concurring in part and dissenting in part:
I agree, but for different reasons, that the circuit court correctly granted summary judgment in favor of First American on the Rhones’ claim for special damages under section 155 of the Illinois Insurance Code (215 ILCS 5/155 (West 2008)). However, I disagree with the majority’s conclusion that the unassessed property taxes for the years 2004 and 2005 did not constitute encumbrances until the tax bills were issued in 2008. In my view, the majority fails to decide this dispute according to the terms of the parties’ contract, i.e., the title insurance policy, and then misapplies Illinois precedent concerning what constitutes an encumbrance. The interpretation of the terms of that contract, rather than the Property Tax Code (Tax Code) (35 ILCS 200/1 — 1 et seq. (West 2008)), should determine the outcome of this dispute. I conclude that the title insurance policy issued to the Rhones covers the 2004 and 2005 back taxes, which constituted encumbrances when the policy was issued.
There is no dispute that, prior to the real estate closing on August 31, 2006, both the buyers and sellers had notice that the condominium was improperly assessed and being taxed as vacant land. Specifically, on August 14, 2006, the Rhones, through their attorney, wrote the sellers’ attorney, Kent Novit, who also served as First American’s issuing agent for the title insurance policy issued to the Rhones. The Rhones requested several modifications to the parties’ real estate sales contract. The Rhones asked, inter alia, that paragraph 5 concerning the deed be modified to strike language allowing the sellers to deliver a warranty deed subject to any “special taxes or assessments.” The Rhones requested that the “deed should also be subject to real estate taxes for only 2006 taxes, not 2003 and subsequent years.” Furthermore, the Rhones attached a data sheet from the Cook County assessor’s Web site, which showed the condominium was being taxed as vacant land and a neighboring, comparable property was correctly assessed in 2005 for nearly $9,000 more in property taxes. The Rhones suggested that the tax proration be based upon 110% of the most recent ascertainable tax bill for a correctly taxed neighboring unit of comparable value.
At the real estate closing, the Rhones and the sellers entered into a tax reproration agreement that addressed the 2006 taxes only; it did not address the potential back taxes or any other taxes for any year before 2006. Under that agreement, if the condominium was assessed as vacant property for the 2006 tax year, the Rhones would pay the tax bill but Novit would hold $10,000 from the sellers in escrow. If the property was reassessed properly as improved property before March 31, 2008, the escrow would be applied toward any additional taxes for 2006.
The First American title insurance policy issued to the Rhones on August 31, 2006, listed Novit & Novit as the issuing agent on schedules A and B of the policy. The policy generally insured the Rhones against losses caused by “[a]ny defect in or lien or encumbrance on the title,” subject to the specified limitations on coverage. The policy listed five standard exceptions to coverage, including one noting that the policy provided no coverage for “[t]axes, or special assessments which are not shown as existing liens by the public records.” First American, however, signed an endorsement that deleted the five standard exceptions from the policy.
A special exception stated that the policy did not insure against loss or damage which arose by reason of “[gleneral taxes for the year, [sic] 2006 and subsequent years which are not yet due and payable.” Relevant to this appeal, the policy also expressly excluded from coverage:
“3. Defects, liens, encumbrances, adverse claims or other matters:
(a) created, suffered, assumed or agreed to by the [Rhones];
(b) not known to [First American], not recorded in the public records at Date of Policy, but known to the [Rhones] and not disclosed in writing to [First American] by the [Rhones] prior to the date the [Rhones] became an insured under this policy;
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(d) attaching or created subsequent to Date of Policy.”
The majority undertakes a broad analysis that encompasses issues of statutory interpretation of the Tax Code, the levying of property taxes, and policy considerations. This case, however, does not hinge upon the status of back taxes as liens or encumbrances under the terms of the Tax Code. Rather, the dispositive issue here is whether the Rhones’ claim for back taxes was covered under the terms of their contract with First American.
“The interpretation of a party’s agreement is a question of law to be determined by the appellate court de novo. [Citation.] Whether a contract is clear or ambiguous also is a question of law for the court. [Citation.] When interpreting a contract, the primary objective is to give effect to the parties’ intentions. [Citation.] If a contract is clear and unambiguous, the court must determine the intent of the parties solely from the plain language of the contract. [Citation.] However, where the contract is ambiguous, evidence outside the document may be considered to discern the parties’ intent. [Citation.] The meaning of the contract can be determined by the court as a matter of law if the parties’ intent may be determined from undisputed facts. [Citation.]” C.A.M. Affiliates, Inc. v. First American Title Insurance Co., 306 Ill. App. 3d 1015, 1020 (1999).
Moreover, it has been consistently held that any ambiguity or inconsistent or conflicting provisions in insurance contracts must be construed in favor of granting coverage to the insured. National Discount Shoes, Inc. v. Royal Globe Insurance Co., 99 Ill. App. 3d 54, 60 (1981).
The content of the contract concerning the standard exceptions, special exception and exclusions is not ambiguous. The plain language of the contract establishes that the Rhones are covered for encumbrances on the title unless an exception or exclusion listed in the policy applies. Although the contract does not define the term encumbrance, this court has recognized that encumbrances may include broad categories of inchoate rights that cloud title, including potential back taxes even if they have not yet obtained statutory lien status. Inland Real Estate Corp., 127 Ill. App. 3d at 541 (holding that if the assessment of back taxes was lawful and enforceable, the unexercised authority of the county assessor to impose back taxes constituted an encumbrance on the property at the time of transfer). The majority attempts to detract from Inland’s relevance to the present case by characterizing Inland’s holding and analysis as mere dictum entitled to little weight. Contrary to the majority’s characterization, Inland’s discussion concerning unassessed back taxes constituting encumbrances was neither obiter dictum nor judicial dictum because it was necessary to the decision in the case and therefore precedential. See Lebron v. Gottlieb Memorial Hospital, 237 Ill. 2d 217, 236 (2010) (obiter dictum is not essential to the outcome of the case, not an integral part of the opinion and generally not binding authority or precedent within the stare decisis rule; judicial dictum, which is entitled to much weight and should be followed unless found to be erroneous, expresses an opinion upon a point in a case argued by counsel and deliberately passed upon by the court, though not essential to the disposition of the cause). In Inland, there would have been no reason for this court to remand the cause for a fact determination on whether the buyers had notice of the back taxes unless this court had determined that the county’s unexercised authority to impose the back taxes constituted an encumbrance. Inland Real Estate Corp., 127 Ill. App. 3d at 541-45.
The majority also asserts that Inland’s holding should not extend beyond its facts because the question before the Inland court was a narrow one. According to the majority, the guarantee in Inland to convey clear title is a far cry from an expressly limited insurance policy protecting against title risks as of the date of its issuance. Although I do not agree with the majority’s characterization of Inland, even assuming, arguendo, that the Inland court addressed a narrow question, the issue here is certainly narrower where this court is called upon to simply construe and apply the terms of the parties’ contract.
The majority’s reliance on foreign precedent is problematic. Specifically, the Edwards case from Colorado is readily distinguishable. In Edwards, the defendant title insurance company issued a policy in 1967 to the plaintiff property owner but did not mention that the property was situated within a water and sanitation district (district), which had been formed in 1965. Edwards, 39 Colo. App. at 236, 563 P.2d at 980. The district first levied ad valorem taxes against the owner’s property in 1969 and 1970, and the owner sued the title insurance company, claiming that inclusion in the district and the consequent taxes was a defect in or lien or encumbrance on the title. Edwards, 39 Colo. App. at 236, 563 P.2d at 980. The court found no basis for liability because there were no district taxes or assessments due or payable when the policy was issued. Edwards, 39 Colo. App. at 236, 563 P.2d at 980. The court reasoned that “the mere existence of the district and the prospect of taxes in the future” was not an encumbrance, and there was “nothing in the record to show any foreseeable challenge” to the owner’s title. Edwards, 39 Colo. App. at 237, 563 P.2d at 980-81. Here, in contrast, the Rhones’ claim under their policy did not involve the mere prospect of future taxes being levied by a taxing authority. Rather, the Rhones’ claim involved back taxes, and the public records revealed that those back taxes were a foreseeable encumbrance on the Rhones’ title.
I do not find the majority’s reliance on the Butcher case from Michigan to be persuasive. The Butcher court referred to the trial court’s “thorough, scholarly, 17-page opinion,” and agreed with its decision to grant the title insurance company’s motion for summary judgment. Butcher, 52 Mich. App. at 101, 216 N.W.2d at 436. The Butcher court then characterized the plaintiffs’ claims of encumbrances on their title “as either special assessments (the connection charges and possibly the ad valorem sewer taxes) or prospective general ad valorem taxes (the school taxes and the ad valorem sewer taxes).” Butcher, 52 Mich. App. at 101, 216 N.W.2d at 436. The Butcher court summarily concludes that “a special assessment does not become an encumbrance until it has achieved lien status,” and “ad valorem taxes not yet due are not *** encumbrances within the meaning of a title insurance policy” (Butcher, 52 Mich. App. at 101-02, 216 N.W.2d at 436), but the court offers sparse analysis to support those conclusions. I see no reason to abandon this court’s more recent and thorough analysis in Inland for that of Butcher.
Inland is relevant to the present case. Just as the seller in Inland promised to convey title to the property free and clear of all encumbrances (Inland Real Estate Corp., 127 Ill. App. 3d at 537), First American’s title insurance policy assured the Rhones that the condominium was free from any “encumbrance on the title.” Although the promise in Inland arose in the context of a warranty deed, whereas the promise here arose in the context of title insurance, both related to an encumbrance on title. There is no valid reason to apply a different definition of the term encumbrance to real estate sales contracts versus contracts for title insurance. In each case, the property was transferred in reliance upon a promise that there were no clouds upon title despite the fact that the county tax assessor maintained the unexercised authority to impose back taxes based upon previously omitted assessments. Inland Real Estate Corp., 127 Ill. App. 3d at 541. Although those back taxes were not levied against the buyers in each case for several years, that unexercised authority “ ‘diminished] the value’ ” of the property and, if the taxes could validly be assessed against the buyers, constituted an encumbrance on title. Village of Buffalo, 180 Ill. App. 3d at 597, quoting Monti, 99 Ill. App. 3d at 581. The record establishes and the majority acknowledges that the taxes for 2004 and 2005 could validly be assessed against the Rhones because they had notice when they purchased the condominium that it was improperly assessed in those years as vacant property.
The majority speculates that the Rhones’ knowledge of the possibility of back taxing for 2004 and 2005 “spurred” them to enter into the tax reproration agreement with the sellers, yet the majority wonders why the Rhones “inexplicably” did not require the sellers to escrow additional money to cover the 2004 and 2005 taxes in addition to the 2006 taxes. The majority, however, overlooks the fact that this condominium sale was accomplished not only by utilizing the tax reproration agreement to cover the future bill for the 2006 taxes, but also by obtaining a title insurance policy that waived its exclusions for the back taxes. The record indicates that any concerns about the possibility of back taxes for 2004 and 2005 were addressed by First American’s endorsement of the provision that deleted the standard exception for taxes and special assessments not shown as existing liens by the public records.
The Rhones have explained that the reproration agreement addressed only the 2006 taxes because those taxes were straightforward. Moreover, the Rhones thought they would be considered good-faith purchasers under section 9 — 270 of the Tax Code (35 ILCS 200/9 — 270 (West 2008)) and, thus, not subject to any back taxes. It was not until the Rhones contacted the assessor after the closing (so that their future property taxes would be properly assessed) that they learned the assessor relied on Inland for the proposition that a purchaser’s notice of an improper assessment constituted notice of the tax.
Furthermore, the Rhones had requested modifications to the terms of the parties’ sales contract so that the sellers would convey title subject to taxes for only 2006 and subsequent years. The sellers came to the closing with a title insurance policy that (1) deleted the exception for taxes not shown as existing liens by the public records, and (2) limited the special exception for general taxes to the year 2006 and thereafter. The Rhones reasonably relied on those provisions in the title insurance policy as evidence that First American accepted the risk of the possibility of back taxes by insuring over that defect in title.
Because the back taxes were an encumbrance on title when the policy was issued, it is necessary to address First American’s arguments that the policy’s terms specifically excluded such taxes from coverage.
Initially, First American contends the potential back taxes were not covered because the policy listed a special exception, which noted that it did not insure against a loss or damage which arose by reason of “[g]eneral taxes for the year, [szc] 2006 and subsequent years which are not yet due and payable.” First American’s argument lacks merit because the timing of the levying of the taxes by the assessor is not relevant to this exception as drafted in the parties’ contract. Although the taxes at issue here were not due and payable until they were assessed and a tax bill was issued in 2008, there is a distinction between the year in which taxes are assessed and the year for which taxes are assessed. The special exception did not exclude general taxes that were assessed or levied in 2006 and subsequent years. Rather, the plain language of the insurance policy excluded taxes only for the year 2006 and subsequent years. The back taxes at issue here definitely were not for 2006 and after because they were for the years 2004 and 2005. Consequently, the special exception did not exclude coverage for the back taxes.
Next, First American contends that exclusion 3(a) in the policy, which excludes coverage for encumbrances assumed by the Rhones, applied to the potential back taxes. First American argues the Rhones assumed the encumbrance because they voluntarily gave Cook County notice that the property was improperly taxed as vacant land and then paid the bill for the 2004 and 2005 back taxes. First American asserts the Rhones were protected from that debt as good-faith purchasers under section 9 — 270 of the Tax Code (35 ILCS 200/9 — 270 (West 2008)). This argument lacks merit. As stated above, the taxes for 2004 and 2005 could validly be assessed against the Rhones because they had notice when they purchased the condominium that it was improperly assessed in those years as vacant property. Consequently, the Rhones’ claim for coverage is not defeated by exclusion 3(a) of the policy.
Next, First American contends that exclusion 3(b) in the policy applied to the potential back taxes. Exclusion 3(b) stated that First American did not provide coverage for defects, liens or encumbrances “not known to [First American], not recorded in the public records at Date of Policy, but known to the [Rhones] and not disclosed in writing to [First American] by the [Rhones] prior to the date the [Rhones] became an insured under this policy.” This exclusion is not applicable. First American knew or should have known as much about the tax discrepancy as the Rhones, who knew the property taxes assessed on the condominium in the previous years were unusually low for developed property located in that neighborhood. See Inland Real Estate Corp., 127 Ill. App. 3d at 546 (abnormally low taxes for the neighborhood in which a property was located or for the level of improvement on the property could constitute notice of the possibility of a back tax); McLaughlin, 61 Ill. App. 3d at 916 (the insurer has a duty to search the records and examine the applicable law before issuing its commitment or policy, which must be predicated upon a careful examination of the documentary evidence of title and the exercise of expert contract draftsmanship). Furthermore, the tax discrepancy was easily determinable through the public records where the Cook County assessor’s Web site revealed that the condominium was assessed as vacant land. Moreover, the Rhones disclosed the encumbrance to First American in writing prior to the issuance of the policy when their attorney sent the August 14, 2006, letter to Novit, who was First American’s issuing agent. See McLaughlin, 61 Ill. App. 3d at 917 (where the commitment for title insurance was issued to the plaintiffs by the insurer through its agent, notice to the agent was imputed to an insurer). Because the encumbrance was disclosed in writing to First American, exclusion 3(b) did not apply and the potential back taxes were a covered encumbrance.
First American complains the Rhones failed to establish any agency relationship between Novit and First American because Novit was never deposed to establish the scope of his authority and no agency contract between Novit and First American was submitted into the record. First American’s arguments concerning agency lack merit.
Notice to or knowledge of an agent, while acting within the scope of his authority and with respect to a matter over which his authority extends, is notice to a principal. Mitchell Buick & Oldsmobile Sales, Inc. v. National Dealer Services, Inc., 138 Ill. App. 3d 574, 582 (1985). The party asserting the agency relationship has the burden of proving the agency’s existence by a preponderance of the evidence. FDL Foods, Inc. v. Kokesch Trucking, Inc., 233 Ill. App. 3d 245, 256 (1992). Although the existence and scope of an agency relationship are generally questions of fact, a court may decide the issue if the relationship is so clear as to be undisputed. C.A.M. Affiliates, Inc., 306 Ill. App. 3d at 1021. An agent’s authority may be either actual or apparent. FDL Foods, Inc., 233 Ill. App. 3d at 256. Whereas actual authority may be granted either expressly or impliedly (FDL Foods, Inc., 233 Ill. App. 3d at 256), apparent authority exists in a person who, whether authorized or not, reasonably appears to third persons, because of the acts of another, to be authorized to act as the agent for such other person (Mitchell Buick & Oldsmobile Sales, Inc., 138 Ill. App. 3d at 582). The authority of an agent, whether actual or apparent, can only be established by the words or conduct of the alleged principal, not the alleged agent. First American Title Insurance Co. v. TCF Bank, F.A., 286 Ill. App. 3d 268, 274 (1997).
First American’s relationship with Novit is so clear that this court may decide the issue. Title insurance companies commonly contract with title insurance agents to sell their title insurance. In this case, the record establishes that the Rhones reasonably believed Novit possessed apparent authority to act as First American’s agent because First American held itself out to the public as providing title insurance services through issuing agents. Here, First American signed the Rhones’ title policy, which listed Novit & Novit as First American’s “issuing agent.” The ordinary meaning of the words “issuing agent” reasonably conveyed to the Rhones that First American had authorized Novit as its agent to issue title insurance policies on its behalf. Furthermore, the record indicates that the only contact the Rhones or their attorney had with First American prior to issuance of the title insurance policy was through First American’s issuing agent Novit. Consequently, notice to Novit was notice to First American, and the Rhones therefore gave notice to First American prior to the closing about the omitted taxes for 2004 and 2005.
Finally, First American contends exclusion 3(d) applied to the potential back taxes. Exclusion 3(d) stated that the policy did not apply to defects, liens or encumbrances “attaching or created subsequent to Date of Policy.” First American reiterates the argument that the back taxes did not become a statutory lien until they were included in the 2008 tax bill, which was well after the policy was issued in 2006. However, as explained above, Inland, which is relevant precedent here, held that the potential for the county assessor to impose a lawful claim for back taxes constituted an encumbrance on the property “at the time of transfer” from the seller to the buyer. Inland Real Estate Corp., 127 Ill. App. 3d at 541. The insurance policy therefore covered that encumbrance, and exclusion 3(d) did not apply.
Because the potential back taxes constituted a covered encumbrance under the Rhones’ title insurance policy, I would reverse the circuit court’s grant of summary judgment on count I in First American’s favor and remand with directions to enter summary judgment for the Rhones on that count. First American complains this decision would chill sales because title insurers would be forced to conduct open-ended searches to discover any potential property tax that could ever be assessed. I disagree. If First American wished to place the burden of potential back taxes on the Rhones, it simply should have refrained from endorsing away the standard exception that excluded taxes or special assessments that are not shown as existing liens by the public records. Alternatively, First American could have modified the policy’s terms to exclude coverage for potential back taxes when it learned that the condominium was improperly assessed for years prior to closing. Such precautionary steps are not so onerous as to chill the issuance of title insurance policies or the sale of real estate.
Although I would reverse the circuit court’s order concerning count I, I would affirm the circuit court’s order in favor of First American on count II of the Rhones’ complaint. In count II, the Rhones argued they were entitled to special damages under section 155 of the Illinois Insurance Code (215 ILCS 5/155 (West 2008)) because First American’s denial of their claim under their title insurance policy was vexatious and unreasonable.
Although the granting of section 155 attorney fees and penalties is usually entrusted to the sound discretion of the trial court (Meier v. Aetna Life & Casualty Standard Fire Insurance Co., 149 Ill. App. 3d 932, 940 (1986)), the awarding of section 155 fees and penalties as a judgment on the pleadings is reviewed de novo (Employers Insurance of Wausau v. Ehlco Liquidating Trust, 186 Ill. 2d 127, 160 (1999)).
The question of whether the insurer’s acts are unreasonable and vexatious is one of fact. Green v. International Insurance Co., 238 Ill. App. 3d 929, 935 (1992). A court may award reasonable attorney fees and other costs for a vexatious and unreasonable action by a company where there is an issue of the liability of a company on an insurance policy or the amount of the loss payable thereunder, or for an unreasonable delay in settling a claim. 215 ILCS 5/155 (West 2008). A court should consider the totality of the circumstances when deciding whether an insurer’s conduct is vexatious and unreasonable, including the insurer’s attitude, whether the insured was forced to sue to recover, and whether the insured was deprived of the use of his property. McGee v. State Farm Fire & Casualty Co., 315 Ill. App. 3d 673, 681 (2000). If a bona fide coverage dispute exists, an insurer’s delay in settling a claim will not be deemed vexatious or unreasonable for purposes of section 155 sanctions. Baxter International, Inc. v. American Guarantee & Liability Insurance Co., 369 Ill. App. 3d 700, 710 (2006).
Section 155 fees are not automatically awarded simply because an insurer fails to prove its coverage position. Mohr v. Dix Mutual County Fire Insurance Co., 143 Ill. App. 3d 989, 999 (1986). The record here is silent on the circuit court’s specific findings concerning the Rhones’ claim for section 155 fees. Nevertheless, the Rhones have not met their burden to prove that First American acted with improper intent in refusing payment, and the record indicates that First American did have a bona fide coverage dispute. In considering the totality of the circumstances, the court could reasonably conclude that First American’s denial of the Rhones’ claim was not unreasonable or vexatious.