The “Complete Defense Rule” which requires an insurer to cover the costs of the entire litigation even if only one count triggers a duty to defend under the policy does not apply to title insurance

In Philadelphia Indemnity Insurance Company, v. Chicago Title Insurance Company v. Western Capital Partners LLC, Nos. 12-2525, 12-2612 & 12-2691 (7th Cir. November 13, 2014) the issue was whether complete defense rule requires a title insurer to defend all claims or causes of action brought against its insured. The matter started when the insured lender foreclosed on some commercial properties. The insured had risk coverage with a general liability (GL) carrier and title coverage with a title insurer. The property owners in the foreclosure responded to the foreclosure by asserting title related claims and claims for breach of contract, fraud, etc. The lender tendered the defense to the title carrier who only accepted the tender of the title claims. The lender looked to the GL carrier for the costs of defending the other claims. The GL carrier sued seeking a declaration of the obligations and rights under the respective policies as they related to the litigation. The GL carrier argued that the title policy required the title carrier to defend the entire litigation, not just the counts related to the title. In ruling in favor of the GL carrier, the district court applied the complete defense rule which requires an insurer to cover the costs of the entire litigation even if only one count triggers a duty to defend under the policy. On appeal, the Seventh Circuit noted that whether complete defense rule applies to title insurance policies was a matter of first impression in Illinois. In attempting to predict how the Illinois Supreme Court would rule, the reviewing court relied on the reasoning of the Massachusetts Supreme Court which held that the complete defense rule does not apply to title insurance policies. The duty to defend in a GL policy typically promises to defend for any suit seeking damages for acts, omissions, or occurrences covered by the policy. By contrast, the coverage available under a title insurance policy is much narrower. It insures risks associated with a defect in the property title. 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, as opposed to future risks. Title insurers attempt to reduce those risks by searching land records before issuing the policy and assess a single premium for indefinite coverage, while general liability insurance requires continuing, periodic payments over a fixed term of coverage. Additionally, title policies typically describe their obligations in terms of causes of actions as opposed to suits. Finally, title claims can easily be separated from non-title claims. All of this makes the central policy rationale behind the complete-defense rule – that parsing multiple claims is not feasible – inapplicable. Finding the Massachusetts court’s judgment both thorough and sound, the Seventh Circuit predicted that the Illinois high court would follow the lead of the Massachusetts court and hold that the complete-defense rule does not apply to title insurance.

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