Appellate Court Holds Title Insurers Not Subject to Complete Defense Rule

November 23, 2022 / News / Writing and Speaking

By Don R. Sampen, published, Chicago Daily Law Bulletin, November 22, 2022

The 1st District Appellate Court recently held that, unlike most liability insurers, a title insurer that covers some but not all claims against an insured has no obligation to provide a defense for both the insured and uninsured claims.

The case is Findlay v. Chicago Title Insurance Co., 2022 IL App (1st) 210889 (Sept. 29). The insurer, CTIC, was represented by the Meyer Law Group LLC of Chicago. The insureds, James Findlay and Susan Small (the Findlays), represented themselves pro se.

The title dispute involved alleged easements to beachfront property in Winnetka. The Findlays’ neighbors claimed they had a yard easement over the Findlays’ lot to gain access to a 15-foot-wide beach easement along the edge of the lot.

The Findlays objected to the neighbors crossing their lot to gain access to the beach easement. The neighbors and Findlays all had title insurance through CTIC.

The neighbors filed a chancery action in 2010 seeking a determination of their easement rights on various grounds. CTIC retained counsel on behalf of the neighbors to prosecute their claims.

Upon being served with the complaint, the Findlays retained an attorney whom CTIC consented to represent the Findlays. CTIC, however, later replaced the Findlays’ original attorney with attorneys from the Fidelity National Law Group.

CTIC agreed to provide a defense to only certain counts of the neighbors’ complaint and denied coverage for other counts on the ground they fell within an exception or exclusions to coverage. The Findlays separately hired their own attorney to participate in the defense and at least in part to assist with those counts as to which CTIC denied coverage.

Ultimately, as the result of summary judgment rulings and a trial on one of the counts, the Findlays prevailed on most of the claims. Significantly, the
trial court found that the neighbors did not have a yard easement across the Findlays’ lot.

Several years later, the Findlays filed a complaint in the Cook County Circuit Court Law Division against CTIC and the National Law Group attorneys who represented the Findlays. They alleged, among other things, that CTIC breached its obligations by not providing a defense to all the chancery action causes of action, by not reimbursing them for their independently hired counsel, and by not diligently prosecuting a counterclaim they had filed.

They further alleged that CTIC committed fraud by not disclosing it was operating under a conflict of interest. They also alleged legal malpractice by the National Law Group attorneys.

The claims eventually were all resolved in favor of the defendants and against the Findlays, and the Findlays took this appeal.

Claimed Conflicts of Interest

In an opinion by Justice LeRoy K. Martin Jr., the 1st District affirmed. He initially turned to the Findlays’ claim that CTIC operated under a conflict of interest. He noted that one situation where a conflict can arise is where the insurer must provide defenses to multiple insureds having adverse interests. In those circumstances the insureds may be entitled to independent counsel paid for by the insurer.

Here, however, Martin said CTIC effectively provided the Findlays and their opposing neighbors with separate and independent counsel. They were independent because CTIC did not direct the attorneys how to litigate the case or instruct what arguments to make.

With its own insureds opposing each other, moreover, Martin said, CTIC had no incentive to favor one side over the other. Therefore, according to Martin, CTIC did not have a conflict of interest and was not required to appoint “independent counsel at CTIC’s expense.”

(The court’s opinion is unclear. It states first that CTIC provided “separate and independent counsel” but then states CTIC was not required to do so.)

Martin also noted that the title policy expressly authorized CTIC to select counsel, subject to the insureds’ right to object for cause, but that the Findlays had no basis to object for cause under the circumstances.

Complete Defense and Other Claims

The Findlays further contended that, with CTIC obligated to defend at least some of the counts in the chancery case, CTIC was obligated to provide a defense as to all counts under Illinois’ complete defense rule. That rule typically requires liability insurers to defend all claims against an insured if the policy provides coverage for any one claim.

Martin raised a question, though, whether that rule should apply to title insurance where the policy typically covers only losses from defects in title, lien property and encumbrances. The coverage, moreover, is retrospective, rather than prospective like most liability insurance policies, and requires the insurer to provide a defense for particular causes of action rather than for “suits” or “actions.”

These considerations, along with federal case law interpretation of title insurer obligations, persuaded Martin to conclude that the complete defense rule does not apply in the context of title insurance.

Regarding the Findlays’ fraud claim based on CTIC’s supposed failure to disclose a conflict of interest, Martin found that CTIC had disclosed its issuance of title policies to the other parties in the lawsuit and appointed them counsel. So, there was no misrepresentation or failure to disclose. The fraud claim had not been timely filed in any event.

Finally, Martin took up the Findlays’ claim that CTIC had not diligently prosecuted the counterclaim. The Findlays deemed it a breach of contract claim, but Martin construed it as a malpractice action, even though CTIC was a non-attorney. It was a malpractice action because CTIC appointed the attorneys; CTIC therefore “controlled the defense” according to Martin, and the attorney in question “was an agent of CTIC when she represented the Findlays.”

Consequently, the failure-to-prosecute claim against CTIC was subject to the same two-year statute of limitations that applies to malpractice actions, and because the Findlays did not timely file the claim, it was barred by the limitations statute.

The 1st District therefore affirmed in favor of the CTIC defendants.

Key Points

  • A title insurer’s defense obligations are not subject to the complete defense rule applicable to other liability insurers.
  • According to this court, where an insurer provides defenses for multiple insureds having adverse interests, the insurer need not necessarily provide the insureds independent counsel selected by the insureds.
  • Also according to this court, an attorney appointed by an insurer to represent an insured may qualify as “independent” counsel, at least under some circumstances.
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