Court Opinion

ID: 2750986
Source: CourtListenerOpinion
Date Created: 2014-11-13 18:01:00.792096+00
Date Added: 2024-06-11T10:17:44.599013
License: Public Domain

In the

    United States Court of Appeals
                 For the Seventh Circuit

Nos. 12-2525, 12-2612 & 12-2691

PHILADELPHIA INDEMNITY INSURANCE
COMPANY,
                                                     Plaintiff-Appellee/
                                                      Cross-Appellant,

                                   v.

CHICAGO TITLE INSURANCE COMPANY,
                   Defendant-Cross-Claim Plaintiff-Appellant/
                                             Cross-Appellee,

                                   v.

WESTERN CAPITAL PARTNERS LLC,
                 Defendant-Cross-Claim Defendant-Appellee/
                                          Cross-Appellant.

            Appeals from the United States District Court
        for the Northern District of Illinois, Eastern Division.
            No. 09 C 7063 — Matthew F. Kennelly, Judge.

    ARGUED APRIL 2, 2013 — DECIDED NOVEMBER 13, 2014
2                              Nos. 12-2525, 12-2612 & 12-2691

    Before FLAUM, ROVNER, and SYKES, Circuit Judges.
     SYKES, Circuit Judge. This insurance dispute is governed by
Illinois law and raises a question of first impression in that
state: May a title insurer contractually limit its duty to defend
its insured to claims or causes of action specifically covered by
its policy?
     The question arises in complex coverage litigation between
Philadelphia Indemnity Insurance Company, a general liability
carrier; Chicago Title Insurance Company, a title insurer; and
Western Capital Partners LLC, a high-risk real-estate lender
insured by both companies. When Western Capital attempted
to foreclose on some mortgaged commercial property in
Chicago, the property owners responded with a separate
lawsuit alleging that Western Capital had breached its contract,
committed fraud and other torts, and violated state consumer-
protection statutes. Western Capital tendered the defense to
Chicago Title, which accepted the tender, but only as to claims
potentially covered by its title policy. Western Capital then
looked to Philadelphia Indemnity, and this satellite coverage
litigation ensued.
    Chicago Title’s policy specifically limits its duty to defend
to claims that are covered by its policy—that is, claims involv-
ing defects in title or lien priority and other claims adverse to
the insured’s title. The district court declined to enforce this
limiting language and instead applied the “complete defense”
rule, holding that Chicago Title had a duty to defend the entire
lawsuit. Chicago Title appealed.
Nos. 12-2525, 12-2612 & 12-2691                                 3

    We reverse. An insurer’s duty to defend its insured is
contractual. General liability insurance indemnifies against
liability for damages arising from a broad array of acts and
omissions and promises to defend any suit seeking damages
arising from a covered loss or occurrence. A promise to defend
a “suit” is construed as a promise to defend the entire suit even
if only one or some of the claims are covered by the policy.
This is known as the “complete defense” rule, and it is recog-
nized in Illinois, as elsewhere.
    Title insurance is different. Unlike the broad indemnity and
defense duties contractually assumed by general liability
insurers, title insurance only indemnifies against losses
incurred by reason of defects in title and specifically limits the
insurer’s duty to defend to claims that are within the policy’s
coverages. The Illinois Supreme Court has never applied the
complete-defense rule to title insurance; indeed, it has not
applied the rule outside the context of general liability insur-
ance. Only one state supreme court has addressed whether the
complete-defense rule applies to title insurance and held that
it does not. See GMAC Mortg. LLC v. First Am. Title Ins. Co.,
985 N.E.2d 823, 828 (Mass. 2013). We think the Illinois Supreme
Court is likely to agree. Accordingly, we hold that the contrac-
tual limits on Chicago Title’s duty to defend are enforceable
and remand for further proceedings consistent with this
opinion.

                         I. Background
    In June 2006 Western Capital made a $2.77 million loan to
finance the development of a mixed-use commercial building
4                              Nos. 12-2525, 12-2612 & 12-2691

on Ridgeland Avenue on Chicago’s south side. The loan was
secured by three mortgages on the developers’ property: a first
mortgage on the Ridgeland Avenue property and second
mortgages on two other properties. The development appar-
ently faltered, and in 2007 Western Capital initiated foreclosure
proceedings in Cook County Circuit Court. This spawned
extensive litigation regarding the Ridgeland Avenue project.
Western Capital turned to its insurers to cover the costs
associated with its defense in this litigation.
    The mortgages were insured under a title policy issued to
Western Capital by Chicago Title. The policy was written on
the standard 1992 form developed by the American Land Title
Association (“ALTA”) and generally covers losses sustained by
reason of defects in title and lien priority regarding the real
property pledged as security for the loan. The policy also
requires Chicago Title to “pay the costs, attorneys’ fees and
expenses incurred in defense of the title or the lien of the
insured mortgage, as insured, but only to the extent provided
in the Conditions and Stipulations.”
   Condition 4(a) specifically limits the insurer’s duty to
defend to claims falling within the policy’s coverages:
       DEFENSE AND PROSECUTION OF ACTIONS;
       …
          Upon written request by the insured … , the
       Company [Chicago Title], at its own cost and
       without unreasonable delay, shall provide for
       the defense of an insured in litigation in which
       any third party asserts a claim adverse to the title
Nos. 12-2525, 12-2612 & 12-2691                                5

       or interest as insured, but only as to those stated
       causes of action alleging a defect, lien or encum-
       brance or other matter insured against by this
       policy. … The Company will not pay any fees, costs
       or expenses incurred by the insured in the defense of
       those causes of action which allege matters not in-
       sured against by this policy.
(Emphases added.) Defense costs do not decrease the policy
limits, which are capped at the amount of loan proceeds
actually disbursed on the policy’s effective date—here, about
$1.54 million.
    Philadelphia Indemnity is Western Capital’s general
liability insurer. The Philadelphia Indemnity policy covers
Western Capital for losses arising from negligent acts, errors,
or omissions in connection with its professional services. The
coverage is excess to other valid and collectable insurance.
     The 2007 foreclosure action prompted a proliferation of
litigation. The substantive details and procedural history are
complex; we need mention only the main events here. In
response to the foreclosure action, the developers sued
Western Capital and other defendants in Cook County Circuit
Court, Chancery Division. The new suit, filed in February 2008,
alleged nine claims for relief against Western Capital, including
claims for breach of contract, fraud, negligence, violation of
state consumer-fraud statutes, and a quiet-title claim, to name
a few. The gist of the complaint was that Western Capital and
the other defendants had schemed to defraud the plaintiffs in
connection with the real-estate development. We’ll refer to this
suit as the “Ridgeland lawsuit.”
6                             Nos. 12-2525, 12-2612 & 12-2691

     Western Capital tendered the defense to Chicago Title. A
few months later, the Ridgeland lawsuit was consolidated with
the foreclosure action. In August 2008 Chicago Title’s counsel
sent a lengthy letter to Western Capital explaining the title
insurer’s position regarding its duty to defend the Ridgeland
lawsuit. Briefly, Chicago Title agreed to pay for the defense of
four of the nine counts alleged against Western Capital;
counsel explained that the remaining counts fell outside the
title policy’s coverages and thus outside the insurer’s duty to
defend. The letter concluded by approving Schiff Hardin LLP
as Western Capital’s choice of counsel.
    On August 12, 2009, the circuit court dismissed all nine
claims against Western Capital in the Ridgeland lawsuit. Eight
claims were dismissed with prejudice and one without preju-
dice; as far as the record reveals, the claim dismissed without
prejudice was never refiled.
    On December 27, 2009, the defendants in the foreclosure
action were permitted to amend their answer to include a
19-count counterclaim against Western Capital and other
parties. Twelve of the new counterclaim counts were directed
at Western Capital. Schiff Hardin forwarded an electronic copy
of the amended answer to Chicago Title’s counsel. On Novem-
ber 9, 2010, the circuit court dismissed all 12 counts against
Western Capital with prejudice.
    In December 2010, Chicago Title’s counsel wrote to Western
Capital regarding the defense costs associated with the
counterclaim in the foreclosure action. Counsel explained that
Chicago Title would pay defense costs for two of the 12 counts
in the counterclaim—approximately 17% of the total—but the
Nos. 12-2525, 12-2612 & 12-2691                                                7

remaining ten counts fell outside the title policy’s coverages
and thus outside the insurer’s duty to defend.
    In August 2011 the defendants in the foreclosure action
moved for leave to file an amended counterclaim, repleading
11 of the 12 counts that had been dismissed and adding two
new claims against Western Capital. This move was procedural
only for the purpose of preserving the issues for appeal.1 On
September 23, 2011, the court granted the motion and permit-
ted the refiling of the counterclaim, but “solely for the purpose
of preserving issues for appeal.” Chicago Title’s counsel again
wrote to Western Capital explaining that the 11 refiled counts
did not trigger the insurer’s defense duty because repleading
was allowed only to preserve the issues for appeal. Counsel
also explained that the two new counts fell outside the title
policy’s coverages.
   Meanwhile, Philadelphia Indemnity had agreed to cover
Western Capital subject to a reservation of rights, but had not
paid for any defense costs. In October 2009—after the Ridgeland
lawsuit was dismissed but before the filing of the multiple-

1
 Illinois courts adhere to the principle that “a party who files an amended
pleading waives any objection to the trial court’s ruling on the former
complaints.” Foxcroft Townhome Owners Ass’n v. Hoffman Rosner Corp.,
449 N.E.2d 125, 126 (Ill. 1983). Thus, plaintiffs seeking to appeal a dismissal
must either stand on the dismissed counts and challenge the ruling on
appeal or incorporate dismissed counts into subsequent pleadings. See
Ottawa Sav. Bank v. JDI Loans, Inc., 871 N.E.2d 236, 240–41 (Ill. App. Ct.
2007) (explaining Illinois law on the matter). This differs from Seventh
Circuit practice. See, e.g., Weiss v. Cooley, 230 F.3d 1027, 1031 (7th Cir. 2000)
(noting that a notice of appeal from a final judgment is generally adequate
to bring up everything that preceded it).
8                               Nos. 12-2525, 12-2612 & 12-2691

count counterclaim in the foreclosure action—Philadelphia
Indemnity sued Chicago Title and Western Capital in Cook
County Circuit Court seeking a declaration of coverage
obligations and rights. Chicago Title removed the coverage
litigation to federal court based on diversity jurisdiction. See
28 U.S.C. § 1332.
    Chicago Title answered and cross-claimed against Western
Capital seeking a declaration that it had no further obligation
to defend the underlying litigation. Western Capital answered
and filed a counterclaim against Philadelphia Indemnity and
a cross-claim against Chicago Title. As relevant here, Western
Capital’s cross-claim against Chicago Title asserted claims for
breach of contract and violation of the Illinois Consumer Fraud
and Deceptive Business Practices Act. See 815 ILL. COMP. STATS.
505/1 et seq.
   Philadelphia Indemnity eventually settled with Western
Capital, agreeing to pay half of the litigation costs incurred to
the date of settlement (about $667,000) plus half of Western
Capital’s future costs in the underlying litigation. Western
Capital agreed to reimburse Philadelphia Indemnity for any
amounts recovered from Chicago Title that would result in a
recovery exceeding Western Capital’s total litigation costs.
    Philadelphia Indemnity and Chicago Title then filed cross-
motions for summary judgment. Philadelphia Indemnity
argued that the title policy was primary and Chicago Title had
a duty to defend the underlying litigation in its entirety.
Chicago Title maintained that its duty to defend was contractu-
ally limited to claims potentially falling within the title policy’s
coverages. Chicago Title also sought summary judgment on
Nos. 12-2525, 12-2612 & 12-2691                                            9

Western Capital’s cross-claims against it, and Western Capital
later filed its own motion for summary judgment.
    Ruling on this bevy of motions, the district court applied
the complete-defense rule and held that Chicago Title owed
Western Capital a complete defense of all claims against it in
the Ridgeland lawsuit and all counts against it in the counter-
claim in the foreclosure action. Accordingly, the court entered
judgment declaring that Chicago Title “shall bear 100% of
[Western Capital’s] defense costs in the underlying litigation,”
excluding costs associated with two “blackout periods”—
periods of time in the underlying litigation when the claims
against Western Capital were dismissed.2 The court also
rejected Western Capital’s claims under the Consumer Fraud
Act and resolved several remaining disputes not relevant here.
   Chicago Title appealed, and Philadelphia Indemnity and
Western Capital each filed a cross-appeal challenging certain
aspects of the judgment.3

2
 The excluded “blackout periods” are August 12, 2009, to December 27,
2009, and November 9, 2010, to September 23, 2011.

3
  We address the cross-appeals only as necessary; some of the issues are
irrelevant in light of our holding that the complete-defense rule does not
apply. For example, Philadelphia Indemnity claims an entitlement to
equitable subrogation. After the district court ruled that Chicago Title was
responsible for 100% of Western Capital’s defense costs, Philadelphia
Indemnity asked for a monetary judgment in its favor on grounds of
equitable subrogation based on the amounts it paid to settle with Western
Capital. The district court denied this relief, and Philadelphia Indemnity’s
cross-appeal challenges that decision. Because the contractual limits on
                                                               (continued...)
10                                Nos. 12-2525, 12-2612 & 12-2691

                           II. Discussion
    The primary issue on appeal is the scope of Chicago Title’s
duty to defend Western Capital in the underlying litigation.
The policy language specifically limits Chicago Title’s defense
obligation to claims alleging defects in title, lien priority,
encumbrances “or other matter insured against by this policy,”
and disclaims any duty to defend “causes of action which
allege matters not insured against by this policy.”
    There is no dispute about how to interpret this language.
The parties agree that if the title policy is enforceable as
written, Chicago Title is only responsible for the costs incurred
in defending Western Capital against claims that potentially
fall within the title policy’s coverages. They further agree that
if the limiting language in the policy is enforceable, Chicago
Title is responsible for Western Capital’s defense costs on just
four claims in the Ridgeland lawsuit and two of the counter-
claim counts in the foreclosure action.
     Illinois law holds that insurance policies, like other con-
tracts, are enforceable unless clearly contrary to public policy
or manifestly injurious to the public welfare. See Phx. Ins. Co. v.
Rosen, 949 N.E.2d 639, 645 (Ill. 2011); Dubey v. Pub. Storage, Inc.,
918 N.E.2d 265, 276 (Ill. App. Ct. 2009) (“Contractual limita-
tions are generally held valid in Illinois, unless it would be
against the settled public policy of the state to do so … .”).
Illinois public policy is found in the state’s constitution, its

(...continued)
Chicago Title’s duty to defend are enforceable, we need not address this
issue.
Nos. 12-2525, 12-2612 & 12-2691                                   11

statutes, and its judicial decisions. Rosen, 949 N.E.2d at 645; see
also Progressive Universal Ins. Co. of Ill. v. Liberty Mut. Fire Ins.
Co., 828 N.E.2d 1175, 1180 (Ill. 2005); Ziegler v. Ill. Trust & Savs.
Bank, 91 N.E. 1041, 1045 (Ill. 1910) (“The public policy of the
state or of the nation is to be found in its Constitution and its
statutes, and, when cases arise concerning matters upon which
they are silent, then in its judicial decisions and the constant
practice of the government officials.”). No provision in the
state constitution or statutes is implicated here. Rather, the
argument against enforcing Chicago Title’s policy language
rests entirely on a claim about Illinois public policy as found in
its judicial decisions.
     Philadelphia Indemnity and Western Capital contend that
the contractual limitation on Chicago Title’s duty to defend
conflicts with the “complete defense” rule, which generally
requires an insurer to provide a complete defense in a suit or
action against its insured even if only one or some of the claims
are potentially covered. The Illinois Supreme Court recognized
the rule in 1976, see Md. Cas. Co. v. Peppers, 355 N.E.2d 24, 28
(Ill. 1976), and has restated it several times since, see Pekin Ins.
Co. v. Wilson, 930 N.E.2d 1011, 1015 n.2 (Ill. 2010) (noting that
if the insurer “has a duty to defend as to at least one count of
the lawsuit, it has a duty to defend in all counts of that lawsuit”
(citing Peppers, 355 N.E.2d at 28)); Nat’l Union Fire Ins. Co. of
Pittsburgh v. Glenview Park Dist., 632 N.E.2d 1039, 1042–43 (Ill.
1994); U.S. Fid. & Guar. Co. v. Wilkin Insulation Co., 578 N.E.2d
926, 930 (Ill. 1991); Zurich Ins. Co. v. Raymark Indus., Inc.,
514 N.E.2d 150, 163 (Ill. 1987).
12                              Nos. 12-2525, 12-2612 & 12-2691

    None of these cases, however, involved title insurance.
Instead, the state high court was construing the duty to defend
in a general liability policy, which typically promises to defend
the insured in “a suit” or “any suit” seeking damages for acts,
omissions, or occurrences covered by the policy. Pekin Ins. Co.,
930 N.E.2d at 1014 (construing the duty to defend in a commer-
cial general liability policy); Glenview Park Dist., 632 N.E.2d at
1042–43 (construing the duty to defend in a comprehensive
general liability policy); Wilkin, 578 N.E.2d at 930 (same);
Zurich, 514 N.E.2d at 163 (same); Peppers, 355 N.E.2d at 28
(construing the duty to defend in a homeowner’s policy).
     The same is true of Illinois Appellate Court cases constru-
ing the complete-defense rule. See Hartford Fire Ins. Co. v.
Everest Indem. Ins. Co., 861 N.E.2d 306, 308 (Ill. App. Ct. 2006);
Am. Alliance Ins. Co. v. 1212 Rest. Grp., LLC, 794 N.E.2d 892, 901
(Ill. App. Ct. 2003); Lexmark Int’l, Inc. v. Transp. Ins. Co.,
761 N.E.2d 1214, 1217 (Ill. App. Ct. 2001); Int’l Ins. Co. v.
Rollprint Packaging Prods., Inc., 728 N.E.2d 680, 685 (Ill. App. Ct.
2000); Bedoya v. Ill. Founders Ins. Co., 688 N.E.2d 757, 762 (Ill.
App. Ct. 1997); JG Indus., Inc. v. Nat’l Union Fire Ins. Co. of
Pittsburgh, 578 N.E.2d 1259, 1260 (Ill. App. Ct. 1991); Altaf v.
Hanover Square Condo. Ass’n No. 1, 544 N.E.2d 1032, 1034 (Ill.
App. Ct. 1989); Fid. & Cas. Co. of N.Y. v. Nalco Chem. Co.,
509 N.E.2d 446, 449 (Ill. App. Ct. 1987). Philadelphia Indemnity
and Western Capital have not provided any contrary exam-
ples.
   We know of no Illinois cases applying the complete-defense
rule outside the context of general liability insurance. More
specifically, no appellate court in Illinois has applied the
Nos. 12-2525, 12-2612 & 12-2691                                 13

complete-defense rule to title insurance. Even so, Philadelphia
Indemnity and Western Capital insist that the complete-
defense rule is a requirement of public policy in Illinois,
applicable to all insurance contracts, and any contractual limita-
tion on an insurer’s duty to defend is unenforceable. They also
contend that allowing an insurer to “contract around” the rule
would be manifestly injurious to the public welfare.
    The district court agreed and refused to enforce the limiting
language in Chicago Title’s policy. Our review of that decision
requires us to predict whether the Illinois Supreme Court
would apply the complete-defense rule to title insurance. See
Allstate Ins. Co. v. Menards, Inc., 285 F.3d 630, 637 (7th Cir.
2002). We predict that it would not.
     First, an insurer’s duty to defend is contractual. See Zurich,
514 N.E.2d at 161; Village of Lombard v. Intergovernmental Risk
Mgmt. Agency (IRMA), 681 N.E.2d 88, 92 (Ill. App. Ct. 1997).
General liability policies usually contain a broadly stated
coverage grant promising to indemnify the insured against
liability for injuries caused by covered acts and omissions, and
typically provide that the insurer has the “right and duty to
defend any ‘suit’ seeking … damages [for covered injuries].”
Pekin Ins. Co., 930 N.E.2d at 1014 (internal quotation marks
omitted). This kind of duty-to-defend language is very broad.
If at least one claim in a suit against the insured is potentially
covered, the duty to defend is triggered; an insurer’s promise
to defend “a suit” or “any suit” requires the insurer to defend
the entire suit. Id. at 1015 n.2 (“[I]f Pekin has a duty to defend
as to at least one count of the lawsuit, it has a duty to defend in
all counts of that lawsuit.”). The complete-defense rule reflects
14                                   Nos. 12-2525, 12-2612 & 12-2691

and enforces the broad defense promise in standard general
liability policies and makes sense given the comprehensive
coverage provided by this kind of insurance.
    Title insurance is much narrower.4 A title insurer only
assumes risks associated with defects in property title. See
B. BURKE, LAW OF TITLE INSURANCE § 2.01[A], at 2-5 (3d ed.
Supp. 2013). The indemnification coverage is limited to losses
from defects in title, lien priority, encumbrances, and other
similar title risks, id. § 2.01[B], at 2-16–2-18 (Supp. 2011, 2013) &
[C], at 2-22 (Supp. 2008), and the defense duty is likewise
specifically limited to claims that are covered by the title
policy, id. § 6.03[D].
    The differences between general liability insurance and title
insurance led the Supreme Judicial Court of Massachusetts to
conclude that the complete-defense rule—what it called the “in
for one, in for all” rule—does not apply to title insurance. See
GMAC Mortg., 985 N.E.2d at 828–29. The Massachusetts high
court is the only state supreme court that has addressed this
issue. We think the Illinois Supreme Court would find its
analysis persuasive.
    GMAC Mortgage addressed the precise issue before us in
this case: “[W]hether the ‘in for one, in for all’ rule of general
liability insurance defense—that an insurer must defend an
entire action against an insured where its policy potentially

4
 Illinois regulates title insurance differently than other forms of insurance.
Title insurers doing business in Illinois are regulated by the Department of
Financial and Professional Regulation, not the Department of Insurance. See
generally 215 ILL. COMP. STATS. 155/1 et seq.
Nos. 12-2525, 12-2612 & 12-2691                                           15

covers any one claim—applies in the unique title insurance
context.” Id. at 828. To resolve that question, the court focused
heavily on the unique nature of title insurance. The court began
by observing that title insurance “is fundamentally different
from general liability insurance” in that it is aimed “at risks
that are already in existence on the date the policy is issued”
rather than at future risks. Id. Title insurers “attempt to
eliminate or reduce risks prior to the issuance of a title insur-
ance policy” by searching real-estate records for title defects.
Id. This difference results in “differing payment schemes and
length of coverage as between title and general liability
insurance.” Id. at 828–29. Title insurance generally requires a
single premium for indefinite coverage, while general liability
insurance requires continuing, periodic payments over a fixed
term of coverage. Id. at 829.
    In addition, the court noted, title policies typically describe
their defense obligations “in terms of defending particular
causes of action” rather than in terms of defending “‘suits’ or
‘actions,’” as is typical for general liability policies.5 Id. at 829

5
 The standard-form contract issued in 1992 by the ALTA provides that the
insurer
        shall provide for the defense of an insured in litigation in
        which any third party asserts a claim adverse to the title or
        interest as insured, but only as to those stated causes of
        action alleging a defect, lien or encumbrance or other
        matter insured against by this policy. … The [insurer] will
        not pay any fees, costs or expenses incurred by the insured
        in the defense of those causes of action which allege
        matters not insured against by this policy.
                                                               (continued...)
16                                 Nos. 12-2525, 12-2612 & 12-2691

n.8. Finally, the court observed that title-related claims are
“discrete” and can be “bifurcated fairly easily from related
claims.” Id. at 829. This makes the central policy rationale
behind the complete-defense rule—“that parsing multiple
claims is not feasible”—inapplicable. Id.
     Based on “the limited purpose and scope of title as com-
pared to general liability insurance,” the Massachusetts court
concluded that “title insurers should not be obliged to defend
against noncovered claims just because they may be asserted
in litigation that also implicates title-related issues to a limited
extent.” Id. Accordingly, the court held that the complete-
defense rule does not apply to title insurance. Id. at 831 (“A
title insurer does not have a duty to defend the insured in the
entire lawsuit where one claim is within the scope of the title
insurance coverage and other claims are not.”).
    This analysis is both thorough and sound. We predict that
the Illinois high court will follow the lead of its counterpart in
Massachusetts and hold that the complete-defense rule does
not apply to title insurance.
   Western Capital warns that “disastrous consequences” will
befall policyholders if courts enforce the limited-defense
language in title-insurance policies. To the extent that the
“disastrous consequences” are that title insurers won’t cover
defense costs for claims falling outside the policy’s coverages,

5
 (...continued)
ALTA, Policy of Title Insurance, at Conditions and Stipulations ¶ 4(a)
(Oct. 17, 1992). Chicago Title’s policy is based on the 1992 ALTA form and
contains virtually identical language.
Nos. 12-2525, 12-2612 & 12-2691                                             17

that’s just the nature of title insurance; the premiums charged
for this form of insurance reflect the limited scope of the
coverage. Western Capital also protests that enforcing the
limited-defense language in title policies will allow title
insurers to unilaterally determine the scope of their defense
duty on a case-by-case basis, prompting increased coverage
litigation. But insurers always decide coverage questions on a
case-by-case basis. Illinois disincentivizes stingy coverage
determinations through its estoppel doctrine (which in some
situations actually encourages the use of declaratory-judgment
actions to resolve coverage disputes)6 and also through the
attorney’s fees provision of the Illinois Insurance Code, 215 ILL.
COMP. STAT. 5/155 (providing for attorney’s fees, costs, and

6
  An insurer owes a duty to defend unless it is willing to say that the
allegations in the underlying complaint fail to state facts that bring the case
within, or potentially within, the policy’s coverage. See U.S. Fid. & Guar. Co.
v. Wilkin Insulation Co., 578 N.E.2d 926, 930 (Ill. 1991) (citing Conway v.
Country Cas. Ins. Co., 442 N.E.2d 245, 247 (Ill. 1982)). The consequences for
refusing to defend a claim later found to have been within or potentially
within the scope of the policy’s coverage are harsh: The insurer is forbidden
from raising policy defenses to coverage, even if those defenses might have
been successful had the insurer not breached its duty to defend. See Emp’rs
Ins. of Wausau v. Ehlco Liquidating Trust, 708 N.E.2d 1122, 1135 (Ill. 1999)
(describing the estoppel doctrine). Thus, when an insurer believes that the
underlying complaint fails to trigger its duty to defend, Illinois recom-
mends taking one of two courses of action: “(1) defend the suit under a
reservation of rights or (2) seek a declaratory judgment that there is no
coverage.” Id. at 1134–35; see also Gen. Agents Ins. Co. of Am. v. Midwest
Sporting Goods Co., 828 N.E.2d 1092, 1104 (Ill. 2005) (refusing to permit an
insurer to recover defense costs associated with uncovered claims pursuant
to a reservation of rights absent an express provision to that effect in the
insurance contract).
18                                  Nos. 12-2525, 12-2612 & 12-2691

sanctions where an insurance company’s conduct or delay in
resolving a claim is vexatious and unreasonable).
    Accordingly, we hold that the complete-defense rule does
not apply to title insurance. The limited-defense language in
Chicago Title’s policy is enforceable. Because the district court
reached the opposite conclusion, the judgment must be
reversed and the case remanded for entry of a new declaration
of rights and obligations consistent with this opinion.
     A few loose ends remain to be tied up before we close. In its
cross-appeal Western Capital argues that the district court
erred in holding that the affirmative defenses in the foreclosure
action did not trigger Chicago Title’s duty to defend. We
disagree. The title policy doesn’t require Chicago Title to
“defend” against affirmative defenses. The policy language
limits the insurer’s defense obligation to “litigation in which
any third party asserts a claim adverse to the title or interest as
insured.” An affirmative defense is not a “claim.”7 Compare
BLACK’S LAW DICTIONARY 509 (10th ed. 2014) (defining
“affirmative defense” as “[a] defendant’s assertion of facts and
arguments that, if true, will defeat the plaintiff’s … claim, even if
all the allegations in the complaint are true” (emphasis added))
with id. at 301 (defining “claim” as “[t]he assertion of an

7
  Condition 4(a) also uses the phrase “causes of action” interchangeably
with the word “claim,” but that doesn’t change matters. An affirmative
defense is not a “cause of action.” See BLACK’S LAW DICTIONARY 266 (10th
ed. 2014) (defining “cause of action” as “[a] group of operative facts giving
rise to one or more bases for suing; a factual situation that entitles one
person to obtain a remedy in court from another person”).
Nos. 12-2525, 12-2612 & 12-2691                                    19

existing right; any right to payment or to an equitable remedy, even
if contingent or provisional” (emphasis added)).
     It’s clear under Illinois law that a counterclaim can trigger an
insurer’s duty to defend. See, e.g., Amerisure Mut. Ins. Co. v.
Microplastics, Inc., 622 F.3d 806, 810 (7th Cir. 2010) (applying
Illinois law); Mutlu v. State Farm Fire & Cas. Co., 785 N.E.2d 951,
956 (Ill. App. Ct. 2003). But “[a] counterclaim differs from an
answer or affirmative defense. A counterclaim is used when
seeking affirmative relief, while an answer or affirmative
defense seeks to defeat a plaintiff’s claim.” Norman A. Koglin
Assocs. v. Valenz Oro, Inc., 680 N.E.2d 283, 288 (Ill. 1997); see also
BLACK’S LAW DICTIONARY 427 (defining “counterclaim” as “[a]
claim for relief asserted against an opposing party after an
original claim has been made; esp., a defendant’s claim in
opposition to or as a setoff against the plaintiff’s claim”
(emphasis added)).
    Perhaps an affirmative defense in a foreclosure action might
be functionally characterized as a counterclaim to the extent
that it alleges a defect in title or lien priority or some other title
risk potentially covered by the title policy. Chicago Title
doesn’t disagree in theory, but we don’t need to decide that
question here. Western Capital didn’t request a “defense” of
the affirmative defenses in the foreclosure action until after the
“true” counterclaims were dismissed. At that point Chicago
Title denied coverage, having concluded that the affirmative
defenses didn’t state any potentially covered claim that the
already-dismissed counterclaims had omitted.
  A related loose end is whether Chicago Title owed Western
Capital a continuing duty to defend against the potentially
20                              Nos. 12-2525, 12-2612 & 12-2691

covered counterclaims that were refiled following their
dismissal with prejudice. The answer is no. Refiling was
allowed solely for the purpose of preserving the issues for
appeal. An insurer’s defense obligations cease when “the claim
against the insured is confined to a recovery that the policy
does not cover.” Solo Cup Co. v. Fed. Ins. Co., 619 F.2d 1178, 1185
(7th Cir. 1980) (applying Illinois law). Chicago Title conceded
at oral argument that its duty to defend the potentially covered
claims in the underlying litigation would be triggered if those
claims were to become live again. But because the dismissed
counts cannot result in a recovery against Western Capital in
the absence of a successful appeal reviving them, Chicago Title
had no continuing defense duty to Western Capital.
   A final question is whether the district court erred in
entering summary judgment for Chicago Title on Western
Capital’s claims under the Illinois Consumer Fraud Act. It did
not. There is no evidence whatsoever that Chicago Title
violated the Act.
    The Consumer Fraud Act prohibits, in relevant part, “unfair
or deceptive acts or practices … in the conduct of any trade or
commerce.” 815 ILL. COMP. STAT. 505/2. The elements of a claim
under the Act are: (1) a deceptive act or practice by the defen-
dant; (2) the defendant intended that the plaintiff rely on the
deception; (3) the deceptive act occurred in a course of conduct
involving trade or commerce; and (4) actual damage to the
plaintiff; (5) proximately caused by the deceptive act. See
De Bouse v. Bayer AG, 922 N.E.2d 309, 313 (Ill. 2009). This
framework is articulated in terms of “deceptive” acts and
practices, but it applies to allegations of “unfair” acts and
Nos. 12-2525, 12-2612 & 12-2691                                21

practices as well. See Wigod v. Wells Fargo Bank, N.A., 673 F.3d
547, 574 (7th Cir. 2012) (citing Siegel v. Shell Oil Co., 612 F.3d
932, 934 (7th Cir. 2010)); Rockford Mem’l Hosp. v. Havrilesko,
858 N.E.2d 56, 62 (Ill. App. Ct. 2006).
    Western Capital alleges that Chicago Title’s conduct was
both deceptive and unfair. Either way the claim fails under
well-established law. Western Capital’s claim is nothing more
than an allegation of breach of contract dressed up in Con-
sumer Fraud Act clothing. “A breach of contractual promise,
without more, is not actionable under the Consumer Fraud
Act.” Avery v. State Farm Mut. Auto. Ins. Co., 835 N.E.2d 801,
844 (Ill. 2005). Accordingly, the claim is categorically non-
actionable. It’s also legally flawed, as we have already ex-
plained.
  For the foregoing reasons, we REVERSE the judgment and
REMAND for proceedings consistent with this opinion.