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First Tennessee Bank, National Association, A National Banking Association v. Lawyers Title Insurance

April 17, 2012


The opinion of the court was delivered by: Judge Edmond E. Chang


Plaintiff First Tennessee Bank brought this diversity suit against Defendant Lawyers Title Insurance, seeking a declaratory judgment and damages based on common law breach of contract, estoppel, and the Illinois Insurance Code, 215 ILCS 5/155. R. 14.*fn1 Lawyers Title has filed a motion to dismiss on all claims. R. 17. For the reasons explained below, the Court grants the motion to dismiss.


At this stage of the litigation, Plaintiff's allegations are taken as true and reasonable inferences are drawn in its favor. On February 16, 2005, First Horizon Home Loans (a division of First Tennessee*fn2 ) loaned Roosevelt Garrett $83,200, which was secured by an ostensible second mortgage on Garrett's property. R. 14 ¶¶ 6, 14. Before First Tennessee agreed to lend the money to Garrett, it purchased title insurance from Lawyers Title-a policy that would insure against any losses or damage due to unknown senior liens. Id. ¶¶ 7-8.

After loaning the money to Garrett, First Tennessee learned that it did not, in fact, have the second mortgage lien on Garrett's property. Id. ¶ 15. On February 8, 2005, a superior lien had been granted to Countrywide Home Loans, and two weeks later, was recorded by the Cook County Recorder of Deeds. Id. As a result, First Tennessee's loan was actually secured by the third mortgage lien on the property. Id.

¶ 16. Eventually, Garrett defaulted on his first mortgage. R. 14 ¶ 22. The mortgagee with the senior lien has begun judicial foreclosure proceedings and First Tennessee is a defendant in that action. Id. Lawyers Title refused to defend or indemnify First Tennessee. Id. ¶ 26. Because of that refusal, First Tennessee brought this lawsuit, eventually filing an amended complaint asserting six counts. R. 14. Lawyers Title has moved to dismiss under Rule 12(b)(6). R. 17.


Under the Federal Rules of Civil Procedure, a complaint generally need only include "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). This short and plain statement must "give the defendant fair notice of what the claim is and the grounds upon which it rests." Bell Atl. v. Twombly, 550 U.S. 544, 555 (2007). The Seventh Circuit has explained that this rule "reflects a liberal notice pleading regime, which is intended to 'focus litigation on the merits of a claim' rather than on technicalities that might keep plaintiffs out of court." Brooks v. Ross, 578 F.3d 574, 580 (7th Cir. 2009) (quoting Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002)).

A motion under Rule 12(b)(6) challenges the sufficiency of the complaint to state a claim upon which relief may be granted." Hallinan v. Fraternal Order of Police Chicago Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). "[W]hen ruling on a defendant's motion to dismiss, a judge must accept as true all of the factual allegations contained in the complaint." Erickson v. Pardus, 551 U.S. 89, 94 (2007); McGowan v. Hulick, 612 F.3d 636, 637 (7th Cir. 2010) (courts accept factual allegations as true and draw all reasonable inferences in plaintiff's favor). A "complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1949 (2009) (quoting Twombly, 550 U.S. at 570). These allegations "must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555. And the allegations that are entitled to the assumption of truth are those that are factual, rather than mere legal conclusions. Iqbal, 129 S. Ct. at 1950.



The threshold question here is what "losses" the title-insurance policy covers. First Tennessee argues that under Citicorp Sav. of Illinois v. Stewart Title Guar. Co., 840 F.2d 526 (7th Cir. 1988), the policy guarantees the full amount of the Garrett loan.

R. 21 at 1-2. Lawyers Title argues that the policy is a contract of indemnity and that it is only liable for the difference in the value between what First Tennessee could recover as the second lienholder versus what it could recover as the third lienholder.

R. 17 at 7-8. And because the foreclosure sale has not yet completed, Lawyers Title argues, First Tennessee has not ...

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