Marchetti v. Chi. Title Ins. Co.

KATHRYN MARCHETTI and JONATHAN MARCHETTI Plaintiffs, v. CHICAGO TITLE INSURANCE COMPANY, f/k/a Ticor Title Insurance Companyand FIDELITY NATIONAL TITLE INSURANCE COMPANY Defendants.

No. 12-cv-05985

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

January 8, 2015

Judge Sharon Johnson Coleman

MEMORANDUM OPINION AND ORDER

The parties' cross-motions for summary judgment are before the Court. Plaintiffs Kathryn and Jonathon Marchetti (collectively the "Marchettis") filed a partial motion for summary judgment against defendants Chicago Title Insurance Company (f/k/a/ Ticor Title Insurance Company) and Fidelity National Title Insurance Company (collectively "Chicago Title") asserting that this Court should hold that the calculable loss they suffered under the relevant owner's title insurance policy is the fair-market value of the subject Property as it was on or about October 24, 2008, the claim date. In its own motion for summary judgment, Chicago Title argues that it did not breach the contract of title insurance executed with the Marchettis when it denied their claims for losses because the Marchettis did not suffer an actual loss, as required by the insurance contract. Chicago Title further argues that there is no genuine issue of material fact to support any of the Marchettis' claims in their First Amended Complaint ("Complaint"). For the reasons that follow, the Court grants Chicago Title's motion for summary judgment on all counts and denies as moot the Marchettis' motion for partial summary judgment.

BACKGROUND

The following facts are undisputed, unless otherwise stated. On May 15, 2008, Chicago Title, through its predecessor Ticor Title Insurance Company, issued a standard 2006 American Land Title Association Owner's Policy of title insurance (No. 2000000605071OC) ("the Policy") to the Marchettis for a house that the Marchettis purchased. Chicago Title also issued a loan titleinsurance policy to the Marchettis' lender, Peotone Bank & Trust Company (the "Loan Policy"). The Marchettis gave a mortgage to Peotone for $330,000, covering the $180,000 purchase price and as well as a construction loan for the renovation of the Property. Mr. Marchetti was the general contractor and it was his company that performed the construction work on the house.

On October 24, 2008, a quiet title action was filed in state court against the Marchettis (Dkt 85.1, Exh. 4), and pursuant to the Policy, Chicago Title defended them in that action. Through discovery, the parties learned that fraud, perpetrated by a third-party, had resulted in the Marchettis acquiring defective title to the property. The state court ultimately found that the Marchettis had no right, title, or interest in the property. Dkt 84, ¶ 17.

Chicago Title also handled the settlement between the Marchettis and their lenders, and in March 2012, it paid $110,000 on the Marchettis' behalf in exchange for a complete discharge of the Marchettis' construction loan and mortgage. The $110,000 amount was based on an appraisal valuing the property at $110,000, as of October 15, 2010. Dkt 85-1, Exh. 2.

Seeking to hold third parties liable for the fraud that resulted in defective title to the house, Chicago Title also instituted counter- and cross-claims on the Marchettis' behalf. However, on May 14, 2012, Chicago Title notified the Marchettis that it would no longer pursue the Marchettis' cross- and third-party claims. Dkt 85-1, Exh. 13. Subsequently, a criminal action based on the fraud was filed in state court and resulted in an order of restitution made payable to Chicago Title for $75,000. Chicago Title has collected $37,500 of that judgment. Dkt 88, Exh. Q, Jean McGuire Quinn Deposition at 35:19-24 and 36:1-22.

After they signed the settlement agreement, the Marchettis demanded an additional $73,460.05 from Chicago Title, claiming that the amount represented reimbursement for two years of rent, special-ordered windows and doors, a security system, storage cots, framing, and overhead. In a letter dated March 27, 2012, Chicago Title asserted that the claimed expenses were not reimbursable under the Policy and instead offered to pay the Marchettis $3,000 for the earnest money deposit that they made. Dkt 85-1, Exh. 12.

While Chicago Title has paid the Marchettis $110,000 for claimed losses under the policy, the Marchettis claim that Chicago Title still owes them at least an additional $88,000 because they have suffered damages exceeding $198,000, the undisputed policy limit. They filed a nine-count First Amended Complaint to recover those losses. Before the Court is the Marchettis' motion for partial summary judgment and Chicago Title's motion for summary judgment as to all nine counts of the First Amended Complaint.

LEGAL STANDARD

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); see also Fed. R. Civ. P. 56(c). The party who bears the burden of proof on an issue may not rest on the pleadings or mere speculation, but must affirmatively demonstrate that there is a genuine issue of material fact that requires a trial to resolve. Celotex, 477 U.S. at 324.

DISCUSSION

I. Chicago Title's Motion for Summary Judgment

Chicago Title seeks summary judgment on all counts of the Marchettis' First Amended Complaint. The Court will consider each claim in turn.

Breach of insurance contract claims

The Marchettis allege in Count I that because Chicago Title paid $110,000 and the covered loss of the Property under the Policy exceeds $198,000, Chicago Title owes them an additional $88,000, thereby breaching the contract by failing to pay for covered losses. Chicago Title contends, however, that the Marchettis have not and cannot show actual loss, particularly in light of the fact that Chicago Title paid to settle the Marchettis' mortgage and construction loan debt. An initial review of the Policy indicates that Illinois law controls. See Section 17(a) of the Policy.

According to Condition 8, The Policy is a "contract of indemnity against actual monetary loss or damage sustained or incurred by the Insured Claimant." Policy, at Condition 8. The Marchettis have no lost equity in the property. They owed $330,000 on their mortgage loan. In 2010, when the property was appraised for settlement purposes, the property was worth $110,000. Even if the Court were to find that the property appraised for $202,000 on October 24, 2008, as the Marchettis insist, the Marchettis still would hold no equity in the property. In either event, the property would have been "underwater," because the house was worth much less than the amount the Marchettis owed their lender.

Even if this court were to find that the date of loss is October 24, 2008, to succeed in a breach of contract claim, the Marchettis must show that they have suffered an actual loss due to the title failure. Allison, 907 F.2d at 652. This, they have not done. The Marchettis' attorney admitted during the hearing on the instant cross-motions that consequential damages are notcompensable. See also Gomez, 2012 WL 671935, at *4. Therefore, the Marchettis agree that the initial claim for damages based on rent paid and various construction items were not compensable under the policy. Additionally, the Marchettis do not allege that they owe any additional monies due to the title failure.

The Marchettis have not shown that a genuine issue of material fact exists to show that they have suffered an actual loss above and beyond the failure of title, which Chicago Title has completely remedied by settling the quiet title action and paying their mortgage lender to forgive the $330,000 debt the Marchettis owed on the property. For these reasons, the Court grants Chicago Title's motion for summary judgment as to Count I, breach of contract for failure to pay for covered losses.

The Marchettis argue in Count II that because Chicago Title abandoned the prosecution of the third-party claims, it breached the insurance contract by failing to diligently prosecute. Chicago Title contends it is entitled to summary judgment on this count because it diligently fulfilled its duty to defend and resolved the claim to quiet title. It had no duty to prosecute third-party claims once it settled the quiet title action and paid the Marchettis' lender $110,000 in exchange for complete release of the $330,000 mortgage note.

Chicago Title is not required to institute and prosecute claims, but if it does, it must do so diligently. See Policy, at Condition 5. Further, Condition 7 provides that when Chicago Title pays, or otherwise settles, a claim under the Policy, Chicago Title's obligations to the Marchettis for the claimed loss or damage terminates, "including any liability or obligation to defend, prosecute, or continue any litigation." Here, Chicago Title defended the Marchettis for over three years in the quiet title action. Although title completely failed, Chicago Title resolved the claims such that the Marchettis suffered no actual monetary loss. Once the settlement was completed, resulting in the Marchettis disclaiming any rights to title of the property and the lender reducing the Marchettis mortgage liability to zero, there was nothing more that Chicago Title had to do on the Marchettis' behalf. The Marchettis have presented no case law that would require the Court to conclude otherwise. Based on the foregoing, the Court grants of summary judgment in Chicago Title's favor as to Count II.

Subrogation

Chicago Title seeks summary judgment on Counts III, IV, and V. In Count III, the Marchettis seek a declaratory judgment that Chicago Title is not subrogated to any of the Marchettis' rights in the criminal or third-party actions. In Count IV, the Marchettis allege...