Home Fed. Savings Bank v. Ticor Title Ins. Co., No. 11-3446 (7th Cir. 2012)
Annotate this CaseHome Federal agreed to lend up to $95.5 million to finance construction of a new ethanol production plant. When the developer of the plant ran into serious trouble finishing the project, the bank did not disburse the final $8 million. The developer defaulted on the debt and fired its general contractor, which then filed a mechanic’s lien on the property to recover $6 million allegedly owed it. When the bank sought to foreclose on its mortgage, the general contractor counterclaimed, asserting that its lien had priority over, or at least parity with, the bank’s mortgage. The bank tendered its defense to the title insurer under a policy that required the insurer to defend the bank against a “claim . . . alleging a defect, lien or encumbrance or other matter insured against by this policy.” The policy contained an exclusion from coverage for claims “created, suffered, assumed, or agreed to” by the insured. The district court ruled in favor of the title insurer. The Seventh Circuit reversed. The undisputed facts show that the title insurer breached its duty to defend the bank on the contractor’s claim that its mechanic’s lien had priority over or parity with the mortgage.
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