Duty to Defend

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7^th Circuit Court of Appeals

Case Name: Title Industry Assurance Company, R.R.G. v. First American Title Insurance Company, et al

Case No.: 15-3310

Officials: EASTERBROOK and HAMILTON, Circuit Judges, and PEPPER, District Judge.

Focus: Duty to Defend

This appeal illustrates a recur‐ ring issue for liability insurers and their insureds: how to determine whether the insurer owes a duty to defend its insured when a claim is first asserted against the insured, before the insurer knows the underlying facts. The insured here was Chicago Abstract Title Agency LLC, which was in the title and escrow services business. In 2008, Chicago Abstract was sued in state court by a title insurance company and two financial firms. Chicago Abstract tendered these lawsuits to its “errors and omissions” liability insurer, plaintiff Title Industry Assurance Company, R.R.G., known in this case as TIAC. TIAC then faced a choice. It could (a) defend Chicago Abstract with‐ out reservation; or (b) defend while reserving its rights; or (c) seek a declaratory judgment concerning the scope of cover‐ age. TIAC could also (d) decline to defend, but only if the al‐ legations in the complaints against Chicago Abstract clearly fell outside the scope of the insurance policy, and then only at its peril. Under Illinois law, when a liability insurer unjustifiably refuses to defend a suit against its insured, the insurer will be estopped from later asserting policy defenses to coverage. TIAC declined to defend the suits. The suits proceeded and years passed without further communications between TIAC and its insured. In 2014, one of the state court plaintiffs, Coastal Funding, LLC, filed a fourth amended complaint against Chicago Abstract. An attorney appointed by TIAC then made a belated appearance in that case. At about the same time, TIAC filed this diversity jurisdiction action in federal court, seeking a declaration that coverage was unavailable primarily because of two exclusions in the policy. Chicago Abstract did not defend in the federal case (the company had been involuntarily dissolved in 2009), but two of the state‐ court plaintiffs—Coastal Funding and First American Title Insurance Company—appeared in this federal case as defend‐ ants. To avoid confusion, we refer to these two firms as the Claimants. TIAC and the Claimants filed cross‐motions for summary judgment. The district court granted judgment to the Claim‐ ants. We affirm. We disagree with portions of the district court opinion, particularly its ruling that TIAC was required to plead legal theories in its federal complaint. That ruling is squarely at odds with settled federal pleading practice. See Johnson v. City of Shelby, 574 U.S. —, 135 S. Ct. 346 (2014) (summarily reversing dismissal of action for failure to identify le‐ gal theory in complaint). Nevertheless, we agree that the un‐ disputed facts show that TIAC breached its duty to defend Chicago Abstract in the underlying litigation. TIAC is there‐ fore estopped from asserting at this very late stage any policy defenses to coverage that might have been available if TIAC had made a different choice when the complaints were first tendered.

Affirmed

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Attorney Derek A. Hawkins is the managing partner at Hawkins Law Offices LLC, where he heads up the firm’s startup law practice. He specializes in business formation, corporate governance, intellectual property protection, private equity and venture capital funding and mergers & acquisitions. Check out the website at www.hawkins-lawoffices.com or contact them at 262-737-8825.