APPEAL from the Circuit Court of Peoria County; the Hon.
WILLIAM H. YOUNG, Judge, presiding.
MR. PRESIDING JUSTICE BARRY DELIVERED THE OPINION OF THE COURT:
Prior to and on June 3, 1974, Minnie Witte Knuppel was the owner of certain real estate located in Mason County, Illinois, and on that date she granted an option to purchase the real estate to the plaintiffs, Howard and Dorothy McLaughlin, which option was exercisable only at the death of Ms. Knuppel. The option was subscribed and sworn to before Kenneth H. Lemmer, in his capacity as a notary public.
Thereafter, on January 25, 1975, Ms. Knuppel died. When the estate was admitted to probate, Lemmer was appointed as the executor. On February 13, 1975, the plaintiffs exercised the option for the purchase of the real estate. At that time, they were aware that the option price of $90,000 was much less than the fair market value of the real estate, about $151,000.
Lemmer acknowledged the plaintiffs' exercise of the option and petitioned the Mason County Circuit Court for authorization to complete the sale. This authorization was given and the executor, additionally, was instructed by the trial court to furnish the plaintiffs a title insurance policy at the expense of the estate.
A commitment for title insurance was issued to the plaintiffs by the defendant through its agent, the same Kenneth H. Lemmer. The commitment, however, made no exception for inheritance tax arising from the distribution out of the Knuppel estate. Nor did the title insurance policy issued on August 27, 1975, after the real estate transaction was consummated and a deed was conveyed to the plaintiffs.
As executor of the Knuppel estate, Lemmer filed an Illinois inheritance tax return on November 7, 1975, which indicated that the plaintiffs were required to pay $5,928 by reason of the purchase of the real estate, the amount of tax being computed on the difference between the option price and the appraised value of the real estate at the time of Ms. Knuppel's death.
On November 19, 1975, the plaintiffs filed an objection to the inheritance tax assessment. The objection was opposed by Lemmer and denied February 23, 1976, in an opinion and order of the Circuit Court of Mason county. The plaintiffs paid the tax and brought suit against the defendant on the title insurance policy alleging a defect in title which was covered by the policy.
Following a bench trial, the defendant's motion for a directed verdict was denied, and judgment was entered in favor of the plaintiffs. From this determination the defendant appeals.
As issues, the defendant requests that we determine whether the judgment for the plaintiff was against the manifest weight of the evidence and whether the trial court erred by denying the defendant's motion for a directed verdict. When a motion for a directed verdict is addressed to a trial court sitting without a jury, a reviewing court will not reverse the decision of the lower court unless the decision is contrary to the manifest weight of the evidence. (City of Evanston v. Ridgeview House, Inc. (1976), 64 Ill.2d 40, 349 N.E.2d 399.) Since the standard for deciding both issues is the same, consideration of each of the defendant's contentions concerning whether the trial court improperly denied the defendant's motion for a directed verdict will determine whether the judgment of the trial court was against the manifest weight of the evidence.
Initially, the defendant contends that the terms of the title insurance policy exclude from coverage the matter of which the plaintiffs complain. More specifically, the defendant argues that either the matter complained of arises as a direct and proximate result of an act, condition or relationship created, suffered or permitted by the insured and is, therefore, not covered, or the matter complained of has resulted in no loss to the plaintiff which is cognizable under or covered by the title insurance policy.
1, 2 The title policy contains a rather general exception that the insurer is not liable if the encumbrance to title arises as a result of any act, condition or relationship "created, suffered or permitted" by the insured. In construing insurance policies, although the courts> are not to distort the language of the policy to create ambiguities in order to rewrite the policy, where ambiguities do exist, the policy is to be liberally construed (Smiley v. Estate of Toney (2d Dist. 1968), 100 Ill. App.2d 271, 241 N.E.2d 116, aff'd (1969), 44 Ill.2d 127, 254 N.E.2d 440), and the ambiguity ought to be resolved in favor of the insured. (Iowa National Mutual Insurance Company v. Fidelity & Casualty Co. (2d Dist. 1965), 62 Ill. App.2d 297, 210 N.E.2d 622.) Where the insurer attempts to limit its liability by equivocal or ambiguous expressions, those provisions are to be construed against the insurer. Lenkutis v. New York Life Insurance Co. (1940), 374 Ill. 136, 28 N.E.2d 86.
Applying these principles, courts> of other jurisdictions have construed the terms "created, suffered or permitted" as used in title insurance policies to require either an affirmative act on the part of the insured which results in an encumbrance or the knowing or intentional failure of the insured to prevent the attachment of the encumbrance where the insured had the power and ability to do so. Arizona Title Insurance & Trust Co. v. Smith (1974), 21 Ariz. App. 371, 519 P.2d 860; Feldman v. Urban Commercial, Inc. (1965), 87 N.J. Super. 391, 209 A.2d 640; Hansen v. Western Title Insurance Co. (1963), 220 Cal.App.2d 531, 33 Cal.Rptr. 668; First National Bank & Trust Co. v. New York Title Insurance Co. (1939), 171 Misc. 854, 12 N.Y.S. 2d 703.
3-5 Neither the exercise of the option nor the purchase of the real estate created the encumbrance or permitted its existence. Generally, inheritance taxes accrue and become due and payable at the death of the decedent. (Ill. Rev. Stat. 1977, ch. 120, par. 377.) If the legacy upon which the tax is computed is payable to the beneficiary out of real estate, the tax remains a charge on the real estate until it is paid to the executor. (Ill. Rev. Stat. 1977, ch. 120, par. 378.) The transfer involved in this case was subject to inheritance tax because the option was exercisable only upon the death of the grantor, and the transfer was "intended to take effect in possession or enjoyment at or after such death." Ill. Rev. Stat. 1977, ch. 120, par. 375(1) (3).
6, 7 Therefore, the plaintiffs, by exercising the option, were in the same position had they been merely devisees under the decedent's will. Although the Illinois inheritance tax is considered to be a tax imposed against the beneficiary (Lawless v. Lawless (3d Dist. 1958), 17 Ill. App.2d 481, 150 N.E.2d 646), the Attorney General, to collect the tax, may choose not only to sue the individual beneficiary, but also may enforce the lien of inheritance tax against the property in chancery or secure an injunction against the transfer, delivery or disposition of the property. It seems very clear that, even though the tax is assessed against an individual beneficiary, the lien, which arises at the death of the decedent, the entire ...