The opinion of the court was delivered by: ELAINE E. BUCKLO
Plaintiff, TRW Title Insurance Company ("TRW"), and defendant, Security Union Title Insurance Company ("Security"), are title insurers.
From 1984 to February, 1990, Security had an agreement with Liberty National Title Insurance Company ("Liberty") whereby Liberty acted as Security's title insurance agent.
In December, 1989, TRW entered into an agreement with Liberty under which Liberty acted as TRW's title insurance agent. Liberty administered an escrow fund to assist in the closing of the real estate transactions for which it issued title insurance.
In February, 1991, TRW became aware that the Liberty escrow account was underfunded. TRW ultimately provided over $ 3 million to cover the shortage in the escrow fund. TRW filed the present lawsuit, seeking recovery from Security for the deposits it made into the Liberty escrow account. Jurisdiction is based on diversity of citizenship. 28 U.S.C. § 1332. On May 13, 1994, Judge Hart denied in relevant part Security's motion to dismiss, permitting TRW to pursue its fiduciary duty, common law fraud, breach of contract and unjust enrichment claims against Security. Security now seeks summary judgment on all of these claims.
TRW is a Kansas corporation, and its principal place of business is Kansas. Security, formerly known as Safeco Title Insurance Company, is a California corporation with its principal place of business in Illinois. Liberty, now known as Strategic Mortgage Services of Illinois, Inc. and doing business as Liberty Title Insurance Company, is an Illinois corporation having its principal place of business in Illinois. Edward G. Wells ("Mr. Wells"), an Illinois citizen, owned all of Liberty's stock from 1989 to 1990.
In February, 1988, Security sued Liberty and Mr. Wells, charging Liberty with failure to pay amounts owed under the parties' Title Plant Access Agreement,
fraud, tortious interference with contractual relations, and RICO violations.
The complaint did not contain any claim regarding Liberty's closing escrow account. The parties agreed to settle the lawsuit in November, 1989, by Liberty's paying $ 235,000 to Security. On December 28, 1989, Mr. Wells told Security that he had found another title insurer (TRW) for whom Liberty would act as title agent. After that, Liberty no longer wrote policies for Security. All of Security's escrow protection letters were revoked by January 2, 1990. On February 23, 1990, Security, Liberty and Mr. Wells signed the final papers formally settling the lawsuit and terminating the Agency Agreement. The settlement document contained a confidentiality provision.
The parties to the Security/Liberty lawsuit later discovered that certain drafts of the settlement documentation had been attached to motions filed in that lawsuit. Security filed a motion to seal those parts of the record containing draft settlement documents.
In December, 1989, TRW and Liberty agreed that Liberty would become TRW's title insurance agent. Before signing Liberty as a title agent, TRW obtained an agency application from Liberty, spoke by telephone with two references provided by Mr. Wells and performed a credit check on Mr. Wells. TRW did not contact Security, even though TRW knew that Liberty had contracted with Security. In fact, between December 4, 1989 and February 23, 1990, TRW and Security had no contact with each other respecting Liberty.
Prior to contracting with Liberty, TRW did not communicate with either Liberty's bank, although it was listed on Liberty's agency application, or the title plant vendor Liberty used at the time. TRW did not investigate Liberty's escrow practices by auditing its escrow operations or by other means and did not audit Liberty. TRW did not contact state licensing authorities to obtain information about Liberty, interview Liberty's employees, or check court files or computer databases to see if Liberty had been involved in litigation.
In February, 1991, a little more than a year after TRW had replaced Security as the title insurer with which Liberty worked, a routine audit of Liberty's escrow account showed the account was underfunded. TRW claims that the Liberty escrow fund shortage was approximately $ 2.9 million as of December 4, 1989, and was approximately $ 3.1 million as of December 31, 1989. By May, 1991, TRW estimated that the amount of the shortage in the Liberty escrow account was approximately $ 4 million. TRW made up all losses to the escrow account, and at no time did any escrow transaction involving Liberty fail to close based on any shortage of funds. In the present lawsuit, TRW seeks to recover from Security for deposits it made into the Liberty escrow account totaling $ 3,390,283.06.