All publications of the American Land Title Association are copyrighted and are reprinted herein by specific permission from:
American Land Title Association (ALTA)
1800 M Street Suite 300 South Washington, DC 20036 Phone: 202-296-3671 E-Mail: service@alta.org Web: http://www.alta.org
The Docket is a monthly TitleNews Online feature provided by ALTA’s Title Counsel Committee, which reviews significant court rulings and other legal developments, and explains the relevance to the title insurance industry.
January 26, 2023
Michael R. O’Donnell, co-managing partner of the law firm Riker Danzig LLP, and James Mazewski, an associate with the firm, provided today’s review of a decision by an Illinois appellate court that held title insurance claims were exempt from Illinois’ “complete defense rule.” O’Donnell can be reached at modonnell@riker.com and Mazewski can be reached at jmazewski@riker.com.
Citation: Findlay v. Chicago Title Ins. Co., 2022 IL App (1st) 210889 (2022)
Facts: The matter involved a 10-lot residential vacation community located near the shore of Lake Michigan. Lots 1 through 7 possessed their own designated private beach areas, while Lots 8 through 10 were landlocked without private beach access. Originally, the community contained a beach easement on the edge of Lot 5 that allowed access to Lake Michigan and the beach area (the Beach Easement), which was used by the owners of Lots 8 through 10 to obtain beach access. In the 1990s, the community erected a gate near the easement access point which, when closed, only allowed the landlocked owners to access the Beach Easement by cutting across a portion of Lot 5.
In 2007, James Findlay purchased Lot 5, and post-purchase began objecting to the other lot owners cutting across his property to access the Beach Easement. This led to a lawsuit between Findlay and the owners of Lots 8 and 9 (Lot Owners), with the Lot Owners seeking a declaratory judgment that an implied ingress-egress easement existed on Lot 5. Both Findlay and the Lot Owners possessed title insurance through Chicago Title Insurance Co.
Chicago Title provided Findlay with counsel, but only agreed to defend and indemnify him on two of the Lot Owners’ four total counts. At the same time Chicago Title accepted the Lot Owners’ tender and paid for counsel, thus footing the bill for the attorneys of both parties. During the litigation process, Findlay fired his appointed counsel and retained new counsel without Chicago Title’s approval or consent. Ultimately, Findlay prevailed in the lower court, which held that no implied easement existed.
Following the conclusion of this first suit, Findlay then sued Chicago Title, alleging it had breached its contractual duty to defend by: (1) creating a conflict of interest by paying for both his attorney and the Lot Owners’ attorney; (2) failing to provide coverage for all four counts of the Lot Owners’ action; and (3) failing to approve his retention of a new replacement attorney. Findlay ultimately failed on each of these claims before the trial court, appealing the dismissal of his action to the court.
Holding: On appeal, the Appellate Court of Illinois, First Division first considered Findlay’s conflict of interest claim, noting it was well established that “not every potential conflict of interest automatically triggers the right to independent counsel at [an] insurer’s expense” and that the “mere fact that opposing parties are insured by the same insurance provider does not necessarily entitle the insured to paid-for independent counsel.” Based on this precedent, the court thus held that Chicago Title paying for both parties’ attorneys did not create such a conflict, as there was no evidence in the record demonstrating that Chicago Title had directed either counsel how to litigate the case.
The court then turned to the more interesting and salient issue: Findlay’s contention that by refusing to defend and indemnify all four counts of the Lot Owners’ action, Chicago Title had breached Illinois’ “complete defense rule,” which generally imposes an obligation upon an insurer “to provide a complete defense in a suit or action against its insured even if only one or some of the claims are potentially covered.” While the court acknowledged that this doctrine was valid, it held that “the complete defense rule does not apply in the context of title insurance,” citing as examples opinions from other jurisdictions in Wisconsin, Pennsylvania, Colorado, and Massachusetts. The court explained that this exception derives from several unique characteristics of title insurance, namely that it acts in a “retrospective rather than prospective” manner by protecting against defects arising prior to the issuance of coverage, and that its claims are easily bifurcated. Thus, the court ultimately held “that the complete defense rule does not apply in the context of title insurance.”
Finally, the court found that Findlay’s remaining claim was barred by title policy Condition 5(a), which provided that Chicago Title had “the right to select counsel of its choice (subject to the right of [Plaintiff] to object for reasonable cause) [and that Chicago Title] shall not be liable for and will not pay the fees of any other counsel.” As Findlay had never provided any “reasonable cause” to object to his original attorney’s representation, this claim also failed.
Importance to the Title Industry: This decision is a continuation of a growing trend of jurisdictions wholly exempting title insurance from the “complete defense rule” or any other similar state analog using a different name. When faced with such a claim, this opinion, used in conjunction with the various holdings of other states summarized within, can potentially form the basis of a good-faith motion to dismiss or motion for summary judgment. It is also instructive as to underwriters’ right to retain counsel per its policies.
