FIRST DIVISION

May 17, 2010

No. 1-09-1216

RAY H. RHONE and DENISE RHONE, ) Appeal from the

) Circuit Court of

Plaintiffs-Appellants, ) Cook County. 

)

v. ) 

) No. 08 CH 20714

FIRST AMERICAN TITLE INSURANCE )

COMPANY, a California )

Corporation, ) The Honorable 

) Daniel A. Riley,

Defendant-Appellee. ) Judge Presiding.

JUSTICE GARCIA delivered the opinion of the court.

The plaintiffs, Ray and Denise Rhone (the Rhones), filed a

two-count complaint against defendant First American Title

Insurance Company (First American), the issuer of a title

insurance policy on the townhome they purchased in 2006. Count I

sought a declaration that the policy covered unassessed property

taxes for the years 2004 and 2005; count II sought special

damages because First American's denial of the Rhones' claim for

reimbursement of those taxes was "vexatious and unreasonable." 

The parties filed cross-motions for summary judgment. First

American contended the policy did not cover the taxes because

they were levied after the date the policy was issued and, in any
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2

event, the policy specifically exempted such taxes. Judge Daniel

A. Riley granted First American's motion and denied the Rhones'. 

We hold that the unassessed taxes did not constitute liens

or encumbrances until the bills for the unassessed property taxes

were issued in 2008, well after the effective date of the title

insurance policy of August 31, 2006. Consequently, we affirm.

BACKGROUND

On August 31, 2006, the Rhones closed on their $800,000

purchase from the original owners of a three-year-old townhome at

1417 South Campus Parkway in Chicago. At the closing, First

American issued an owner's title insurance policy. The policy

insured the Rhones against losses caused by "[a]ny defect in or

lien or encumbrance on the title" as of August 31, 2006, subject

to several specified exceptions and exclusions. Although the

policy listed several "standard exceptions" to coverage,

including "Taxes, or special assessments which are not shown as

existing liens by the public records," First American waived

those exceptions through an endorsement.

In her deposition, Denise Rhone testified that at closing

she and her husband were aware that Cook County had assessed the

townhome as "vacant land" from 2004 through 2006, the years the

sellers lived in the home. Based on the improper assessment, the

Rhones were well aware that the property taxes "were going to
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3

increase." However, Denise Rhone testified that she "didn't know

anything about omitted taxes."

Concerned with the potential property tax increase because

the townhome was not assessed as improved property at the time of

their purchase contract, the Rhones had their attorney contact

Kent Novit, the sellers' attorney and "issuing agent" on the

Rhones' title commitment policy. In their letter to Novit, dated

August 14, 2006, 17 days before closing, the Rhones pointed out

that a neighboring "comparable property" was assessed for nearly

$9,000 more in property taxes for the tax year 2005 than the

townhome to be purchased. To assuage the Rhones' concerns, at

closing the parties signed a "tax reproration agreement," which

required the sellers to place $10,000 in escrow to cover the

sellers' share of any additional taxes due for 2006. Under the

agreement, a tax reproration between the parties would occur if

the townhome were reassessed as improved property before March

31, 2008. However, the agreement did not address any additional

real estate taxes that might arise from reassessment for 2004 and

2005, when the property was also taxed as vacant land. In other

words, the agreement did not apportion any additional property

tax liability should the property be reassessed as improved land

for the years prior to 2006 (the unassessed taxes).

In February 2008, the Rhones received two tax bills from the
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4

Cook County assessor titled "2007 Omitted Assessment Property Tax

Bill." The bills indicated that the townhome was not assessed as

improved land in 2004 and 2005 and sought, from "D. Rhone or

Current Owner," additional unassessed taxes for the two years. 

The tax bill for 2004 sought $2,763.58; the tax bill for 2005

sought $6,600.09. Each bill indicated the amount due was

"entered as a warrant [in the County Collector's warrant book] in

Tax Year 2007 [payable in 2008]."

On February 12, 2008, the Rhones' attorney filed a claim

with First American under the title insurance policy seeking

indemnification for the unassessed taxes. First American denied

the claim, explaining in a letter dated April 4, 2008, that the

unassessed taxes "are not due and payable until 2008 and are

therefore, not a matter covered by the title policy." 

On June 10, 2008, the Rhones filed a two-count complaint

against First American, seeking a declaration that the title

insurance policy covered the unassessed taxes and special damages

under section 155 of the Illinois Insurance Code (215 ILCS 5/155

(West 2008)). The parties filed cross-motions for summary

judgment. Judge Riley granted summary judgment in favor of First

American; the Rhones timely appeal.

ANALYSIS

Summary judgment is warranted when "the pleadings,
1-09-1216

5

depositions, and admissions on file, together with any

affidavits, when viewed in the light most favorable to the

nonmovant, reveal there is no genuine issue of material fact and

that the movant is entitled to judgment as a matter of law." 

Midwest Trust Services, Inc. v. Catholic Health Partners

Services, 392 Ill. App. 3d 204, 209, 910 N.E.2d 638 (2009),

citing 735 ILCS 5/2-1005(c) (West 2000). Our review of a grant

of summary judgment is de novo. DeSaga v. West Bend Mutual

Insurance Co., 391 Ill. App. 3d 1062, 1066, 910 N.E.2d 159

(2009).

Because the facts are not in dispute, this case presents

only a question of law as to which party is entitled to summary

judgment. See Liberty Mutual Fire Insurance Co. v. St. Paul Fire

& Marine Insurance Co., 363 Ill. App. 3d 335, 339, 842 N.E.2d 170

(2005) ("where the parties file cross-motions for summary

judgment, they invite the court to decide the issues presented as

a matter of law"). In their declaratory judgment count, the

Rhones contend that Judge Riley should have granted their motion

because the unassessed taxes constitute a defect, lien, or

encumbrance under the Rhones' title insurance policy. First

American responds that under the Property Tax Code (the Tax Code)

(35 ILCS 200/1-1 et seq. (West 2008)), the unassessed taxes

reflected in the two tax bills become liens against the property
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6

only as of the year the taxes are levied. In other words, the

unassessed taxes for 2004 and 2005 become liens only "in Tax Year

2008," as First American asserts; it is illogical to treat the

unassessed taxes as levied in 2004 and 2005, when actual taxes

were levied, albeit as vacant land, and fully paid in those

years. According to First American, because the unassessed taxes

did not achieve lien status until 2008, the unassessed taxes do

not fall within the ambit of the policy, which insured only

against "any defect in or lien or encumbrance on the title" as of

the date the policy was issued, August 31, 2006. First American

adds, even if the unassessed taxes constituted a defect, lien, or

encumbrance before the policy was issued, the policy specifically

excluded such taxes from coverage.

"Real estate taxes can only be levied, assessed and

collected in the manner expressly required by statute." In re

County Collector of Will County for Judgment for Taxes for the

Year 1988, 229 Ill. App. 3d 641, 643, 593 N.E.2d 1134 (1992),

citing People ex rel. Pickerill v. New York Central R.R. Co., 391

Ill. 377, 63 N.E.2d 405 (1945). In Illinois, the Tax Code

controls "the basis upon which real property is valued for

purposes of collecting property tax revenue." Walsh v. Property

Tax Appeal Board, 181 Ill. 2d 228, 230, 692 N.E.2d 260 (1998). 

The Tax Code provides that "the taxes upon property *** shall be
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7

a prior and first lien on the property *** from and including the

first day of January in the year in which the taxes are levied." 

35 ILCS 200/21-75 (West 2008). Thus, property owners are issued

a tax bill at the beginning of each year for taxes owed for the

preceding year; pursuant to the Tax Code, the tax bill is a lien

as of January 1 of the year in which it is issued. 

Pursuant to statute, the Cook County assessor has the

authority, as a county with a population of 3 million or more, to

"assess properties which may have been omitted from assessments

for the current year or during any year or years for which the

property was liable to be taxed, and for which the tax has not

been paid." 35 ILCS 200/9-260(a) (West 2008). Such an "omitted

assessment tax bill is not due until the date on which the second

installment property tax bill for the preceding year becomes

due." 35 ILCS 200/9-260(b) (West 2008). Thus, for years when

taxes have been paid, the property may nonetheless be subject to

additional taxes if no taxes were assessed on land improvements. 

People ex rel. McDonough v. Birtman Electric Co., 359 Ill. 2d

143, 145, 194 N.E.2d 282 (1934) ("if no assessment was made[,]

*** an assessment of the omitted property [may be made] in a

subsequent year"). As a safeguard against unforeseen additional

taxes, " 'the legislature has provided that no charge for tax for

previous years shall be made against any property prior to the
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8

date of ownership of the person owning such property at the time

the liability for such omitted tax was ascertained.' " Inland

Real Estate Corp. v. Oak Park Trust & Savings Bank, 127 Ill. App.

3d 535, 545, 469 N.E.2d 204 (1983), quoting McDonough, 359 Ill.

2d at 148. The section insulating a new owner from unassessed

taxes prior to ownership requires ownership be of "bona fide

legal and equitable titles or interests acquired for value and

without notice of the tax." (Emphasis added.) 35 ILCS 200/9-270

(West 2008). 

The Rhones do not claim to be without notice that the

property was improperly assessed as vacant land at the time of

purchase, nor can they. In a letter to the sellers' attorney

dated August 14, 2006, the Rhones, through their attorney,

asserted that the townhome "is not currently assessed properly. 

*** Attached is [a] data sheet from the [Cook County] Assessor's

web site showing the Unit as being taxed as vacant land. *** I

have attached the Assessor's data sheet for and the most recent

tax bill ($10,990.33) for the neighboring unit[, 1415 S.

Campus]." In a similar letter dated October 24, 2006, to the

Cook County assessor, the Rhones gave notice that "the Property

is currently being taxed as vacant and unimproved property when

in fact it is improved with a [townhome] residence." It appears

the Rhones sent notice to the Cook County assessor in an attempt
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9

to shield themselves against any "charge for tax of previous

years *** [by giving] notice of subsequent improvements." 35

ILCS 200/9-270 (West 2008). However, the "no charge" provision

only applies if "reassessment of the property was not made within

the 16 month period immediately following the receipt of that

notice." 35 ILCS 200/9-270 (West 2008). The Rhones make no

claim that the reassessment of the property resulting in the

charge for unassessed taxes covering 2004 and 2005 fell outside

the 16-month period. Nor does it appear the Rhones qualify as

good-faith purchasers regarding the unassessed taxes because they

had "notice of the possibility of [unassessed] taxing" when they

purchased the townhome. Inland, 127 Ill. App. 3d at 546; 35 ILCS

200/9-270 (West 2008). It is this knowledge that spurred the

Rhones to enter into a tax reproration agreement with the sellers

regarding an increase in property taxes for the year 2006.

Lien or Encumbrance

Upon receipt of the "2007 Omitted Assessment Property Tax

Bill[s]," the Rhones paid the unassessed taxes. They are now

seeking indemnification from First American. We initially

address whether the unassessed taxes covering 2004 and 2005

constitute a "lien or encumbrance" under the policy. If the

title was so clouded on the date the policy was issued, August

31, 2006, the Rhones are entitled to summary judgment if none of
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10

the exceptions or exclusions apply. If the unassessed taxes do

not constitute a "lien or encumbrance" as of the date of the

policy, Judge Riley properly granted First American's summary

judgment motion.

As noted above, the Tax Code provides that property taxes

constitute "a prior and first lien on the property *** from and

including the first day of January in the year in which the taxes

are levied." 35 ILCS 200/21-75 (West 2008). The Tax Code makes

plain that a bill for unassessed taxes "is not due until the date

on which the second installment property tax bill for the

preceding year becomes due." 35 ILCS 200/9-260(b) (West 2008). 

It is undisputed that the Rhones' unassessed taxes were added to

the tax bill for 2007 and were not due until the second

installment came due in 2008. Thus, under the Tax Code, the

additional taxes based on the reassessment constituted liens in

the year in which they were levied, 2008, rather than the years

for which they were levied, 2004 and 2005. The Rhones do not

dispute that the tax liens arose long after the First American

title policy was issued in 2006 and, as liens, are not covered by

the policy.

The Rhones contend, however, that the title was "encumbered"

on or before the title insurance policy was issued. They contend

that at the time they purchased the townhome, although Cook
1-09-1216

1 The Rhones do not provide a precise date on which they

claim the encumbrance arose; presumably, the encumbrance existed 

as of the date of the letter to Novit, the sellers' attorney and

the "issuing agent" of the First American title commitment, on

August 14, 2006, detailing that the property was assessed as

vacant land.

11

County had not exercised its authority to recalculate the 2004

and 2005 real estate property taxes based on a new assessment of

the property as improved land, it was virtually certain to do so.

Additional taxes would be due because the land was improved as

the sellers lived in the townhome in 2004 and 2005. According to

the Rhones, the authority of Cook County to reassess the

property, though unexercised on the day of closing, nonetheless

constituted an encumbrance on the property separate and distinct

from any future tax liens. While the liens arose in 2008 when

the county issued the corrected tax bills based on the proper

assessment for the years 2004 and 2005, the Rhones allege that an

encumbrance for unassessed taxes existed at the time the policy

was issued on August 31, 2006.1 

We acknowledge the distinction in case law between a lien

and an encumbrance. A lien is a " 'legal right or interest that

a creditor has in another's property, lasting usu[ally] until a

debt or duty that it secures is satisfied.' " Compton v. Country
1-09-1216

12

Mutual Insurance Co., 382 Ill. App. 3d 323, 329, 887 N.E.2d 878

(2008), quoting Black's Law Dictionary 933 (7th ed. 1999). An

encumbrance is broader. It may include " 'any right to, or

interest in, land which may subsist in a third party to the

diminution of the value of the estate, but consistent with the

passing of the fee by conveyance.' " Village of Buffalo v.

Illinois Commerce Comm'n, 180 Ill. App. 3d 591, 597, 536 N.E.2d

438 (1989), quoting Monti v. Tangora, 99 Ill. App. 3d 575, 580,

425 N.E.2d 597 (1981). Encumbrances " 'include not merely liens

such as mortgages, judgment liens, [or] taxes *** but also

attachments, leases, inchoate dower rights, water rights,

easements, restrictions on use, or any right in a third party

which diminishes the value or limits the use of the land

granted.' " Village of Buffalo, 180 Ill. App. 3d at 597, quoting

Monti, 99 Ill. App. 3d at 580-81.

Together with the broad scope of "encumbrance," the Rhones

rely on express language in Inland to support their claim that

the unassessed taxes fall within the title policy coverage. 

In Inland, Stanley DeFurgalski entered into an agreement to

sell an apartment building to individuals that eventually

conveyed their interest into a land trust (collectively, the

owner-defendants). In December 1972, DeFurgalski agreed to

convey fee simple title "free and clear of all liens,
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13

encumbrances, restrictions, easements and leases of any nature

whatsoever" (Inland, 127 Ill. App. 3d at 537), in exchange for a

15-year note, which DeFurgalski "sold and assigned to Inland Real

Estate Corporation." Inland, 127 Ill. App. 3d at 538. 

In October 1978, the Cook County assessor billed the ownerdefendants $128,584.51 in taxes, interest and penalties triggered

by omitted assessments for the three years preceding the sale. 

Inland, 127 Ill. App. 3d at 538. The property had been assessed

as improved with single-family residences, rather than with the

63-unit apartment building located on the property at the time of

sale. Inland, 127 Ill. App. 3d at 544. Believing these taxes

constituted a violation of the agreement to convey the property

"free and clear" of all liens and encumbrances, the ownerdefendants stopped making payments on the note, and Inland, as

the then noteholder, filed suit to foreclose. Inland, 127 Ill.

App. 3d at 538. Numerous counterclaims, setoffs, and third-party

actions, including against the county assessor and collector,

substantially enlarged the original foreclosure action. Inland,

127 Ill. App. 3d at 538-39. Ultimately, the circuit court

granted summary judgment to the owner-defendants on their setoff

claims and counterclaims, and Inland appealed. Inland, 127 Ill.

App. 3d at 539-40.

This court reversed that portion of the circuit court's
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14

judgment in favor of the original buyers, which, in part, granted

a setoff of the additional taxes of $128,584.51 against the

balance of the purchase price of the property. We issued a

remand to resolve a material question of fact. Because the

record was barren of any evidence that the owner-defendants had

notice that the property was improperly assessed for the three

years preceding sale of the property by DeFurgalski, remand was

required to determine whether the buyers were good-faith

purchasers under then section 221 of the Revenue Act of 1939 and

thus insulated from the additional taxes. Inland, 127 Ill. App.

3d at 544-45, citing Ill. Rev. Stat. 1979, ch. 120, par. 702. 

The court added its view that if the additional taxes were "a

lawful claim or demand enforceable against [the original buyers],

then the unexercised authority of [the county assessor and

collector] to impose the back taxes constituted an incumbrance on

the property at the time of transfer" from DeFurgalski to the

original buyers. Inland, 127 Ill. App. 3d at 541. It is this

language that the Rhones rely upon to assert their claim of the

existence of an "incumbrance" on or before the date of purchase

regarding the unassessed taxes by the Cook County assessor. 

Inland is plainly distinguishable from the case at bar. The

Inland court had no occasion to address the meaning or purpose of

the term "encumbrance" in a title insurance policy. Instead,
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15

Inland dealt with an appeal from the grant of summary judgment in

favor of the property buyers, granting the buyers a setoff and

counterclaim for their payments of back taxes for the time the

seller retained ownership of the property. Inland, as plaintiff

and assignee of the seller, stood in the shoes of the seller

regarding the claims of the buyers that the back taxes on the

property encumbered the title the buyers obtained from the

seller. Inland, 127 Ill. App. 3d at 541-42, citing King v.

Harpster, 306 Ill. 202, 209, 137 N.E. 823 (1922), and Miller v.

Frederick's Brewing Co., 405 Ill. 591, 596, 92 N.E. 108 (1950). 

The guarantee in Inland to convey clear title bears no

resemblance to an indemnification title insurance policy

protecting buyers against unknown defects in title as of the date

of its issuance.

Nor are we persuaded that the dictum in the Inland decision,

that the "unexercised authority" of a county assessor to charge

unassessed taxes constitutes an "incumbrance" prior to the tax

lien that arises when omitted taxes are levied, should be

extended to the use of "encumbrance" in a title insurance policy. 

The dissent questions our determination that the "unexercised

authority" language is dictum. Slip op. at 30. The holding of

Inland is that a material question of fact mandated further

proceedings in the circuit court. The characterization of the
1-09-1216

16

"unexercised authority" on the part of the collector regarding

the unassessed taxes as an "incumbrance" was unnecessary for this

court's remand of the matter to the circuit court. The Inland

court itself noted that if, on remand, the claim of the county

defendants for back taxes was determined to be an "[un]lawful

claim" against the original buyers, then the property was not

encumbered at the time of sale. Inland, 127 Ill. App. 3d at 541. 

Hence, whether the "unexercised authority" of the county

defendants constituted an encumbrance would turn on the

lawfulness, or not, of the claim for unassessed taxes upon

remand; the "unexercised authority" language in the Inland

decision was obiter dictum. See Excelon Corp. v. Department of

Revenue, 234 Ill. 2d 266, 277, 917 N.E.2d 899 (2009) (" 'A dictum

is "any statement made by a court for use in argument,

illustration, analogy or suggestion. It is a remark, an aside,

concerning some rule of law or legal proposition that is not

necessarily essential to the decision" ' "), quoting United

States v. Crawley, 837 F.2d 291, 292, (7th Cir. 1988), quoting

Stover v. Stover, 60 Md. App. 470, 476, 483 A.2d 783, 786 (1984). 

Consistent with our view is the absence of cited authority

following the "unexercised authority" language in Inland. 

Because the question pending before the Inland court was a

narrow one, which mandated a remand, we are unpersuaded that its
1-09-1216

17

language should reach beyond its facts. See Temesvary v. Houdek,

301 Ill. App. 3d 560, 567, 703 N.E.2d 613 (1998) ("the statements

contained in [cited] cases limiting the authority of the trial

court to reduce the amount of a lien are dicta insofar as the

present case is concerned and are not binding on the decision we

reach on the issue before us in this case"). 

The Rhones' reliance upon McLaughlin v. Attorneys' Title

Guaranty Fund, Inc., 61 Ill. App. 3d 911, 378 N.E.2d 355 (1978),

is also misplaced, though the case provides guidance on the duty

of a title insurer to discover a lien. In McLaughlin, Minnie

Witte Knuppel granted the plaintiffs an option to purchase

certain property she owned upon her death. McLaughlin, 61 Ill.

App. 3d at 913. Following Ms. Knuppel's death, the plaintiffs

exercised the option. Pursuant to court order, the estate, at

its expense, retained the defendant to issue a policy of title

insurance. McLaughlin, 61 Ill. App. 3d at 913. When inheritance

taxes were later charged against the plaintiffs, they filed suit

against the defendant, "alleging a defect in title which was

covered by the policy." McLaughlin, 61 Ill. App. 3d at 914. The

judgment in the plaintiffs' favor after a bench trial was upheld. 

McLaughlin, 61 Ill. App. 3d at 917. The court of review

determined the title insurer assumed "a duty to search the

records and examine the applicable law before issuing its
1-09-1216

18

commitment or policy." McLaughlin, 61 Ill. App. 3d at 916. 

"[T]he failure of the defendant to specify the inheritance tax as

an exclusion to the coverage of the policy [left] the defendant

open to liability for the undiscovered defect in title." 

McLaughlin, 61 Ill. App. 3d at 916.

We agree with the holding in McLaughlin that a title insurer

has a duty to search the public records and, when presented with

a request for a title insurance policy by an estate, the issuer

of the policy must take note that a "distribution out of *** [an]

estate" may trigger an inheritance tax. McLaughlin, 61 Ill. App.

3d at 913. As the McLaughlin court made clear, "The lien for

inheritance tax was determinable by the defendant, and it should

have been determined." (Emphasis added.) McLaughlin, 61 Ill.

App. 3d at 916. 

So too here, had the unassessed taxes given rise to liens at

the time of closing, First American would bear the duty to

discover such liens. However, as we made clear, no liens for

unassessed taxes existed at the time of closing. The McLaughlin

court also expressed that "the lien was not created, suffered or

permitted by the plaintiffs." McLaughlin, 61 Ill. App. 3d at

916. By virtue of their letters to the sellers and the Cook

County assessor, in which they acknowledged the townhome had been

improperly assessed in 2004 and 2005 as vacant land, it is
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19

doubtful that what the McLaughlin court expressed about the

plaintiffs can be said of the Rhones.

In any event, we find McLaughlin to be of no aid to the

Rhones as it involved a defect in title based on the existence of

a lien and no such claim can be made here. We decline the

Rhones' invitation to read McLaughlin to imply a broad duty on

the part of First American to discover not only potential

unassessed taxes, of which the Rhones were admittedly aware, but

also to treat taxes not yet levied as liens that should have been

"determined" by the title insurer.

Rather, we look to cases involving a contest of title

insurance coverage based on a claimed encumbrance to determine

whether the "unexercised authority" of a county assessor to

charge unassessed taxes should give rise to an encumbrance as

that term is used in a title insurance policy. The specific

question before us is whether unassessed property taxes may

constitute an encumbrance prior to the taxes being levied; that

is, whether an encumbrance exists before a lien arises from a tax

levy, as provided by the Tax Code. 

For the reasons we make clear below, in the context of a

title insurance policy, we reject the Rhones' reliance on a broad

use of the term "encumbrance" to bring their claim regarding

unassessed and unlevied taxes within the title policy. We hold
1-09-1216

20

that by operation of the Tax Code, the bills regarding the

unassessed taxes acquired status as tax liens on January 1, 2008. 

The additional tax bills for 2004 and 2005, based on the 2007

reassessment of the property as improved, could not constitute an

encumbrance on the title by way of any "unexercised authority" of

the Cook County assessor on or before August 31, 2006. To hold

otherwise would so enlarge the term "encumbrance" to make it

virtually impossible to determine whether an encumbrance exists

at the time a title insurance policy is issued. 

While we do not find any Illinois cases that address the

precise issue before us, courts in other states have rejected

similar claims seeking indemnification for unassessed taxes under

title insurance policies. See Butcher v. Burton Abstract Title

Co., 52 Mich. App. 98, 216 N.W.2d 434 (1974); Edwards v. St. Paul

Title Insurance Co., 39 Colo. App. 235, 563 P.2d 979 (1977). 

Although the decisions of foreign courts are not binding, "the

use of foreign decisions as persuasive authority is appropriate

where Illinois authority on point is lacking or absent." Carroll

v. Curry, 392 Ill. App. 3d 511, 517, 912 N.E.2d 272 (2009); see

also People v. $111,900, United States Currency, 366 Ill. App. 3d

21, 30, 851 N.E.2d 813 (2006) (in the absence of Illinois cases

setting forth guidelines to analyze the issue in the case, "cases

from other jurisdictions [are] instructive"). 
1-09-1216

21

In the Michigan case, the defendant issued a title insurance

policy on property the plaintiffs purchased in 1966. Butcher, 52

Mich. App. at 99, 216 N.W.2d at 434. The policy covered any 

" 'failure or unmarketability of the title *** excepting only

such liens, incumbrances and other matters as set forth' "

elsewhere in the policy. Butcher, 52 Mich. App. at 99, 216

N.W.2d at 434. Fourteen months after the policy was issued, the

plaintiffs were billed by their township for several ad valorem

taxes and a special assessment. The plaintiffs filed suit

contesting the charges and made a demand under the title policy

that the defendant enter the litigation initiated by the

plaintiffs "and defend their property against the alleged

encumbrances not excepted by the policy." Butcher, 52 Mich. App.

at 101, 216 N.W.2d at 435. The Michigan court determined the

question before it to be "whether the charges placed against

plaintiffs' property by the township *** constitute encumbrances

within the meaning of that term as used in the title insurance

policy contract." Butcher, 52 Mich. App. at 101, 216 N.W.2d at

435-36. 

The Butcher court held that the charges did not constitute

an encumbrance at the time the title insurance policy was issued

and hence were not covered by it. Butcher, 52 Mich. App. at 102,

216 N.W.2d at 436. "Granting that the broadest definition of the
1-09-1216

22

word 'encumbrance' might include prospective charges, the general

rule is that a special assessment does not become an encumbrance

until it has achieved lien status. [Citations.] Furthermore, ad

valorem taxes not yet due are not liens or encumbrances within

the meaning of a title insurance policy." Butcher, 52 Mich. App.

at 101-02, 216 N.W.2d at 436. The Michigan court quoted language

from a New York case: 

" 'Title insurance operates to protect a

purchaser or a mortgagee against defects in

or incumbrances on a title existing at the

date of such insurance. It is not

prospective in its operation and has no

relation to liens or requirements arising

thereafter.

It follows, we think, that [the title

insurance company] no more agreed with

plaintiff to protect him against liability

for the unpaid assessment in question than it

undertook to indemnify him for taxes to be

levied against the premises after delivery of

its certificate of title insurance.' " 

Butcher, 52 Mich. App. at 101, 216 N.W.2d at

436, quoting Mayers v. Van Schaick, 268 N.Y.
1-09-1216

23

320, 323-24, 197 N.E. 296, 297-98 (1935). 

Consistent with the New York case, the Butcher court concluded,

"Since none of the charges *** were either due or liens at the

date of the issuance of the title insurance policy, they do not

constitute liens or encumbrances within *** the policy terms." 

Butcher, 52 Mich. App. at 101, 216 N.W.2d at 436.

In the Colorado case, the plaintiff obtained a title

insurance policy from the defendant covering " '[a]ny defect in

or lien or encumbrance on the title' " as of the date the

plaintiff purchased the subject property in 1967. Edwards, 39

Colo. App. at 236, 563 P.2d at 980. In 1969 and 1970, a water

and sanitation district levied ad valorem taxes against the

property. Edwards, 39 Colo. App. at 236, 563 P.2d at 980. The

plaintiff filed suit, contending the "assessment for district

taxes was a 'defect in or lien or encumbrance on the title' "

rendering the defendants liable under the policy. Edwards, 39

Colo. App. at 236, 563 P.2d at 980.

The Colorado Court of Appeals found no basis to hold the

title insurer liable. Edwards, 39 Colo. App. at 237, 563 P.2d at

980. The court reasoned that "in 1967, when [the plaintiff]

purchased [the] property and the policy was issued, there were no

district taxes or assessments due or payable or certified to the

treasurer's office, and thus there was obviously no lien against
1-09-1216

24

the property for such taxes." Edwards, 39 Colo. App. at 237, 563

P.2d at 980. Those taxes, which were "certified and levied two

years after the date of the policy," did not fall within its

coverage because "the mere existence of the [water and

sanitation] district and the prospect of taxes in the future was

not a lien, encumbrance, or defect as of the date of issuance of

the policy." Edwards, 39 Colo. App. at 237, 563 P.2d at 980. 

The court expressly noted that the title insurance company "did

not contract to indemnify [the plaintiff] against loss due to

district taxes or assessments to be levied against his property

after the date of the policy." Edwards, 39 Colo. App. at 237,

563 P.2d at 981. The court affirmed summary judgment in the

title insurer's favor.

Against these cited authorities, the Rhones present us with

no authority addressing the scope of the term encumbrance in a

title insurance policy, which supports their position. We agree

with the assertions in both the Butcher and Edwards decisions:

although the term "encumbrance" includes a tax lien, it does not

include the mere prospect of future taxes. Butcher, 52 Mich.

App. at 102, 216 N.W.2d at 436; Edwards, 39 Colo. App. at 237,

563 P.2d at 980.

A property tax bill arising from a reassessment is a tax

lien in the year the tax is levied pursuant to the Tax Code; the
1-09-1216

25

previously unassessed taxes do not constitute an encumbrance

prior to acquiring the status of a tax lien. In other words, the

prospect of a future tax lien does not give rise to an

encumbrance on the title before the tax is levied. Butcher, 52

Mich. App. at 101-02, 216 N.W.2d at 436. To be clear, unassessed

property taxes cannot constitute an encumbrance on title at any

point before the tax is levied pursuant to statute, at which

point the tax constitutes both a lien and an encumbrance, as each

term is used in a title insurance policy. Put another way, a

title insurance policy " 'operates to protect *** against defects

in or incumbrances on a title existing at the date of such

insurance.' " Butcher, 52 Mich. App. at 102, 216 N.W.2d at 436,

quoting Mayers, 268 N.Y. at 323, 197 N.E. at 297.

The Rhones had knowledge that the townhome had been wrongly

assessed as vacant land from 2004 to 2006. They protected

themselves against any additional taxes due in 2006 in the event

of a reassessment of the property as improved land. The Rhones

properly concluded that the sellers should bear their share of

any additional taxes due for 2006 while the sellers were owners. 

It would have been a simple matter to have altered the proration

agreement to include the sellers' liability for additional taxes

based on that very same reassessment for tax years 2004 and 2005

when the sellers resided in the townhome. Yet, inexplicably, the
1-09-1216

26

Rhones did not. To paraphrase the New York case quoted in the

Michigan case, First American no more agreed with the Rhones to

protect them against liability for the unpaid assessment in

question than it undertook to indemnify the Rhones for taxes to

be levied against the premises after delivery of the policy. 

Butcher, 52 Mich. App. at 101, 216 N.W.2d at 436, quoting Mayers,

268 N.Y. at 324, 197 N.E. at 298. Because the unassessed taxes

in this case became liens and encumbrances only after the Rhones'

title insurance policy was issued, the unassessed taxes were not

defects of title covered by the Rhones' title insurance policy.

We hold the unassessed taxes for 2004 and 2005 were neither

liens nor encumbrances on or before August 31, 2006, when the

title insurance policy was issued. Therefore, First American

cannot be held liable for their payment. Based on our holding,

we do not address First American's fallback contention that the

unassessed taxes are excluded from coverage by any of the special

exclusions or exceptions of the policy.

Special Damages

Because we hold that the potential unassessed taxes did not

constitute a covered encumbrance under the Rhones' title

insurance policy, the Rhones' claim does not fall within the

policy. Where the policy is not triggered, there can be no

finding that the insurer acted vexatiously and unreasonably in
1-09-1216

27

denying the claim. Westchester Fire Insurance Co. v. G. Heileman

Brewing Co., 321 Ill. App. 3d 622, 638, 747 N.E.2d 955 (2001). 

We affirm summary judgment on count II, seeking special damages

against First American.

CONCLUSION

First American issued an insurance policy to the Rhones that

covered "[a]ny defect in or lien or encumbrance on the title" to

the townhome as of the date it was issued, August 31, 2006. It

was not until the Rhones were billed in February 2008 for the

omitted assessment taxes covering tax years 2004 and 2005, that

the unassessed taxes obtained lien status by operation of the Tax

Code. No separate and distinct encumbrance arose based on the

unassessed taxes prior to the issuance of the tax bill due in

2008. The unassessed taxes were not covered by the Rhones' 2006

title insurance policy. We affirm Judge Riley's summary judgment

order in all respects.

Affirmed.

PATTI, J., concurs.

LAMPKIN, J., concurs in part and dissents in part.
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28

JUSTICE LAMPKIN, concurring in part and dissenting in part:

I agree, but for different reasons, that the circuit court

correctly granted summary judgment in favor of First American on

the Rhones' claim for special damages under section 155 of the

Illinois Insurance Code (215 ILCS 5/155 (West 2008)). However, I

disagree with the majority's conclusion that the unassessed

property taxes for the years 2004 and 2005 did not constitute

encumbrances until the tax bills were issued in 2008. In my

view, the majority fails to decide this dispute according to the

terms of the parties' contract, i.e., the title insurance policy,

and then misapplies Illinois precedent concerning what

constitutes an encumbrance. The interpretation of the terms of

that contract, rather than the Property Tax Code (Tax Code) (35

ILCS 200/1-1 et seq. (West 2008)), should determine the outcome

of this dispute. I conclude that the title insurance policy

issued to the Rhones covers the 2004 and 2005 back taxes, which

constituted encumbrances when the policy was issued. 

There is no dispute that, prior to the real estate closing

on August 31, 2006, both the buyers and sellers had notice that

the condominium was improperly assessed and being taxed as vacant

land. Specifically, on August 14, 2006, the Rhones, through

their attorney, wrote the sellers' attorney, Kent Novit, who also

served as First American's issuing agent for the title insurance
1-09-1216

29

policy issued to the Rhones. The Rhones requested several

modifications to the parties' real estate sales contract. The

Rhones asked, inter alia, that paragraph 5 concerning the deed be

modified to strike language allowing the sellers to deliver a

warranty deed subject to any "special taxes or assessments." The

Rhones requested that the "deed should also be subject to real

estate taxes for only 2006 taxes, not 2003 and subsequent years." 

Furthermore, the Rhones attached a data sheet from the Cook

County assessor's Web site, which showed the condominium was

being taxed as vacant land and a neighboring, comparable property

was correctly assessed in 2005 for nearly $9,000 more in property

taxes. The Rhones suggested that the tax proration be based upon

110% of the most recent ascertainable tax bill for a correctly

taxed neighboring unit of comparable value. 

At the real estate closing, the Rhones and the sellers

entered into a tax reproration agreement that addressed the 2006

taxes only; it did not address the potential back taxes or any

other taxes for any year before 2006. Under that agreement, if

the condominium was assessed as vacant property for the 2006 tax

year, the Rhones would pay the tax bill but Novit would hold

$10,000 from the sellers in escrow. If the property was

reassessed properly as improved property before March 31, 2008,

the escrow would be applied toward any additional taxes for 2006. 
1-09-1216

30

The First American title insurance policy issued to the

Rhones on August 31, 2006, listed Novit & Novit as the issuing

agent on schedules A and B of the policy. The policy generally

insured the Rhones against losses caused by "[a]ny defect in or

lien or encumbrance on the title," subject to the specified

limitations on coverage. The policy listed five standard

exceptions to coverage, including one noting that the policy

provided no coverage for "[t]axes, or special assessments which

are not shown as existing liens by the public records." First

American, however, signed an endorsement that deleted the five

standard exceptions from the policy.

A special exception stated that the policy did not insure

against loss or damage which arose by reason of "[g]eneral taxes

for the year, [sic] 2006 and subsequent years which are not yet

due and payable." Relevant to this appeal, the policy also

expressly excluded from coverage:

"3. Defects, liens, encumbrances, adverse claims

or other matters:

(a) created, suffered, assumed or agreed to

by the [Rhones];

(b) not known to [First American], not

recorded in the public records at Date of Policy, but

known to the [Rhones] and not disclosed in writing to
1-09-1216

31

[First American] by the [Rhones] prior to the date the

[Rhones] became an insured under this policy;

***

(d) attaching or created subsequent to Date

of Policy."

The majority undertakes a broad analysis that encompasses

issues of statutory interpretation of the Tax Code, the levying

of property taxes, and policy considerations. This case,

however, does not hinge upon the status of back taxes as liens or

encumbrances under the terms of the Tax Code. Rather, the

dispositive issue here is whether the Rhones' claim for back

taxes was covered under the terms of their contract with First

American.

"The interpretation of a party's agreement is a

question of law to be determined by the appellate court

de novo. [Citation.] Whether a contract is clear or

ambiguous also is a question of law for the court. 

[Citation.] When interpreting a contract, the primary

objective is to give effect to the parties' intentions. 

[Citation.] If a contract is clear and unambiguous,

the court must determine the intent of the parties

solely from the plain language of the contract. 

[Citation.] However, where the contract is ambiguous,
1-09-1216

32

evidence outside the document may be considered to

discern the parties' intent. [Citation.] The meaning

of the contract can be determined by the court as a

matter of law if the parties' intent may be determined

from undisputed facts. [Citation.]" C.A.M.

Affiliates, Inc. v. First American Title Insurance Co.,

306 Ill. App. 3d 1015, 1020 (1999). 

Moreover, it has been consistently held that any ambiguity or

inconsistent or conflicting provisions in insurance contracts

must be construed in favor of granting coverage to the insured. 

National Discount Shoes, Inc. v. Royal Globe Insurance Co., 99

Ill. App. 3d 54, 60 (1981).

The content of the contract concerning the standard

exceptions, special exception and exclusions is not ambiguous. 

The plain language of the contract establishes that the Rhones

are covered for encumbrances on the title unless an exception or

exclusion listed in the policy applies. Although the contract

does not define the term encumbrance, this court has recognized

that encumbrances may include broad categories of inchoate rights

that cloud title, including potential back taxes even if they

have not yet obtained statutory lien status. Inland Real Estate

Corp., 127 Ill. App. 3d at 541 (holding that if the assessment of

back taxes was lawful and enforceable, the unexercised authority
1-09-1216

33

of the county assessor to impose back taxes constituted an

encumbrance on the property at the time of transfer). The

majority attempts to detract from Inland's relevance to the

present case by characterizing Inland's holding and analysis as

mere dictum entitled to little weight. Contrary to the

majority’s characterization, Inland's discussion concerning

unassessed back taxes constituting encumbrances was neither

obiter dictum nor judicial dictum because it was necessary to the

decision in the case and therefore precedential. See Lebron v.

Gottlieb Memorial Hospital, Nos. 105741, 105745 cons., slip op.

at 12-13 (Ill. February 4, 2010) (obiter dictum is not essential

to the outcome of the case, not an integral part of the opinion

and generally not binding authority or precedent within the stare

decisis rule; judicial dictum, which is entitled to much weight

and should be followed unless found to be erroneous, expresses an

opinion upon a point in a case argued by counsel and deliberately

passed upon by the court, though not essential to the disposition

of the cause). In Inland, there would have been no reason for

this court to remand the cause for a fact determination on

whether the buyers had notice of the back taxes unless this court

had determined that the county's unexercised authority to impose

the back taxes constituted an encumbrance. Inland Real Estate

Corp., 127 Ill. App. 3d at 541-45. 
1-09-1216

34

The majority also asserts that Inland's holding should not

extend beyond its facts because the question before the Inland

court was a narrow one. According to the majority, the guarantee

in Inland to convey clear title is a far cry from an expressly

limited insurance policy protecting against title risks as of the

date of its issuance. Although I do not agree with the

majority's characterization of Inland, even assuming, arguendo,

that the Inland court addressed a narrow question, the issue here

is certainly narrower where this court is called upon to simply

construe and apply the terms of the parties' contract.

The majority's reliance on foreign precedent is problematic. 

Specifically, the Edwards case from Colorado is readily

distinguishable. In Edwards, the defendant title insurance

company issued a policy in 1967 to the plaintiff property owner

but did not mention that the property was situated within a water

and sanitation district (district), which had been formed in

1965. Edwards, 39 Colo. App. at 236, 563 P.2d at 980. The

district first levied ad valorem taxes against the owner's

property in 1969 and 1970, and the owner sued the title insurance

company, claiming that inclusion in the district and the

consequent taxes was a defect in or lien or encumbrance on the

title. Edwards, 39 Colo. App. at 236, 563 P.2d at 980. The

court found no basis for liability because there were no district
1-09-1216

35

taxes or assessments due or payable when the policy was issued. 

Edwards, 39 Colo. App. at 236, 563 P.2d at 980. The court

reasoned that "the mere existence of the district and the

prospect of taxes in the future" was not an encumbrance, and

there was "nothing in the record to show any foreseeable

challenge" to the owner's title. Edwards, 39 Colo. App. at 237,

563 P.2d at 980-81. Here, in contrast, the Rhones' claim under

their policy did not involve the mere prospect of future taxes

being levied by a taxing authority. Rather, the Rhones' claim

involved back taxes, and the public records revealed that those

back taxes were a foreseeable encumbrance on the Rhones' title. 

I do not find the majority's reliance on the Butcher case

from Michigan to be persuasive. The Butcher court referred to

the trial court's "thorough, scholarly, 17-page opinion," and

agreed with its decision to grant the title insurance company's

motion for summary judgment. Butcher, 52 Mich. App. at 101, 216

N.W.2d at 436. The Butcher court then characterized the

plaintiffs' claims of encumbrances on their title "as either

special assessments (the connection charges and possibly the ad

valorem sewer taxes) or prospective general ad valorem taxes (the

school taxes and the ad valorem sewer taxes)." Butcher, 52

Mich. App. at 101, 216 N.W.2d at 436. The Butcher court

summarily concludes that "a special assessment does not become an
1-09-1216

36

encumbrance until it has achieved lien status," and "ad valorem

taxes not yet due are not *** encumbrances within the meaning of

a title insurance policy" (Butcher, 52 Mich. App. at 101-02, 216

N.W.2d at 436), but the court offers sparse analysis to support

those conclusions. I see no reason to abandon this court's more

recent and thorough analysis in Inland for that of Butcher. 

Inland is relevant to the present case. Just as the seller

in Inland promised to convey title to the property free and clear

of all encumbrances (Inland Real Estate Corp., 127 Ill. App. 3d

at 537), First American's title insurance policy assured the

Rhones that the condominium was free from any "encumbrance on the

title." Although the promise in Inland arose in the context of a

warranty deed, whereas the promise here arose in the context of

title insurance, both related to an encumbrance on title. There

is no valid reason to apply a different definition of the term 

encumbrance to real estate sales contracts versus contracts for

title insurance. In each case, the property was transferred in

reliance upon a promise that there were no clouds upon title

despite the fact that the county tax assessor maintained the

unexercised authority to impose back taxes based upon previously

omitted assessments. Inland Real Estate Corp., 127 Ill. App. 3d

at 541. Although those back taxes were not levied against the

buyers in each case for several years, that unexercised authority
1-09-1216

37

" 'diminishe[d] the value' " of the property and, if the taxes

could validly be assessed against the buyers, constituted an

encumbrance on title. Village of Buffalo, 180 Ill. App. 3d at

597, quoting Monti, 99 Ill. App. 3d at 581. The record

establishes and the majority acknowledges that the taxes for 2004

and 2005 could validly be assessed against the Rhones because

they had notice when they purchased the condominium that it was

improperly assessed in those years as vacant property.

The majority speculates that the Rhones' knowledge of the

possibility of back taxing for 2004 and 2005 "spurred" them to

enter into the tax reproration agreement with the sellers, yet

the majority wonders why the Rhones "inexplicably" did not

require the sellers to escrow additional money to cover the 2004

and 2005 taxes in addition to the 2006 taxes. The majority,

however, overlooks the fact that this condominium sale was

accomplished not only by utilizing the tax reproration agreement

to cover the future bill for the 2006 taxes, but also by

obtaining a title insurance policy that waived its exclusions for

the back taxes. The record indicates that any concerns about the

possibility of back taxes for 2004 and 2005 were addressed by

First American's endorsement of the provision that deleted the

standard exception for taxes and special assessments not shown as

existing liens by the public records.
1-09-1216

38

The Rhones have explained that the reproration agreement

addressed only the 2006 taxes because those taxes were

straightforward. Moreover, the Rhones thought they would be

considered good-faith purchasers under section 9-270 of the Tax

Code (35 ILCS 200/9-270 (West 2008)) and, thus, not subject to

any back taxes. It was not until the Rhones contacted the

assessor after the closing (so that their future property taxes

would be properly assessed) that they learned the assessor relied

on Inland for the proposition that a purchaser's notice of an

improper assessment constituted notice of the tax. 

Furthermore, the Rhones had requested modifications to the

terms of the parties' sales contract so that the sellers would

convey title subject to taxes for only 2006 and subsequent years. 

The sellers came to the closing with a title insurance policy

that (1) deleted the exception for taxes not shown as existing

liens by the public records, and (2) limited the special

exception for general taxes to the year 2006 and thereafter. The

Rhones reasonably relied on those provisions in the title

insurance policy as evidence that First American accepted the

risk of the possibility of back taxes by insuring over that

defect in title.

Because the back taxes were an encumbrance on title when the

policy was issued, it is necessary to address First American's
1-09-1216

39

arguments that the policy’s terms specifically excluded such

taxes from coverage.

Initially, First American contends the potential back taxes

were not covered because the policy listed a special exception,

which noted that it did not insure against a loss or damage which

arose by reason of "[g]eneral taxes for the year, [sic] 2006 and

subsequent years which are not yet due and payable." First

American's argument lacks merit because the timing of the levying

of the taxes by the assessor is not relevant to this exception as

drafted in the parties' contract. Although the taxes at issue

here were not due and payable until they were assessed and a tax

bill was issued in 2008, there is a distinction between the year

in which taxes are assessed and the year for which taxes are

assessed. The special exception did not exclude general taxes

that were assessed or levied in 2006 and subsequent years. 

Rather, the plain language of the insurance policy excluded taxes

only for the year 2006 and subsequent years. The back taxes at

issue here definitely were not for 2006 and after because they

were for the years 2004 and 2005. Consequently, the special

exception did not exclude coverage for the back taxes. 

Next, First American contends that exclusion 3(a) in the

policy, which excludes coverage for encumbrances assumed by the

Rhones, applied to the potential back taxes. First American
1-09-1216

40

argues the Rhones assumed the encumbrance because they

voluntarily gave Cook County notice that the property was

improperly taxed as vacant land and then paid the bill for the

2004 and 2005 back taxes. First American asserts the Rhones were

protected from that debt as good-faith purchasers under section

9-270 of the Tax Code (35 ILCS 200/9-270 (West 2008)). This

argument lacks merit. As stated above, the taxes for 2004 and

2005 could validly be assessed against the Rhones because they

had notice when they purchased the condominium that it was

improperly assessed in those years as vacant property. 

Consequently, the Rhones' claim for coverage is not defeated by

exclusion 3(a) of the policy.

Next, First American contends that exclusion 3(b) in the

policy applied to the potential back taxes. Exclusion 3(b)

stated that First American did not provide coverage for defects,

liens or encumbrances "not known to [First American], not

recorded in the public records at Date of Policy, but known to

the [Rhones] and not disclosed in writing to [First American] by

the [Rhones] prior to the date the [Rhones] became an insured

under this policy." This exclusion is not applicable. First

American knew or should have known as much about the tax

discrepancy as the Rhones, who knew the property taxes assessed

on the condominium in the previous years were unusually low for
1-09-1216

41

developed property located in that neighborhood. See Inland Real

Estate Corp., 127 Ill. App. 3d at 546 (abnormally low taxes for

the neighborhood in which a property was located or for the level

of improvement on the property could constitute notice of the

possibility of a back tax); McLaughlin, 61 Ill. App. 3d at 916

(the insurer has a duty to search the records and examine the

applicable law before issuing its commitment or policy, which

must be predicated upon a careful examination of the documentary

evidence of title and the exercise of expert contract

draftsmanship). Furthermore, the tax discrepancy was easily

determinable through the public records where the Cook County

assessor's website revealed that the condominium was assessed as

vacant land. Moreover, the Rhones disclosed the encumbrance to

First American in writing prior to the issuance of the policy

when their attorney sent the August 14, 2006 letter to Novit, who

was First American's issuing agent. See McLaughlin, 61 Ill. App.

3d at 917 (where the commitment for title insurance was issued to

the plaintiffs by the insurer through its agent, notice to the

agent was imputed to an insurer). Because the encumbrance was

disclosed in writing to First American, exclusion 3(b) did not

apply and the potential back taxes were a covered encumbrance.

First American complains the Rhones failed to establish any

agency relationship between Novit and First American because
1-09-1216

42

Novit was never deposed to establish the scope of his authority

and no agency contract between Novit and First American was

submitted into the record. First American's arguments concerning

agency lack merit. 

Notice to or knowledge of an agent, while acting within the

scope of his authority and with respect to a matter over which

his authority extends, is notice to a principal. Mitchell Buick

& Oldsmobile Sales, Inc. v. National Dealer Services, Inc., 138

Ill. App. 3d 574, 582 (1985). The party asserting the agency

relationship has the burden of proving the agency's existence by

a preponderance of the evidence. FDL Foods, Inc. v. Kokesch

Trucking, Inc., 233 Ill. App. 3d 245, 256 (1992). Although the

existence and scope of an agency relationship are generally

questions of fact, a court may decide the issue if the

relationship is so clear as to be undisputed. C.A.M. Affiliates,

Inc., 306 Ill. App. 3d at 1021. An agent's authority may be

either actual or apparent. FDL Foods, Inc., 233 Ill. App. 3d at

256. Whereas actual authority may be granted either expressly or

impliedly (FDL Foods, Inc., 233 Ill. App. 3d at 256), apparent

authority exists in a person who, whether authorized or not,

reasonably appears to third persons, because of the acts of

another, to be authorized to act as the agent for such other

person (Mitchell Buick & Oldsmobile Sales, Inc., 138 Ill. App. 3d
1-09-1216

43

at 582). The authority of an agent, whether actual or apparent,

can only be established by the words or conduct of the alleged

principal, not the alleged agent. First American Title Insurance

Co. v. TCF Bank, F.A., 286 Ill. App. 3d 268, 274 (1997).

First American’s relationship with Novit is so clear that

this court may decide the issue. Title insurance companies

commonly contract with title insurance agents to sell their title

insurance. In this case, the record establishes that the Rhones

reasonably believed Novit possessed apparent authority to act as

First American's agent because First American held itself out to

the public as providing title insurance services through issuing

agents. Here, First American signed the Rhones' title policy,

which listed Novit & Novit as First American's "issuing agent." 

The ordinary meaning of the words "issuing agent" reasonably

conveyed to the Rhones that First American had authorized Novit

as its agent to issue title insurance policies on its behalf. 

Furthermore, the record indicates that the only contact the

Rhones or their attorney had with First American prior to

issuance of the title insurance policy was through First

American's issuing agent Novit. Consequently, notice to Novit

was notice to First American, and the Rhones therefore gave

notice to First American prior to the closing about the omitted

taxes for 2004 and 2005. 
1-09-1216

44

Finally, First American contends exclusion 3(d) applied to

the potential back taxes. Exclusion 3(d) stated that the policy

did not apply to defects, liens or encumbrances "attaching or

created subsequent to Date of Policy." First American reiterates

the argument that the back taxes did not become a statutory lien

until they were included in the 2008 tax bill, which was well

after the policy was issued in 2006. However, as explained

above, Inland, which is relevant precedent here, held that the

potential for the county assessor to impose a lawful claim for

back taxes constituted an encumbrance on the property "at the

time of transfer" from the seller to the buyer. Inland Real

Estate Corp., 127 Ill. App. 3d at 541. The insurance policy

therefore covered that encumbrance, and exclusion 3(d) did not

apply.

Because the potential back taxes constituted a covered

encumbrance under the Rhones' title insurance policy, I would

reverse the circuit court's grant of summary judgment on count I

in First American's favor and remand with directions to enter

summary judgment for the Rhones on that count. First American

complains this decision would chill sales because title insurers

would be forced to conduct open-ended searches to discover any

potential property tax that could ever be assessed. I disagree. 

If First American wished to place the burden of potential back
1-09-1216

45

taxes on the Rhones, it simply should have refrained from

endorsing away the standard exception that excluded taxes or

special assessments that are not shown as existing liens by the

public records. Alternatively, First American could have

modified the policy's terms to exclude coverage for potential

back taxes when it learned that the condominium was improperly

assessed for years prior to closing. Such precautionary steps

are not so onerous as to chill the issuance of title insurance

policies or the sale of real estate.

Although I would reverse the circuit court's order

concerning count I, I would affirm the circuit court's order in

favor of First American on count II of the Rhones' complaint. In

count II, the Rhones argued they were entitled to special damages

under section 155 of the Illinois Insurance Code (215 ILCS 5/155

(West 2008)) because First American's denial of their claim under

their title insurance policy was vexatious and unreasonable. 

Although the granting of section 155 attorney fees and

penalties is usually entrusted to the sound discretion of the

trial court (Meier v. Aetna Life & Casualty Standard Fire

Insurance Co., 149 Ill. App. 3d 932, 940 (1986)), the awarding of

section 155 fees and penalties as a judgment on the pleadings is

reviewed de novo (Employers Insurance of Wausau v. Ehlco

Liquidating Trust, 186 Ill. 2d 127, 160 (1999)). 
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The question of whether the insurer's acts are unreasonable

and vexatious is one of fact. Green v. International Insurance

Co., 238 Ill. App. 3d 929, 935 (1992). A court may award

reasonable attorney fees and other costs for a vexatious and

unreasonable action by a company where there is an issue of the

liability of a company on an insurance policy or the amount of

the loss payable thereunder, or for an unreasonable delay in

settling a claim. 215 ILCS 5/155 (West 2008). A court should

consider the totality of the circumstances when deciding whether

an insurer's conduct is vexatious and unreasonable, including the

insurer's attitude, whether the insured was forced to sue to

recover, and whether the insured was deprived of the use of his

property. McGee v. State Farm Fire & Casualty Co., 315 Ill. App.

3d 673, 681 (2000). If a bona fide coverage dispute exists, an

insurer's delay in settling a claim will not be deemed vexatious

or unreasonable for purposes of section 155 sanctions. Baxter

International, Inc. v. American Guarantee & Liability Insurance

Co., 369 Ill. App. 3d 700, 710 (2006).

Section 155 fees are not automatically awarded simply

because an insurer fails to prove its coverage position. Mohr v.

Dix Mutual County Fire Insurance Co., 143 Ill. App. 3d 989, 999

(1986). The record here is silent on the circuit court's

specific findings concerning the Rhones' claim for section 155
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fees. Nevertheless, the Rhones have not met their burden to

prove that First American acted with improper intent in refusing

payment, and the record indicates that First American did have a

bona fide coverage dispute. In considering the totality of the

circumstances, the court could reasonably conclude that First

American's denial of the Rhones' claim was not unreasonable or

vexatious.
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REPORTER OF DECISIONS - ILLINOIS APPELLATE COURT

______________________________________________________________________

RAY H. RHONE and DENISE RHONE, 

Plaintiffs-Appellants, 

v. 

FIRST AMERICAN TITLE INSURANCE CO.,

a California Corporation,

Defendant-Appellee.

________________________________________________________________

 No. 1-09-1216

 Appellate Court of Illinois

First District, First Division

Filed: May 17, 2010 

_________________________________________________________________

JUSTICE GARCIA delivered the opinion of the court.

PATTI, J., concurs.

LAMPKIN, J., concurs in part and dissents in part.

_________________________________________________________________

Appeal from the Circuit Court of Cook County

Honorable Daniel A. Riley, Judge Presiding

_________________________________________________________________

For PLAINTIFFS- Michael J. Sreenan

APPELLANTS 853 North Elston Avenue

Chicago, Illinois 60622

For DEFENDANT- Jeffrey D. Corso

APPELLEE Cooney & Corso, LLC

4925 Indiana Avenue, Suite 101

Lisle, Illinois 60532
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