In the construction industry, many parties routinely rely upon title commitments to determine the current state of title. Lenders, contractors and lien claimants may request title commitments ancillary to entering into agreements with the property owner or when enforcing their rights against the owner. In so doing, they rely on those title commitments to be accurate and complete reflections of the current state of title. In Illinois, this reliance may be misplaced.

Illinois, like many other jurisdictions, refuses to find liability in negligence for a purely economic loss.1 Thus, if a title commitment fails to disclose an encumbrance that makes a project economically unfeasible, resulting in pure economic losses (but no property damage or other injury), the title insurer will only be liable for its negligence if an exception to the economic loss doctrine applies.

In 1999, an Illinois appellate court found that an exception did apply, thus imposing liability on title insurers.2 The rationale was that title insurers are in the business of supplying information for the guidance of others in their business transactions. Accordingly, if the title insurer was negligent in issuing its title commitment, it would be liable to a prospective purchaser for the negligently provided information.3

Earlier this year, the Illinois Supreme Court overturned this precedent and ruled that title insurers are not in the business of supplying information when they provide a title commitment or title policy.4 The Court considered the nature of a title commitment, relying heavily on an amicus curiae brief filed by the American Land Title Association (ALTA). According to ALTA, a title commitment is simply a promise to insure a particular state of title and, to the extent that the title commitment contains information concerning the title, such information is provided to give notice of the limitations to the risk that the title insurer is willing to insure.5 Thus, ALTAargued, imposing liability on a title insurer for the information contained in the title commitment is tantamount to treating the title commitment as an abstract of title.6 An abstract of title, however, is more comprehensive than a title commitment and includes "a summary of title, disclosing all defects, liens and encumbrances affecting that property." 7

When advising your Illinois clients on issues in which the state of title is of paramount importance, you may want to recommend that they get an abstract of title rather than a simple title commitment. Though generally more expensive, the abstract of title is separate from the title insurance policy. Indeed, the sole purpose of an abstract of title is to provide information regarding title. Thus, the failure to provide accurate information would be actionable in tort under Illinois law.8

Footnotes

1. Moorman Manufacturing Co. v. National Tank Co., 91 Ill. 2d 69, 435 N.E.2d 443 (1982).

2. Notaro Homes, Inc. v. Chicago Title Ins. Co., 309 Ill. App. 3d 246, 257, 722 N.E.2d 208 (2d Dist. 1999).

3. Id.

4. First Midwest Bank, N.A. v. Stewart Title Guar. Co., 218 Ill. 2d 326, 843 N.E.2d 327 (2006).

5. Id. at 340-41.

6. 218 Ill.2d at 340.

7. Id.

8. Id

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