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Title Insurance; Agents

CAM Affiliates, Inc v First American Title Ins Co, 306 Ill App 3d 1015, 715 NE2d 778, 240 Ill Dec 91 (1st D 1999).

Facts: C.A.M. Affiliates, Inc. (CAM) and Chicago Western sued First American Title Insurance (the title insurance provider), and Republic (the closer, escrow agent, and issuer of the title insurance policy as an agent of First American Title) for breach of title insurance policies. Chicago Western bought the property, Bank of Commerce originated the mortgage, and CAM bought the $74,500 loan for $70,000 and took an assignment of the mortgage.

An escrow agreement stated that Republic would disburse funds only after Republic issued a title insurance policy for fee simple title, subject only to 1993 real estate taxes. At closing, several Schedule B exceptions were waived individually. However, the Republic employee handling the closing did not waive the specific policy exception covering real estate taxes from years prior to 1993. These back taxes were never paid and Chicago Western's and CAM's title to property was lost when a tax buyer obtained a tax certificate and took possession of the real estate. First American Title denied the claim. CAM and Chicago Western filed suit and were awarded summary judgment by the circuit court. First American Title and Republic appealed.

Holding: Affirmed. On appeal, First American Title argued that the title policy was subject to taxes prior to 1993 because the exception for back taxes was left on the policy at closing. However, the court found that the title policy was ambiguous regarding the exception because elements contained in the alleged exception were contained within exceptions that had been waived. Consequently, the court relied on outside evidence and found that the intent of both parties was to waive the exception.

First American Title also argued that it was not responsible for the omission of waiver to the exception because the Republic employee that handled the closing did not act as an agent of First American Title. First American Title argues that the Republic employee could not have been an agent of First American Title because the Republic employee performed escrow duties that went beyond the relationship authorized by First American Title. However, the court found that the Republic employee could be considered an agent because the Republic employee had been granted the authority to waive exceptions by First American Title. Additionally, the court found that even if the failure to have the back taxes paid was the fault of Republic, the loss that CAM and Chicago Western were suing for would have been covered had the exception been waived.

First American Title also argued that the title insurance policy coverage was limited to $4,500. A clause in the title policy contract stated that any payment of the principal would reduce the coverage of the policy by that amount. First American Title argued that the principal of the covered mortgage was reduced by the $70,000 that CAM had paid for the mortgage rights. Therefore, CAM's claim was limited to $4,500 (the difference between the $74,500 principal of the loan and the amount CAM had paid for it). The court did not accept this argument and found that the amount paid was compensation for transfer of the mortgage rights, not a reduction in the principal.

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