Findlay v. Chi. Title Ins. Co.

2022 IL App (1st) 210889

215 N.E.3d 1006

465 Ill.Dec. 801

James S. FINDLAY and Susan E. Small, Plaintiffs-Appellants,

v.CHICAGO TITLE INSURANCE COMPANY, Fidelity National Law Group, and Genevieve M. Bernal, Defendants-Appellees.

No. 1-21-0889

Appellate Court of Illinois, First District, Fourth Division.

Filed September 29, 2022

Modified upon Denial of Rehearing November 3, 2022

James S. Findlay and Susan E. Small, both of Winnetka, appellants pro se.

Daniel B. Meyer, of Meyer Law Group LLC, of Chicago, for appellees.

JUSTICE MARTIN delivered the judgment of the court, with opinion.

¶ 1 This appeal finds its genesis in the earlier-decided case of Katsoyannis v. Findlay , 2016 IL App (1st) 150036, 402 Ill.Dec. 187, 51 N.E.3d 939. That appeal resolved a dispute between neighboring property owners regarding the existence and scope of an ingress-egress easement (yard easement) across beachfront property. The yard easement was used to provide access to a beach easement.¹ James S. Findlay and Susan E. Small (the Findlays), are the owners of the beachfront property at issue, described as Lot 5 in the Winnetka Beach Subdivision.

¶ 2 George and Katherine Katsoyannis (the Katsoyannises) own Lot 8 in the same subdivision and Michael and Nikki Alexander (the Alexanders) own Lot 9. Neither of these lots have direct access to the beach easement. The Katsoyannises and Alexanders claimed that the previous owners of Lot 5 allowed property owners within the subdivision to use the purported yard easement to access the beach easement, thereby gaining access to the beach. Several disputes arose after the Findlays refused to allow residents of the subdivision to cross Lot 5 to access the beach easement.

¶ 3 The Katsoyannises and Alexanders subsequently filed a declaratory judgment action against the Findlays in the chancery division of the circuit court. The two families sought a declaration that a yard easement existed over Lot 5 and that they had the right to use it to access the beach easement. Chicago Title Insurance Company (CTIC), which had issued a title policy insuring the Findlay's title to Lot 5, provided them with a partial defense to the chancery action.

¶ 4 After resolution of the chancery action, the Findlays filed suit in the law division of the circuit court against CTIC and the attorney the title insurer retained to defend the Findlays in the chancery action. The Findlays asserted counts for breach of contract, bad faith, and legal malpractice. The allegations in these counts stemmed from CTIC's refusal to defend and indemnify the Findlays against all claims brought against them in the chancery action. The primary issue in this appeal is whether this refusal constituted a breach of CTIC's contractual duty to defend.

¶ 5 I. BACKGROUND

¶ 6 We summarize the relevant facts and procedural history from the record provided on appeal and this court's decision in Katsoyannis .

¶ 7 A. Katsoyannis v. Findlay (Chancery Action)

¶ 8 The Winnetka Subdivision was created by a subdivision plat submitted to the Village of Winnetka by the La Salle National Bank (La Salle Bank), as trustee under a trust agreement dated April 30, 1959, known as Trust No. 22851. The Village of Winnetka approved the plat on November 3, 1959.

¶ 9 The subdivision consists of 10 residential lots near the shore of Lake Michigan. A review of the plat map shows that Lots 1 through 7 have designated private beach areas. See Katsoyannis , 2016 IL App (1st) 150036, 402 Ill.Dec. 187, 51 N.E.3d 939, App'x. Lots 8, 9, and 10 have no such private beach annexed to their property. Id. ¶ 42. The subdivision is bounded on the east by a beach running along Lake Michigan, on the west by Sheridan Road, on the north by Oak Street, and on the south by Cherry Street.

¶ 10 At the time the plat was approved, Cherry Street provided subdivision residents with unobstructed access to a 15-foot-wide beach easement on the edge of Lot 5. The beach easement runs from the bluff on the west side of the beach, east to Lake Michigan. In the 1990s, the Village of Winnetka erected a gate at the intersection of Cherry Street and Sheridan Road. When the gate was closed, the only feasible way for owners of the landlocked lots to access the beach easement was for them to cross a portion of Lot 5.

¶ 11 Sometime after the Findlays acquired Lot 5 in March 2007, they objected to subdivision residents crossing their lot to access the beach easement. A dispute arose between the Findlays and the Katsoyannises and Alexanders concerning access to the beach easement.

¶ 12 On May 14, 2009, the Katsoyannises submitted a claim to CTIC for an ingress-egress easement (yard easement) across Lot 5. Like the Findlays, the Katsoyannises obtained title insurance on their lot through CTIC or an affiliate. On September 21, 2009, the Alexanders, who also obtained title insurance through CTIC, submitted a claim similar to the Katsoyannises’ claim. The title company retained attorney James A. Larson of Larson & Associates, P.C., to prosecute the easement claims on behalf of the Katsoyannises and Alexanders.

¶ 13 On June 16, 2010, the Katsoyannises and Alexanders (plaintiffs) filed a declaratory judgment action in the chancery division of the circuit court against the Findlays. The plaintiffs sought a declaration regarding the existence and scope of the yard easement over Lot 5 to access the beach easement. According to the plaintiffs, the prior owners of Lot 5 knowingly allowed property owners within the subdivision to use the yard easement to access the beach easement.

¶ 14 In count I of their chancery complaint, plaintiffs alleged that they possessed a yard easement over Lot 5 to access the beach easement. In addition, and in the alternative, the plaintiffs sought declarations that they possessed the right to use the yard easement by implication (count II) and by prescription (count III). Count IV sought to permanently enjoin the Findlays from interfering with the use and enjoyment of any easements imposed or declared by the trial court. Plaintiffs alleged that after the Findlays acquired title to Lot 5, they erected a wooden fence blocking access to the beach easement; constructed a wooden boat rack on the beach easement; planted vegetation limiting the beach area available for use by the plaintiffs; permitted large, unleashed dogs to freely roam Lot 5, thereby intimidating individuals seeking to utilize the beach easement; and verbally accosted individuals attempting to cross Lot 5 to access the beach easement.

¶ 15 After being served with the chancery complaint, the Findlays retained attorney David A. Kaufman to tender defense of the lawsuit to CTIC. The title insurer subsequently consented to Kaufman appearing on behalf of the Findlays.

¶ 16 Following a coverage analysis, CTIC agreed to defend and indemnify the Findlays with respect to counts II and III. However, CTIC denied coverage as to count I on the grounds that the allegations in the count fell within an exception in the title insurance policy and denied coverage as to count IV on the grounds that the allegations in that count fell within two exclusions in the title insurance policy.

¶ 17 Mr. Findlay subsequently sent a letter to CTIC disputing the denial of coverage and requested a reconsideration of that decision. Among other things, Mr. Findlay expressed concern that CTIC was operating under a conflict of interest by providing counsel to plaintiffs with adverse interests in the same litigation. In denying the request to reconsider, the company responded that it was merely fulfilling its contractual obligations under the insureds’ respective policies by retaining separate counsel to represent each of them in the chancery action. CTIC asserted that the counsels’ competing arguments did not necessarily represent positions held by or endorsed by the company, but rather reflected the interests of the insureds.

¶ 18 On August 30, 2010, attorneys Mark Hellner and Genevieve M. Bernal of Fidelity National Law Group (FNLG), replaced Kaufman as counsel for the Findlays. CTIC agreed to partially reimburse the Findlays for the attorney fees previously paid by them to Kaufman.

¶ 19 On September 23, 2010, the Findlays filed an answer to the chancery complaint, including affirmative defenses and a counterclaim to quiet title. The counterclaim sought to (1) limit the beach easement to the 15-foot area located on the southern portion of the beach extending from the toe of the bluff to Lake Michigan's water line, (2) limit the beach easement to owners and future owners of Lot 8, (3) find that the owners and future owners of Lot 9 do not have entitlement to the beach easement, and (4) find that the owners and future owners of Lots 8 and 9 do not have a yard easement over Lot 5. The parties eventually filed cross-motions for summary judgment.

¶ 20 On July 5, 2012, following a hearing, the trial court entered an order granting in part and denying in part the parties’ cross-motions for summary judgment. As to count I, the court found in favor of the Findlays, ruling that plaintiffs did not possess a yard easement across Lot 5 to access the beach easement, However, the court found that the Alexanders were entitled to use the beach easement.

¶ 21 Regarding count II, the trial court found there were issues of fact as to whether the plaintiffs had an implied yard easement by necessity across Lot 5. Specifically, the court found there were issues of fact as to whether the beach easement was accessible via Oak Street and therefore denied the cross-motions for summary judgment as to this count.

¶ 22 The trial court found in favor of the Findlays as to count III, finding that the plaintiffs failed to establish several elements necessary to support a prescriptive yard easement. The court determined that the plaintiffs failed to show that the former owners of Lots 8 and 9 continuously and uninterruptedly used the purported yard easement for a period of 20 years.

¶ 23 With respect to count IV, the trial court...