Letter from Title Insurance Industry Association of Canada
I am responding on behalf of the Title Insurance Industry Association of Canada to the article entitled the “The problem of insuring over title claims.” In this article, Mr. Drummie alleges that the trend of title insurers “insuring over” claims rather than correcting the deficiencies will continue to cause problems for property owners.
Mr. Drummie bases his conclusion on one example; he cites of the need for an easement on a cottage property. He suggests that the title insurer’s offer to provide coverage to close the transaction without addressing the easement issue prior to closing would lead to negative consequences.
From the perspective of the parties involved in the real estate transaction – the seller and the buyer- the offer to insure over a known risk in the context of a claim allows the transaction to close on time with minimal expense. Prior to title insurance, delayed closings were often at a significant cost to both parties, particularly when they were in the midst of buying one home and selling another. They could find themselves paying mortgages on two households, finding alternative housing, storing possessions, not to mention facing penalties in the agreement of purchase and sale.
Title insurers will often offer a two pronged approach in these situations when faced with a claim and a fast approaching closing. First, they provide a policy of title insurance insuring over a particular known issue allowing the transaction to close on time. Second, they will confirm that they will pay the costs of attempting to correct the title defect after closing. This way the new purchaser has coverage over the issue and the knowledge that an effort will be made to correct the problem after closing.
In the event the problem cannot be corrected, the new insured could receive payment of the “Actual Loss” (as defined in the policy) arising from the covered title risk. So the insurer is still on the hook for the defect.
In the case described in the article, it was reasonable for the title insurer to offer to insure over the issue as it is often difficult to gauge whether a covered title risk would be a fast and easy fix upfront. While I would like to attest that issues can be resolved quickly between family members – experience teaches otherwise.
Mr. Drummie implies that the title insurer provided no other option than to insure over the issue. As the lawyer quarterbacking the deal Mr. Drummie always had the option to recommend to his client that the easement be fixed prior to closing. The law society rules require him to discuss all options to protect the title interests of this client, not just title insurance.
Title insurance is always an option for the homeowner. If their legal counsel recommends fixing the defect before closing, they may still want to purchase the insurance in order to receive the other benefits of title insurance including fraud, survey and building permit coverage, as well as a less costly closing.
From a title insurance industry perspective, the offer to insure over the issue then fix it following the closing offers a fast and simple solution that allows a transaction to close as scheduled and with minimal expense.
Mr. Drummie’s comments are similar in context to allegations that title insurers have been subject to for the last two decades- specifically that title insurance would undermine the land title system. Title insurers underwrite based on registered title and as such we are the companies most dependent on the validity and accuracy of the land title system.
Paul Zappala, LL.B.