Court Opinion

ID: 9477282
Source: CourtListenerOpinion
Date Created: 2023-08-05 06:19:09.991811+00
Date Added: 2024-06-11T17:45:47.614548
License: Public Domain

COFFEY, Circuit Judge,
dissenting.
In failing to accord the proper construction, much less a reasonable interpretation, to an unambiguous provision in a contract of title insurance, the majority’s decision refuses to allow the insurer to remove a defect in the title, thus rendering the lien against the mortgage unenforceable, as explicitly set forth in the language of the policy. Neither the majority nor the parties to this suit have cited any Illinois case that addresses the question: whether a policy of title insurance providing that “no claim shall arise or be maintainable under this policy (a) if the company after having received notice of the alleged defect ... removes such defect ... or establishes the title, or the lien of the insured mortgage ... within a reasonable time after receipt of such notice ...” (Policy, paragraph sev*532en) gives the insurer the right to clear the insured’s title by delivering to the insured a valid deed to the subject real estate. The majority fails to rely, as it must, on principles recognized by Illinois courts when interpreting the provisions of an insurance policy. Rather, the majority reaches out to gain support for its theory of law that the parties’ intent can be found outside the language of an unambiguous contract, a theory that runs squarely counter to this court’s decision in Sunstream Jet Express, Inc. v. Int’l Air Service Co., 734 F.2d 1258, 1267-68 (7th Cir.1984), holding that where a contract is unambiguous, Illinois courts do not allow the trier of fact to consider extrinsic and parole evidence to determine the parties’ intent. In support of the majority’s novel theory, they delve into the treacherous valley of speculation and state that the parties would not have intended to allow Citicorp to exercise its rights under an unambiguous insurance provision to remove the defect in title in issue here. Because proper application of the principles governing contract interpretation, including those of insurance contracts, leads me to a contrary result, I respectfully dissent.
I set forth only those facts necessary to explain my reasoning. One Charles Robinson (adjudicated incompetent and appointed a guardian on May 7, 1953) purchased real estate from James D. Haggerty & Co. in May, 1979 (without Haggerty’s knowledge of Robinson’s incompetency) and executed a mortgage in favor of Haggerty to secure the majority of the purchase price.1 Stewart Title, the insurer, issued a policy of title insurance to Haggerty, who in turn assigned the policy and the mortgage to a predecessor of the plaintiff, Citicorp. After Citicorp was notified of Robinson’s incompetency at the time he purchased the real estate, Citicorp made a claim under the policy, alleging that his lien on the real estate was unenforceable due to Robinson’s mental incompetency. Subsequently, in an attempt to clear any questionable title and ensure the enforceability of Citicorp’s lien, Stewart Title and Robinson’s guardian arranged for a court-approved transfer of title by quitclaim deed to Stewart Title. Citicorp refused to accept Stewart Title’s tender of the deed to Citicorp, saying that the tender was not a valid option under the policy, as the policy failed to specifically provide for this method of removing a defect in title, and alleging that it was entitled to $27,000 damages due to the unen-forceability of the mortgage lien against Robinson.2 The trial judge granted summary judgment in favor of Stewart Title, finding that in tendering a valid quitclaim deed to Citicorp, Stewart Title properly exercised its rights under the policy to “establish[ ] the lien of the insured mortgage.”
Reversing the trial judge’s grant of summary judgment to Stewart Title, the majority asserts that “[tjhis case presents one disputed issue of fact — whether the guardian ratified Robinson’s agreement [when it transferred title by quitclaim deed to Stewart Title] — but that issue is not material to the outcome [in light of the majority’s construction of the insurance policy as prohibiting Stewart Title’s attempt to cure the defect in the mortgage lien].”3 The major*533ity goes on to note that the most difficult question in this case is “whether tendering the deed [to Citicorp] established] ... the lien of the insured mortgage, as insured ...,” thus barring Stewart Title’s liability. In its analysis, the majority properly recognizes that “[a]s a practical matter, the policy was intended to ensure that, if Citicorp needed to foreclose on the mortgage, it would be able to do so.” Nevertheless, based on an assumption without factual basis in the record to support their speculative theory that the parties would not have intended to allow Stewart Title to correct a voidable mortgage, the majority rejects Stewart Title’s contention that because Stewart Title cleared title to the real estate and tendered it to Citicorp (thus affording Citicorp the ability to foreclose on its mortgage), it “established ... the lien of the insured mortgage.” Rather, for reasons unrelated to the interpretation of the language of the contract, the majority concludes that the policy was “irrevocably breached and the loss incurred as soon as Citicorp loaned Robinson the money.”
The most obvious flaw in the court’s reasoning is its failure to apply the traditional and accepted principles of insurance and contract law in analyzing the effect of paragraph seven of the policy. Paragraph seven provides:
“7. Limitation of Liability.
No claim shall arise or be maintainable under this policy (a) if the company after having received notice of the alleged defect, lien or encumbrance, insured against hereunder, by litigation or otherwise, removes such defect, lien or encumbrance or establishes the title, or the lien of the insured mortgage, as insured, within a reasonable time after receipt of such notice....”
(Emphasis added). As a general proposition, any ambiguities in an insurance policy should be resolved against the drafter of the instrument, the insurer, and in favor of the insured. Heller v. Equitable Life Assurance Society, 833 F.2d 1253, 1256 (7th Cir.1987); United States Fire Insurance Company v. Schnackenberg, 88 Ill.2d 1, 4, 57 Ill.Dec. 840, 429 N.E.2d 1203 (1981). Secondly, insurance policy “[exceptions to liability must be expressed in unequivocal language so that it is reasonable to assume the insured understood and accepted these limitations.” Garman v. New York Life Insurance Company, 501 F.Supp. 51, 52 (N.D.Ill.1980) (citing Michigan Mutual Liability Company v. Hoover Brothers Inc., 96 Ill.App.2d 238, 237 N.E.2d 754 (1968)). However, “insurance policies must be read as a whole, and so far as possible, giving effect to every part of the policy.” Myers v. Merrimack Mutual Fire Insurance Company, 788 F.2d 468, 471 (7th Cir.1986) (citing Chicago Board Options Exchange Inc. v. Connecticut General Life Insurance Company, 713 F.2d 254, 258 (7th Cir.1983)). And “a court must not ‘bend the language of a contract to create an ambiguity where none exists.’ ” Id. (quoting Chicago Board, 713 F.2d at 258). As this court recently expressed in National Fidelity Life Insurance Company v. Karaganis, 811 F.2d 357, 361 (7th Cir.1987), “[u]nder Illinois law, an insurance policy that contains no ambiguity is to be construed according to the plain and ordinary meaning of its terms, just as would any other contract.” See also Sunstream Jet Express, Inc. v. Int’l Air Service Co., 734 F.2d 1258 (7th Cir.1984).
The majority, sidestepping the well-established principle that an unambiguous policy of insurance must be interpreted according to the plain and ordinary meaning of its terms, fails to point to any ambiguity in the terms of paragraph seven. See, supra, at 533. After failing to discover any ambiguity in the language of this provision of the contract, the court should have applied the ordinary, intended and accepted meaning of paragraph seven to the fact situation at hand. I am convinced that had it done so, the only logical conclu*534sion to be drawn from paragraph seven is that in tendering a valid quitclaim deed to the subject real estate to Citicorp, Stewart Title merely exercised its rights under the policy to clear the title to the real estate and “establish [] the lien of the insured mortgage.” Not only does this construction comport with the very language of paragraph seven, but it also fulfills the clear intent and purpose of the parties as expressed in the language of paragraph seven: namely, to guarantee Citicorp’s ability to foreclose on its mortgage. When Stewart Title delivered a valid deed to the real estate to Citicorp, Stewart Title ensured that Citicorp retained the legal right it was entitled to under a legally enforceable mortgage (i.e., the right to foreclose). The majority itself recognizes that preserving Citicorp’s right to foreclose in the event of default was the purpose of the policy as a whole; its failure to countenance this result manifests plain disregard for the policy as a whole.
The majority’s conclusion appears to be based not on an interpretation of the insurance contract, but on the unsupported theory and supposition that (1) due to Robinson’s incompetency, Stewart Title irrevocably breached the contract “as soon as Citi-corp loaned Robinson the money,” and (2) that this breach was so critical to the parties’ agreement that the parties would not have intended to allow the use of paragraph seven to cure the title defect. But this is not what the clear and unambiguous language of the policy states; thus, it could not be what the parties intended. On its face, paragraph seven applies to any title defect capable of being cured (as the majority admits, the mortgage was not wholly void ab initio and was therefore capable of being cured; see supra, note 1), so as to afford the insured his full right to foreclose on the real estate. Because Stewart Title properly invoked its right under paragraph seven to take steps to ensure Citi-corp’s ability to foreclose on the mortgage, neither Citicorp nor the majority may rewrite the insurance policy to guarantee full payment of Robinson’s debt to Citicorp. An analogous Pennsylvania case makes this precise point:
“The theory of the trial court, and the contention of the respondents as well, fails to take into account the contract in its entirety, and by thus disregarding the rights of the title company under the terms of the contract, assumes that the title company breached the contract as of the day the insurance policy was issued and that therefore and on said date was liable in damages for the difference between the value of the land with a marketable title and its value with an unmarketable title. Such a theory is obviously unsound for the reason that it forecloses the title company, if it elects so to do from exercising its right, according to the terms of the policy, to clear the title. Manifestly, the insurance policy must be construed in its entirety, and it was as much the right of the insurance company to perform the contract according to its terms as it was the right of the assured to expect payment in the event of a failure upon the part of the title company so to do.”
Sala v. Security Title Insurance & Guaranty Company, 81 P.2d 578, 583, 27 Cal.App.2d 693 (1938) (cited in 9 J.A. Appleman and J. Appleman, Insurance Law & Practice, § 5214 (1981)) (emphasis added).
The court’s opinion today fails to set fcrth any reasoned explanation for its deviation from well-established principles governing the interpretation of insurance contracts, and will thus cause confusion for the trial courts in their attempt to apply consistent principles to contract interpretation problems. See Sunstream Jet Express, Inc., 734 F.2d 1258. In doing so, the court has taken an ill-advised step of usurping the authority of the private contract, and through an act of judicial activism, in effect rewrites an otherwise clear and unambiguous policy of insurance. Because a proper and restrained application of traditional principles of insurance contract construction leads me to the conclusion that Stewart Title has the right under paragraph seven of the policy to attempt to cure the title defect in issue, I would remand to the district court for its consideration of the sole remaining issue: whether, *535under Illinois law, the guardian’s participation in the transfer of title to Stewart Title (or any other action on the part of the guardian) amounted to a ratification of Robinson’s contract with Haggerty, thus clearing title to the subject real estate.
For the reasons stated above, I am forced to dissent.

. Robinson’s guardian was not a party to this transaction.

. Throughout these proceedings, Citicorp has consistently maintained the position that Robinson's contract with Haggerty was void from its inception due to Robinson’s incompetency, thereby rendering the mortgage lien unenforceable and incapable of being cured. As the majority points out, however, under Illinois law the contract was "voidable," meaning that the guardian of the incompetent person, once he gains knowledge of the transaction, may either enforce or reject the contract. Ill.Rev.Stat. Ch. 1101/2 ¶ 1 la-22 (1985).

. Despite purporting not to decide the issue, the majority opinion notes in dicta that:
“In addition, the trustee may, with court approval, ‘execute and deliver any bill of sale, deed or other instrument.’ Ill.Rev.Stat. ch. 110'/2, para. lla-18(b) (1985). That action, distinct from ratification of the contract, was taken by the guardian here in order to transfer the property to Stewart Title. We need not decide whether that action constituted a decision to affirm the validity of the mortgage, although we note that the guardian stated the contract was ‘void,’ and tendering the quitclaim deed was consistent with an intent to 'undo' rather than ratify the transaction.”
(Emphasis added).
Because I disagree with the majority’s interpretation of the insurance contract, I would remand this case to the district court to hold a *533hearing on the issue of whether, under Illinois law, the guardian’s participation in the transfer of title to Stewart Title, or any other action on the part of the guardian, amounted to a ratification of Robinson’s contract with Haggerty. If the trial court were to find that the guardian did in fact ratify the contract, Stewart Title would properly have cured the title defect under the policy, and judgment would issue in favor of Stewart Title.