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Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 

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In the

United States Court of Appeals

For the Seventh Circuit ____________________

No. 15-1240

KATHRYN MARCHETTI and JONATHON MARCHETTI,

Plaintiffs-Appellants,

v.

CHICAGO TITLE INSURANCE COMPANY and FIDELITY NATIONAL 

TITLE INSURANCE COMPANY,

Defendants-Appellees.

____________________

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 12 C 5985 — Sharon Johnson Coleman, Judge.

____________________

ARGUED OCTOBER 28, 2015 — DECIDED JULY 12, 2016

____________________

Before WOOD, Chief Judge, and EASTERBROOK and 

HAMILTON, Circuit Judges.

EASTERBROOK, Circuit Judge. In May 2008 Kathryn and 

Jonathon Marchetti purchased a parcel of real estate in Cook 

County, Illinois, for $180,000. Peotone Bank and Trust lent 

them the entire price, plus $155,000 to pay for improvements 

that the Marchettis planned to make. Jonathon Marchetti 

acted as buyer, real-estate broker (he had a license from IlliCase: 15-1240 Document: 36 Filed: 07/12/2016 Pages: 5
2 No. 15-1240

nois), mortgage broker, and general contractor for the improvements. The Bank put up this $335,000 notwithstanding 

the fact that, three months earlier, Jonathon had been indicted for mortgage and wire fraud regarding other real-estate 

transactions. He pleaded guilty in August 2008.

This transaction, too, was affected by fraud, though this 

time Jonathon Marchetti was a victim. The parcel, which the 

Marchettis nominally acquired from Seville Development 

Corporation, actually was owned by an Illinois land trust 

established for the benefit of Carla Lekich. A series of sham 

transactions orchestrated by John Hodgman made it look as 

if Seville held title. In 2010 Lekich and her trust filed suit, 

seeking to quiet title in the parcel.

Chicago Title Insurance Company had issued a policy of 

title insurance, promising to indemnify the Marchettis and 

Peotone Bank if they suffered a loss from a problem in the 

title. The maximum value of the policy is $198,000. In 2010 

the Bank’s successors (it had syndicated the loan after making it) and Chicago Title had the property appraised. This 

appraisal came in at $110,000. Treating the Marchettis’ promise to pay as worthless, the Lender (as we call the debt’s 

post-syndication holders) agreed to accept $110,000 from 

Chicago Title as full satisfaction. Lekich’s suit was settled 

and dismissed following this payment, plus a release of the 

mortgage and a disclaimer by the Marchettis of any interest 

in the parcel. Chicago Title became subrogated to the Marchettis’ claims against their predecessors in the (fake) line of 

title. After Hodgman was indicted and convicted, Chicago 

Title was able to obtain $37,500 in restitution. (The award 

was greater, but only $37,500 was collectable.)

Case: 15-1240 Document: 36 Filed: 07/12/2016 Pages: 5
No. 15-1240 3

One would have thought that this brought matters to a 

close. Lekich held clear title to the parcel. The Marchettis no 

longer had the real estate—but they also no longer owed the 

Lender a penny. They had put nothing into the deal and got 

nothing out. The losers were the Lender (out of pocket about 

$225,000) and Chicago Title (out of pocket about $72,500). 

Nonetheless, the Marchettis took the offensive in this suit 

under the diversity jurisdiction. They contend that Chicago 

Title owes them $125,500—the $37,500 it collected from 

Hodgman, plus the $88,000 difference between the maximum value of the policy and what it paid the Lender. Section 8(b)(ii) of the policy permits the owner to elect between 

the property’s value at the time the owner submits a claim 

under the policy and its value when the claim is paid. The 

Marchettis had the property appraised for $202,000, and 

they insist that the insurer thus had to disburse the policy’s 

$198,000 maximum value—and, since it didn’t, it did not acquire their rights against Hodgman. Hence the demand for 

$88,000 ($198,000 less the $110,000 paid to the Lender) plus 

the $37,500 recovered from Hodgman.

The district court was not persuaded and granted summary judgment to Chicago Title. 2015 U.S. Dist. LEXIS 4164 

(N.D. Ill. Jan. 14, 2015). We’re not persuaded either, and for 

the same reason as the district court. The Marchettis treat the 

policy as if it promised to pay owners the market value of 

the property. But that’s not what it says. The property’s 

market value matters only as one determinant of how much 

loss the owner suffers. The policy covers only “actual monetary loss or damage sustained or incurred by the Insured 

Claimant”. The loss the Marchettis suffered was zero, because they had no equity interest in the property. They paid 

nothing for it, and the $335,000 loan substantially exceeded 

Case: 15-1240 Document: 36 Filed: 07/12/2016 Pages: 5
4 No. 15-1240

the highest appraised value. (True, the Marchettis made a 

down payment of $3,000, but they reimbursed themselves 

from the loan, which covered the full purchase price.) Even 

an underwater property has some option value, but the 

Marchettis do not argue that the option value of this parcel 

was enough to give them a positive net interest.

Indeed, the Marchettis appear to have turned a profit on 

the transaction, because they did not perform all of the 

planned work before they gave up their claim of ownership. 

The Marchettis tell us that $100,000 in renovation work was 

done. Jonathon Marchetti was the contractor and may have 

profited in that capacity, and at all events $100,000 is less 

than the construction-loan amount of $155,000. In the district 

court the Marchettis contended that they lost the profits they 

had anticipated from renting the improved property, but 

they have now acknowledged that the policy does not cover 

consequential damages. They suffered no capital loss, and 

that is all Chicago Title promised to make good. Since Chicago Title relieved them of the burden of the loan and mortgage, leaving them loss-free, it acquired the Marchettis’ 

claim against the fraud’s perpetrator and was entitled to collect from the restitution award.

There was a loss on this transaction, but it was incurred 

entirely by the Lender, which put in $335,000 and got back 

$110,000. It is not complaining, however, about the difference between $110,000 and the policy limit of $198,000, having settled with Chicago Title. The Marchettis have no remaining liability to the Lender, which gave them a complete 

release as part of the settlement. Lekich and her trust did not 

give the Marchettis a release, but they dismissed their suit, 

so the Marchettis have the benefit of the judgment’s precluCase: 15-1240 Document: 36 Filed: 07/12/2016 Pages: 5
No. 15-1240 5

sive effect. If Lekich and the trust were to file a new suit, despite the judgment, Chicago Title might have a duty to defend, but that remote possibility cannot be the basis of the 

monetary relief that the Marchettis want now.

AFFIRMED

Case: 15-1240 Document: 36 Filed: 07/12/2016 Pages: 5