage after delays and disbursement issues.
- TICOR updated title policy in Sept. 2008; Wilhelm lien appeared after Update 15, triggering insurer defense obligations.
- Home Federal tendered Wilhelm’s defense to TICOR; TICOR denied defense and indemnity, leaving Home Federal to defend/settle in state court.
- District court granted TICOR summary judgment based on the policy exclusion for defects, liens, or encumbrances created or suffered by the insured.
- Severely, Home Federal settled Wilhelm’s lien for $1.8 million; Home Federal sought indemnity and defense from TICOR in federal court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did Wilhelm's counterclaim trigger TICOR's duty to defend? | Wilhelm sought priority over Home Federal's mortgage. | Wilhelm did not seek priority; no defense obligation. | Yes; the claim sought priority over the mortgage, triggering defense. |
| Does the 'created or suffered' exclusion apply? | Exclusion excludes claims created or caused by insured conduct. | Exclusion bars coverage for insured-created liens. | No; exclusion does not apply to this claim given lack of insured intentional misconduct. |
| Is this case distinguished from Bankers Trust/Brown due to no disbursement agreement? | No disbursement duty; insurer not obligated to defend. | Nevertheless, insurer must defend any claim asserting priority. | Distinguished; absence of disbursement agreement means TICOR had duty to defend. |
| Did TICOR's refusal to defend bar indemnity broader than defense? | If defense was breached, indemnity should follow for damages. | Indemnity depends on whether defense duty existed. | Remanded for damages consistent with defense duty finding. |
Key Cases Cited
- Bankers Trust Co. v. Transamerica Title Ins. Co., 594 F.2d 231 (10th Cir. 1979) (disbursement agreements create implied duties to fund and defend)
- Brown v. St. Paul Title Ins. Co., 634 F.2d 1103 (8th Cir. 1980) (funds disbursement failures trigger created or suffered exclusion)
- Mallon v. Cincinnati Ins. Co., 409 N.E.2d 1100 (Ind. App. 1980) (duty to defend depends on claim's nature, exclusions apply if merit dictates)
- State Farm Fire & Cas. Co. v. T.B. ex rel. Bruce, 762 N.E.2d 1227 (Ind. 2002) (insurer bears duty boundary when insured liable in underlying action)
- Frankenmuth Mut. Ins. Co. v. Williams, 690 N.E.2d 675 (Ind. 1997) (insurer's duty to defend defined; breach binds insurer to outcomes)
- Trisler v. Indiana Ins. Co., 575 N.E.2d 1021 (Ind. App. 1991) (defense obligation broader than indemnity; coverage determines duties)
- Mid-South Title Ins. Corp. v. Resolution Trust Corp., 840 F. Supp. 522 (W.D. Tenn. 1993) (absence of disbursement agreement distinguishes cases)