In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 15-‐‑1240
KATHRYN MARCHETTI and JONATHON MARCHETTI,
Plaintiffs-‐‑Appellants,
v.
CHICAGO TITLE INSURANCE COMPANY and FIDELITY NATIONAL
TITLE INSURANCE COMPANY,
Defendants-‐‑Appellees.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 12 C 5985 — Sharon Johnson Coleman, Judge.
____________________
ARGUED OCTOBER 28, 2015 — DECIDED JULY 12, 2016
____________________
Before WOOD, Chief Judge, and EASTERBROOK and
HAMILTON, Circuit Judges.
EASTERBROOK, Circuit Judge. In May 2008 Kathryn and
Jonathon Marchetti purchased a parcel of real estate in Cook
County, Illinois, for $180,000. Peotone Bank and Trust lent
them the entire price, plus $155,000 to pay for improvements
that the Marchettis planned to make. Jonathon Marchetti
acted as buyer, real-‐‑estate broker (he had a license from Illi-‐‑
2 No. 15-‐‑1240
nois), mortgage broker, and general contractor for the im-‐‑
provements. The Bank put up this $335,000 notwithstanding
the fact that, three months earlier, Jonathon had been indict-‐‑
ed for mortgage and wire fraud regarding other real-‐‑estate
transactions. He pleaded guilty in August 2008.
This transaction, too, was affected by fraud, though this
time Jonathon Marchetti was a victim. The parcel, which the
Marchettis nominally acquired from Seville Development
Corporation, actually was owned by an Illinois land trust
established for the benefit of Carla Lekich. A series of sham
transactions orchestrated by John Hodgman made it look as
if Seville held title. In 2010 Lekich and her trust filed suit,
seeking to quiet title in the parcel.
Chicago Title Insurance Company had issued a policy of
title insurance, promising to indemnify the Marchettis and
Peotone Bank if they suffered a loss from a problem in the
title. The maximum value of the policy is $198,000. In 2010
the Bank’s successors (it had syndicated the loan after mak-‐‑
ing it) and Chicago Title had the property appraised. This
appraisal came in at $110,000. Treating the Marchettis’ prom-‐‑
ise to pay as worthless, the Lender (as we call the debt’s
post-‐‑syndication holders) agreed to accept $110,000 from
Chicago Title as full satisfaction. Lekich’s suit was settled
and dismissed following this payment, plus a release of the
mortgage and a disclaimer by the Marchettis of any interest
in the parcel. Chicago Title became subrogated to the Mar-‐‑
chettis’ claims against their predecessors in the (fake) line of
title. After Hodgman was indicted and convicted, Chicago
Title was able to obtain $37,500 in restitution. (The award
was greater, but only $37,500 was collectable.)
No. 15-‐‑1240 3
One would have thought that this brought matters to a
close. Lekich held clear title to the parcel. The Marchettis no
longer had the real estate—but they also no longer owed the
Lender a penny. They had put nothing into the deal and got
nothing out. The losers were the Lender (out of pocket about
$225,000) and Chicago Title (out of pocket about $72,500).
Nonetheless, the Marchettis took the offensive in this suit
under the diversity jurisdiction. They contend that Chicago
Title owes them $125,500—the $37,500 it collected from
Hodgman, plus the $88,000 difference between the maxi-‐‑
mum value of the policy and what it paid the Lender. Sec-‐‑
tion 8(b)(ii) of the policy permits the owner to elect between
the property’s value at the time the owner submits a claim
under the policy and its value when the claim is paid. The
Marchettis had the property appraised for $202,000, and
they insist that the insurer thus had to disburse the policy’s
$198,000 maximum value—and, since it didn’t, it did not ac-‐‑
quire their rights against Hodgman. Hence the demand for
$88,000 ($198,000 less the $110,000 paid to the Lender) plus
the $37,500 recovered from Hodgman.
The district court was not persuaded and granted sum-‐‑
mary judgment to Chicago Title. 2015 U.S. Dist. LEXIS 4164
(N.D. Ill. Jan. 14, 2015). We’re not persuaded either, and for
the same reason as the district court. The Marchettis treat the
policy as if it promised to pay owners the market value of
the property. But that’s not what it says. The property’s
market value matters only as one determinant of how much
loss the owner suffers. The policy covers only “actual mone-‐‑
tary loss or damage sustained or incurred by the Insured
Claimant”. The loss the Marchettis suffered was zero, be-‐‑
cause they had no equity interest in the property. They paid
nothing for it, and the $335,000 loan substantially exceeded
4 No. 15-‐‑1240
the highest appraised value. (True, the Marchettis made a
down payment of $3,000, but they reimbursed themselves
from the loan, which covered the full purchase price.) Even
an underwater property has some option value, but the
Marchettis do not argue that the option value of this parcel
was enough to give them a positive net interest.
Indeed, the Marchettis appear to have turned a profit on
the transaction, because they did not perform all of the
planned work before they gave up their claim of ownership.
The Marchettis tell us that $100,000 in renovation work was
done. Jonathon Marchetti was the contractor and may have
profited in that capacity, and at all events $100,000 is less
than the construction-‐‑loan amount of $155,000. In the district
court the Marchettis contended that they lost the profits they
had anticipated from renting the improved property, but
they have now acknowledged that the policy does not cover
consequential damages. They suffered no capital loss, and
that is all Chicago Title promised to make good. Since Chi-‐‑
cago Title relieved them of the burden of the loan and mort-‐‑
gage, leaving them loss-‐‑free, it acquired the Marchettis’
claim against the fraud’s perpetrator and was entitled to col-‐‑
lect from the restitution award.
There was a loss on this transaction, but it was incurred
entirely by the Lender, which put in $335,000 and got back
$110,000. It is not complaining, however, about the differ-‐‑
ence between $110,000 and the policy limit of $198,000, hav-‐‑
ing settled with Chicago Title. The Marchettis have no re-‐‑
maining liability to the Lender, which gave them a complete
release as part of the settlement. Lekich and her trust did not
give the Marchettis a release, but they dismissed their suit,
so the Marchettis have the benefit of the judgment’s preclu-‐‑
No. 15-‐‑1240 5
sive effect. If Lekich and the trust were to file a new suit, de-‐‑
spite the judgment, Chicago Title might have a duty to de-‐‑
fend, but that remote possibility cannot be the basis of the
monetary relief that the Marchettis want now.
AFFIRMED