Though it
took 18 months to clear liens, Title Insurance Company not liable; this will
affect real estate transactions where lien is discovered after closing.
Real Estate Attorney William B. Blanchard, general counsel for
Gaia Title, Inc., spoke about a recent case where the Illinois Appellate Court held
that the standard ALTA Owner’s Policy gives a title insurance company wide
latitude in how to remove liens from the title, and protects it from liability
for damages. This court opinion may affect any real estate purchaser who seeks
to have liens or other encumbrances removed from a title insurance policy after
closing.
The case
of Wade v. Stewart Title Guaranty
Company arose from a breach of contract regarding a title insurance policy
for a multi-unit residential building in Chicago, Illinois. Plaintiff Josephine
Wade, the purchaser of the property, filed suit against Stewart Title Guaranty
Company (“Stewart Title”), alleging that it had failed to timely remove defects
on the property’s title. As a consequence of the delays, according to Ms. Wade,
the building was demolished because she could not comply with the City of
Chicago’s building code. The trial court ruled in favor of Stewart Title,
finding that the title company did not breach any duties under the policy. The
Illinois Appellate Court affirmed, noting that the Plaintiff did not meet the
burden of proof needed to establish that the 18 months Stewart Title took to clear the defects was not “reasonably
diligent.”
Apparently,
the title insurance company pursued lengthy
litigation during which time the building’s value quickly deteriorated. The
litigation was designed to settle the liens for less money, rather than
immediately paying the liens in full. Section 9. of the title insurance
policy, “Limitation of Liability,” provided: “If the (Title) Company
establishes the title, or removes the alleged defect, lien or encumbrance ***
in a reasonably diligent manner by any method, including litigation and the
completion of any appeals therefrom, it shall have fully performed its
obligations with respect to that matter and shall not be liable for any loss or
damage caused hereby.”
Section 4
of the policy gave the title insurance company the right to determine how to
defend or settle the claims. On ambiguity of provisions in insurance contract,
the Court stated, “…an insurance contract will be liberally construed in favor
of the insured. First Chicago Insurance Co. v. Molda, 2015 IL App (1st) 140548,
¶ 33.” Then, ironically, the Court held
that Plaintiff had the burden of proof to show the defense was not “reasonably
diligent.” Note that the trial court heard evidence that the defense provided
by Stewart Title was for its own benefit, and to the detriment of their policy
holder.
Mr. Blanchard stated, “this decision is important for anybody in
a real estate transaction where a lien or other encumbrance is first discovered
after closing. Basically, the standard title insurance policy provides that you
must let the insurer do the job in any manner it chooses. The appellate court concluded that if the
policy owner suffers damages while the title company engages in its defense, a
policy holder cannot prevail in a claim damages absent clear and convincing
evidence that the defense did not act in a “reasonably diligent” manner.”
“This is
an important case also for what the Court didn’t consider in reaching its
opinion,” adds Mr. Blanchard. “The Appellate
Court affirmed because the reasonableness and diligence of the title insurance
company’s defense was a matter for the trial court to determine based upon the
evidence presented. Before this case, a
plaintiff was required to present evidence that it suffered damages during the
time it took the title company to remove title defects, and it was then up to
the title company to present evidence that its efforts were reasonably
diligent.”
“Title
insurance companies defending similar actions in the future will cite this case
as precedent for a broad interpretation of both Section 4’s grant of discretion
and Section 9’s protection from liability.
The ruling is contrary to Illinois precedent establishing that unclear
terms in insurance policies should be interpreted in favor of Plaintiffs, and
shifts the burden of proof on the question of “reasonable diligence” from
Defendants to Plaintiffs,” opines Mr. Blanchard.
The case
is Wade v. Stewart Title Guaranty 2017 ILAP (1st) 161765. The full
opinion is on the court website http://www.illinoiscourts.gov/Opinions/AppellateCourt/2017/1stDistrict/1161765.pdf
**** Mr. William B. Blanchard (“Bill Blanchard”) is a Real Estate Attorney with offices in St. Charles and Oakbrook Terrace, Illinois. Bill specializes in representing real estate clients for purchases and sales as well as home owner real estate tax assessment appeals. Mr. Blanchard is General Counsel for Gaia Title, Inc. a title insurance agency and settlement services provider. The Company is owned by real estate attorneys who demand exemplary title insurance services and accurate and efficient settlement services. As General Counsel he is responsible for title examination, commitment and policy review, escrow settlement supervision and regulatory review. - Attorney Profile: https://solomonlawguild.com/william-b-blanchard%2C-esq - Attorney News: https://attorneygazette.com/william-blanchard%2C-esq#40b43d7b-94b2-48d3-b055-1979a636f1e7
