seventh Circuit Dusts from the Erie Very Ball on Title Insurance Defense

Lawyers generally enjoy prognosticating future developments within the law. Underneath the Erie doctrine, federal idol judges possess a legitimate need to take part in this pastime. Lately, in Philadelphia Indemnity Ins. Co. v. Chicago Title Ins. Co., No. 12-2525 (seventh Cir. November. 13, 2014), the Seventh Circuit predicted the way the Illinois Top Court would address an issue of first impression regarding title insurance. The court’s decision may be reasonably taken like a conjecture in regards to what the Wisconsin Top Court would do with similar details. However a recent unpublished decision through the Wisconsin Court of Appeals indicates some caution in setting the chances.

Philadelphia Indemnity focused on a unsuccessful commercial development on Chicago’s South Side. Following the loan provider started property foreclosure proceedings, the developer responded having a separate suit, alleging a flurry of contract, tort, and legal claims. Since the developer’s complaint incorporated a basic-title reason for action, the loan provider tendered the defense to the title insurance provider. The title insurer decided to pay costs connected using the title claims, but declined to subsidize the tangentially related contract and tort-claim defense. Ultimately, the lender’s commercial general liability (“CGL”) insurer searched for a declaratory judgment from the title insurer to work through their particular coverage obligations and legal rights.

The “complete-defense” rule requires some insurance company having a duty to protect one count inside a complaint and to reduce the chances of all of the others. Wisconsin, like Illinois, has adopted this rule for CGL insurance plans. See School Dist. of Shorewood v. Wausau Ins. Co., 170 Wis. 2d 347, 366 (1992) Pekin Ins. Co. v. Wilson, 930 N.E.2d 1011, 1015 n.2 (Ill. 2010). In Philadelphia Indemnity, the CGL insurer contended the complete-defense rule governed, as the title insurer depended on express coverage restrictions within the policy.

Judge Sykes, became a member of by Idol judges Flaum and Rovner, appropriately summarized the holding in a single sentence: “Title insurance coverage is different.” Slip Op. 3. Depending on the recent opinion through the Supreme Judicial Court of Massachusetts, GMAC Mortgage LLC v. First American Title Insurance Co., 985 N.E.2d 823 (Mass. 2013), the Seventh Circuit noted that title insurance coverage is “fundamentally different” from CGL insurance. Emphasizing the contractual nature of insurance policy, a legal court distinguished the narrow coverage language utilized in title insurance plans in the typically broad terminology utilized by CGL guidelines, which frequently promise to protect and indemnify the insured against any “suit.” Slip Op. 13-14, 15. Even without the contrary authority using their company condition high courts, the Seventh Circuit came to the conclusion the Illinois Top Court will probably stick to the lead of Massachusetts.

While one might suspect the Seventh Circuit will make exactly the same conjecture concerning the Wisconsin Top Court when the situation had came from in Milwaukee instead of Chicago, that conclusion is way from certain. Captured, an unpublished, non-precedential Wisconsin Court of Appeals decision applied the entire-defense rule to some title insurance dispute. See Bye v. Sire, 354 Wis. 2d 624 (Ct. Application. May 20, 2014). In Bye, a legal court ruled it do not need to see whether a title insurer was contractually needed to protect claims for adverse possession that particularly was excluded through the policy since the court already had figured that the insurer were built with a duty to protect another, deed-based claim. Id. at ?14. Stating Wisconsin Top Court precedent in the CGL insurance context, the Bye court held that “[w]hen an insurance plan provides coverage for one claim produced in a suit, the insurer is obligated to protect the whole suit.” Id. at ?14 (stating Fireman’s Fund Ins. Co. of Wis. v. Bradley Corp., 261 Wis. 2d 4 (2003)).

As noted, the Bye decision is non-precedential, however it indicates that Wisconsin courts might contain the complete-defense rule relevant to title insurance if they’re ever presented the issue directly, especially because of the Wisconsin Supreme Court’s statement that title insurance plans are susceptible to exactly the same rules of construction generally relevant to insurance contracts. See Laabs v. Chicago Title Ins. Co., 72 Wis. 2d 503, 510 (1976). However, Philadelphia Indemnity and Bye might be distinguished on the floor that Philadelphia Indemnity involved contract and tort claims wholly unrelated to property title, while Bye worked just with property-related claims.

Regardless, lawyers can also enjoy speculating the way the Seventh Circuit’s “Erie Guess” may have been different had Wisconsin law applied.

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