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Philadelphia Indemnity Insurance Company v. Chicago Title Insurance Company and Western Capital Partners

May 11, 2010


The opinion of the court was delivered by: Matthew F. Kennelly, District Judge:


Philadelphia Insurance Company and Chicago Title Insurance Company both provided liability insurance to Western Capital Partners, LLC. Western Capital was sued and asked Chicago Title to defend the lawsuit. Chicago Title agreed to defend only certain claims asserted in the suit, declining to defend the others pursuant to a term in the insurance policy that said Chicago Title was obligated to defend only those causes of action covered by the policy. Western Capital then requested that Philadelphia defend the remaining claims in the lawsuit. Philadelphia objected, claiming its policy was excess to Chicago Title's policy, and contending that Chicago Title was obligated under Illinois law to defend the entire lawsuit.

Philadelphia has filed suit seeking a declaratory judgment that Chicago Title's policy is the primary policy for the suit against Western Capital and that Chicago Title is obligated to defend the entire suit. Chicago Title and Western Capital have asserted various crossclaims against each other. Philadelphia has moved for summary judgment on its claim, and Chicago Title has moved for summary judgment on several of its and Western Capital's crossclaims. For the reasons stated below, the Court grants Philadelphia's motion and grants Chicago Title's motion in part.


In the summer of 2006, Western Capital agreed to lend $2,775,000 to several individuals and businesses, including a corporation called Jackson Park Pinnacle Plaza, LLC. As security for the loan, Jackson Park provided Western Capital with a promissory note and three mortgages on property in Chicago: a first mortgage on property on South Ridgeland Avenue, a second mortgage on property located on West Erie Street, and a second mortgage on property on South Kenwood Avenue. Western Capital engaged Chicago Title to insure the validity of the titles associated with the properties and assist with the loan closing.

Western Capital and Chicago Title discussed the terms of the insurance policy and the loan closing in several communications, including a document referred to in the pleadings as an "instruction letter." In this letter, sent on July 10, 2006, Western Capital's attorney affirmed that Chicago Title had in its possession both the loan documents and the loan funds, as well as various statements of conditions for disbursement of the funds. The Court will discuss these conditions in more detail below. On July 13, 2006, a representative of Chicago Title "acknowledge[d] receipt of all the Items and Funds referred to in the foregoing letter, and hereby unconditionally and irrevocably agree[d] to the terms contained therein." Chicago Title Ex. 2 at 7.

On July 13, 2006, Chicago Title issued a loan policy covering Western Capital's interest in the three properties. The policy insures against matters including "loss or damage . . . sustained or incurred by the insured" for reasons including "[t]itle to the estate . . . being vested other than as stated therein," "defect in or lien or encumbrance on the title," "[u]nmarketability of the title," "invalidity or unenforceability of the lien of the insured mortgage upon the title," and the "priority of any lien or encumbrance over the lien of the insured mortgage." Chicago Title Ex. 1 at 2. Exclusions from coverage under the policy include "[d]efects, liens, encumbrances, adverse claims or other matters . . . created, suffered, assumed or agreed to by the insured claimant" or "resulting in no loss or damage to the insured claimant." Id. at 3.

For present purposes, a key provision of the policy is the paragraph concerning Chicago Title's obligation to provide a defense to Western Capital. The policy states:

Upon written request by the insured, . . . [Chicago Title], at its own cost and without unreasonable delay, shall provide for the defense of an insured in litigation in which any third party asserts a claim adverse to the title or interest as insured, but only as to those stated causes of action alleging a defect, lien or encumbrance or other matter insured against by this policy. [Chicago Title] shall have the right to select counsel of its choice (subject to the right of the insured to object for reasonable cause) to represent the insured as to those stated causes of action and shall not be liable for and will not pay the fees of any other counsel. [Chicago Title] will not pay any fees, costs or expenses incurred by the insured in the defense of those causes of action which allege matters not insured against by this policy.

Id. at 4.

On August 29, 2007, Western Capital filed a lawsuit initiating foreclosure proceedings on the Ridgeland and Erie mortgages. On November 16, 2007, Western Capital filed an amended complaint in that action in which it dropped the claim to foreclose on the Erie mortgage. On November 29, 2007, Western Capital filed a separate suit to foreclose on the Erie mortgage. On May 15, 2008, Western Capital filed a second amended complaint in the Ridgeland foreclosure action that, in addition to seeking foreclosure, asserted various breach of contract and fraud claims against individuals and entities associated with the property.

On February 6, 2008, several entities, including Jackson Park Pinnacle, filed a lawsuit in the chancery division of the Circuit Court of Cook County against defendants including Western Capital, captioned Ridgeland East End LLC v. Perkins, Case No. 08 CH 6055. The parties to the current case all agree that the Ridgeland East End litigation has been substantively and procedurally convoluted. It essentially involves entities claiming to have an interest in the three mortgaged properties who assert that Western Capital and its associates engaged in a scheme to defraud them and deprive them of their interest. In the first version of the chancery complaint, the Ridgeland East End plaintiffs asserted twelve claims, seven of which they asserted against Western Capital: one claim for negligence; one claim for violation of the Illinois Interest Act, 815 ILCS 205/6; four claims for violation of various provisions of the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA), 815 ILCS 505/2; and one claim to quiet title. In four of these claims, the plaintiffs specifically requested as relief the invalidation or subordination of Western Capital's rights in the insured mortgages.*fn1

On February 29, 2008, Western Capital tendered the defense of the Ridgeland East End lawsuit to Chicago Title. On April 15, 2008, a Cook County Circuit Court judge entered an order consolidating Western Capital's foreclosure action and the Ridgeland East End lawsuit. On April 16, 2008, the Ridgeland East End plaintiffs filed an amended complaint that included fourteen counts, nine of which they asserted against Western Capital (the claims listed in the previous paragraph plus two claims for breach of contract). A subsequent amended complaint filed on May 7, 2008 included the same claims.

On May 15, 2008, Western Capital filed a second amended complaint in its foreclosure suit regarding the Ridgeland property. It asserted additional claims against several of the Ridgeland East End plaintiffs. On June 19, 2008, some of these plaintiffs (defendants in the foreclosure action) filed an answer, which included affirmative defenses related to allegedly forged mortgage documents. Western Capital notified Chicago Title of this answer on July 16, 2008.

On August 15, 2008, Chicago Title sent Western Capital a letter stating its belief that "[t]here appears to be no set of facts which could be proved" under which the claims for violation of the Interest Act and breach of contract, as well as three of the ICFA claims, "would be covered under the Policy." Chicago Title Ex. 22 at 6. The letter went on to state that Chicago Title "agrees to pay the reasonable and necessary costs of independent counsel arising out of the defense of" the remaining counts. Id. at 8.

On August 12, 2009, the state court judge dismissed with prejudice eight of the counts asserted against Western Capital and dismissed the ninth count (the quiet title claim) without prejudice and with leave to re-plead within twenty-one days. There is no suggestion in the record that any of the claims have been re-pled. On December 27, 2009, several of the defendants in the foreclosure action were granted leave to file nineteen counterclaims, twelve of which they asserted against Western Capital. These claims included a claim to quiet title and an ICFA claim seeking a declaration that another mortgage was a first lien on the Ridgeland property.

On November 9, 2010, a Circuit Court judge dismissed with prejudice as against Western Capital all of the counterclaims that had been asserted against it. The counterclaimants revised the claims somewhat and moved to re-file them on August 29, 2011. On September 23, 2011, a judge granted the counterclaimants leave to re-file the counterclaims "solely for the purpose fo preserving issues for appeal." Chicago Title Ex. 46 at 2.


Summary judgment is appropriate where the record shows that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Lexington Ins. Co. v. Rugg & Knopp, Inc., 165 F.3d 1087, 1090 (7th Cir. 1999); Fed. R. Civ. P. 56(c). A court must construe all facts in the light most favorable to the non-moving party and draw all reasonable and justifiable inferences in favor of that party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). "The nonmoving party must offer something more than a 'scintilla' of evidence to overcome summary judgment . . . and must do more than 'simply show that there is some metaphysical doubt as to the material facts.'" Roger Whitmore's Auto. Servs., Inc. v. Lake County, 424 F.3d 659, 667 (7th Cir. 2005) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).

The parties in this case, like those in the underlying litigation, have asserted a variety of claims against each other. Philadelphia has requested a declaratory judgment on two matters: that its policy is excess to Chicago Title's policy, and that it is not obligated to pay unreasonable attorney's fees voluntarily incurred by Western Capital. The Court previously denied Philadelphia's motion for judgment on the pleadings on the first of these points. Phila. Indem. Ins. Co. v. Chi. Title Ins. Co., No. 09 C 7063, 2010 WL 2757542 (N.D. Ill. July 13, 2010). Philadelphia now seeks summary judgment on that claim.

Chicago Title's cross-claim against Western Capital includes six counts, seeking declaratory judgment as follows: (1) it has no further obligation to defend Western Capital; (2) it has no obligation to reimburse Western Capital for fees incurred by Hatch Jacobs LLC or Hinshaw & Culbertson LLP; (3) it has no obligation to reimburse Western Capital for any fees or losses incurred in connection with claims regarding the Erie and Kenwood Mortgages; (4) it is only obligated to reimburse Western Capital for forty-four percent of the costs of defending the Ridgeland East End litigation; (5) it is not obligated to reimburse Western Capital for any costs associated with Western Capital's attempts to foreclose upon the Ridgeland mortgage; and (6) Western Capital breached its obligations under the insurance policy by failing to cooperate with Chicago Title in the Ridgeland East End litigation.

Western Capital's cross-claim against Chicago Title includes five claims: (1) Western Capital is entitled to a declaration of its rights and Chicago Title's obligations under the insurance policy and instruction letter; (2) Chicago Title is in breach of contract for failing to perform its obligations under the instruction letter; (3) Chicago Title is in breach of contract for failing to perform its obligations under the insurance policy; (4) Chicago Title has engaged in deceptive practices in violation of ICFA; and (5) Chicago Title has engaged in unfair practices in violation of ICFA.

Chicago Title has moved for summary judgment on counts one through four of its cross-claim and all counts of Western Capital's cross-claim. Chicago Title has also moved to strike one of the exhibits that Western Capital has submitted in support of its motion: the affidavit of J. Mark Fisher, Western Capital's lead trial counsel in the underlying litigation. Chicago Title argues that Fisher's affidavit contains legal analysis that constitutes expert testimony and that the Court may not consider this testimony because he was not disclosed as an expert witness. Western Capital responds that it included Fisher in its Rule 26(a)(1) disclosures and that all of his testimony is that of a fact witness.

Chicago Title is correct that certain statements in the affidavit go beyond the province of a fact witness. The Court accordingly will not consider statements such as those characterizing the "clusters of claims" in the Ridgeland East End litigation, Fisher Aff. ¶ 4, or specifically responding to Chicago Title's contentions, because these statements constitute argument rather than fact. See, e.g., id. ¶¶ 9 ("I disagree with [Chicago Title's] statement that its allocation methodology is reasonable or fits with the facts of the Underlying Litigation.") & 16 ("We respectfully disagree that [Chicago Title's billing] guidelines enumerate appropriate standards of reasonable fees."). These statements constitute the entirety or a majority of paragraphs four through seven and nine through sixteen of the affidavit.

Other statements in the affidavit, however, including some statements in the indicated paragraphs, are properly grounded in Fisher's personal knowledge of the underlying litigation. To the extent that they describe the work he has done, they may be considered as evidence of the course the litigation has taken. See, e.g., id. ΒΆΒΆ 8 ("[The] principal focus in the Underlying Litigation was [the plaintiff's] contention that the [Western Capital] Mortgage was unenforceable because the signatures of these individuals were 'forgeries.') & 12 (describing how Western Capital's attorneys spent more time working on mortgage issues than on the other causes of action). The Court therefore ...

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