APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, THIRD DIVISION
545 N.E.2d 351, 189 Ill. App. 3d 433, 136 Ill. Dec. 827 1989.IL.1520
Appeal from the Circuit Court of Cook County; the Hon. Dean M. Trafelet, Judge, presiding.
JUSTICE RIZZI delivered the opinion of the court. FREEMAN, P.J., and WHITE, J., concur.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE RIZZI
Plaintiffs, Boris and Mirjana Radovanov (the Radovanov), appeal from a judgment entered in favor of defendants, Land Title Company of America, Inc., and Title Insurance Company of Minnesota (the Title Insurance Companies), at the close of plaintiffs' case in a bench trial. On appeal, the Radovanov argue that the trial court erred in ruling that the terms of the title insurance commitment and policy did not require the Title Insurance Companies to disclose or provide insurance coverage for damages caused by a pending housing code violation lawsuit involving their insured real estate. The pending housing code violation lawsuit predated the title insurance commitment and policy. We reverse and remand for a new trial.
The Radovanov contracted to purchase an 88-unit apartment hotel in Chicago. Prior to closing the sale, Mr. Radovanov, who had been a maintenance man at other buildings, inspected the property two or three times. The inspection revealed some problems, including fire damage, which was repaired by the seller prior to closing. Also, prior to closing, the sellers informed the Radovanov' attorney that they had received notice of building code violations which included housekeeping problems such as peeling paint or lack of smoke detectors. The parties agreed that these problems would be corrected prior to sale. At closing, the Radovanov were assured that the problems were resolved.
The Radovanov assumed the sellers' mortgage, which was held by the Bank of Ravenswood (the Bank). The Bank ordered a title commitment, and on September 22, 1980, the Title Insurance Companies issued a commitment to issue a policy of title insurance for the apartment hotel. The commitment did not reveal that a housing code violation lawsuit involving the apartment hotel was pending.
In October 1980, the Title Insurance Companies revised the commitment to issue title insurance and again failed to disclose the pending lawsuit. In October, when the Radovanov completed the purchase of the property, neither they nor their attorney knew of the pending litigation. In February 1981, the Title Insurance Companies issued a title insurance policy for the apartment hotel to the Radovanov. The title insurance policy did not disclose the pending lawsuit.
In July 1981, the Radovanov discovered for the first time that a lawsuit regarding building code violations at the apartment hotel had been pending since February 1980. The housing code violation lawsuit alleged numerous violations and sought by way of relief, demolition and/or the appointment of a receiver for the building. The Radovanov also discovered that prior to their purchase, the Bank, as mortgagee and trustee of the apartment hotel, appeared in court in April 1980 to answer the building code violation charges.
In October 1981, the Radovanov filed a rescission action against the seller alleging failure to disclose the pending housing code litigation. In December 1981, the Radovanov' attorneys requested that the Title Insurance Companies defend the municipal housing court case and fulfill their obligations under the title insurance policy. The Title Insurance Companies denied coverage. The rescission action was later settled, but the Radovanov' losses were not completely satisfied.
In October 1984, the Radovanov brought this action to recover monetary damages incurred as a result of the Title Insurance Companies' failure to either disclose the existence of the pending housing code violation lawsuit or provide insurance coverage for the resultant financial loss. In a bench trial, following the close of the Radovanov' case, the court entered judgment in favor of the Title Insurance Companies and against the Radovanov. This appeal followed.
On appeal, the Radovanov argue that the trial court erred in ruling that the terms of the Title Insurance Companies' commitment and policy excluded coverage for damages incurred as a result of building code violation litigation which pre-existed the date of the title insurance commitment and policy. We agree.
The Radovanov contend that the Title Insurance Companies were contractually obligated to provide insurance coverage for their failure to disclose the pending housing code violation litigation because it rendered their title to the apartment hotel unmarketable. The Title Insurance Companies respond with three defenses. They allege that (1) coverage was properly denied because under exclusion 1 of the policy, building ordinances and the effects of violations of building ordinances are not covered; (2) because the pending litigation was not the subject of a lis pendens notice recorded with the recorder of deeds, it was not a matter of public record, and they cannot be charged with constructive notice of the lawsuit; and (3) because the policy allows them to use the defenses that they have against the party in title, i.e., the trustee Bank and beneficiary sellers, against the Radovanov, coverage is excluded ...