Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—NDIll: Purchasers of Defective Title May Proceed with Illinois Deceptive Practices Claims Against Title Insurance Company , (Jan 29, 2013)

By Tobias J. Gillett, J.D., LLM.

Purchasers of a defective title to real property adequately pled violations of the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA) allegedly committed by a title insurance company in misrepresenting that it had ripe subrogation rights, in concealing its efforts to obtain recovery, and in failing to pay the purchasers their full recovery under their insurance policy, among other practices, the federal district court in Chicago has ruled (Marchetti v. Chicago Title Insurance Co., January 28, 2013, Coleman, S.).

In 2008, Kathryn and Jonathon Marchetti purchased real property for $180,000, and later raised its value to $198,000 through improvements. In a later quiet title action, a state court determined that a third party’s fraud had rendered their title defective.

The Marchettis had a title insurance policy through Chicago Title Insurance Company, which represented the Marchettis in the quiet title action. In a later criminal action based on the fraud perpetrated against the Marchettis, the court issued an order of restitution to Chicago Title in the amount of $75,000, of which Chicago Title collected $37,500.

The Marchettis alleged that, although Chicago Title had paid them $110,000 under their policy, it still owed them at least $88,000 more, and that the order of restitution was issued based on Chicago Title’s misrepresentation that it was entitled to subrogation rights. The Marchettis also alleged that, pursuant to the policy, Chicago Title should not have collected on any of its losses until the Marchettis had received full compensation for their injuries.

The Marchettis filed suit, asserting a variety of claims, including claims for violations of the ICFA. Chicago Title moved to dismiss certain of the claims, including the ones under the ICFA.

The court explained that a claim under ICFA consists of a deceptive act or practice by the defendant in trade or commerce, performed with the intent that the plaintiff should rely on the deception. Plaintiffs can recover for both unfair and deceptive conduct. A claim alleging fraud or deceptive practices must comply with the heightened pleading requirements of Federal Rule of Civil Procedure 9(b), while a claim of unfair practices need only meet the ordinary Rule 8(a) standard. The Marchettis had alleged both types of claim.

Deceptive Practices

The court determined that the Marchettis’ deceptive practices claim satisfied the Rule 9(b) standard. The Marchettis had alleged that Chicago Title misrepresented that it had subrogation rights and concealed its recovery from the Marchettis, that Chicago Title intended that they would rely on those acts and that those acts occurred in commerce, and that the conduct caused them damage by depriving them of their compensation. These allegations adequately pled the “who, what, when, where, and how” required by Rule 9(b).

Unfair Practices

The court also explained that an unfair practices claim under the ICFA required a court to determine “(1) whether the practice offends public policy; (2) whether it is immoral, unethical, oppressive, or unscrupulous; and (3) whether it causes substantial injury to consumers.” The court noted that a “practice may be unfair because of the degree to which it meets one of the criteria or because to a lesser extent it meets all three.”

The court determined that the Marchettis had stated an unfair practices claim under this standard. The Marchettis alleged that Chicago Title had knowingly misrepresented the relevant facts and policy provisions, had not attempted to settle their claims in good faith, had not paid the Marchettis the full amount they were owed, had not properly explained its denial of benefits, had required the Marchettis “to agree to joint representation against third-party claims,” had exploited information it had obtained in a fiduciary capacity, and had unreasonably delayed or denied coverage or benefits owed to the Marchettis. The court concluded that these allegations satisfied the three elements of an unfair practices claim.

The court also refused to dismiss claims for breach of fiduciary duty and violation of the Illinois Title Insurance Act, and therefore denied Chicago Title’s motion to dismiss in its entirety.

The case is No. 12-cv-5985.

Attorneys: Tawfiq Innas Ali (Ali Law Practice LLC) for Kathryn Marchetti. Darnella J. Ward (Fidelity National Law Group) for Chicago Title Insurance Co.

Companies: Chicago Title Insurance Co.

Cases: ConsumerProtection StateUnfairTradePractices IllinoisNews