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Real Estate

Court says title insurance covers losses of badly built property

Structural deficiencies missed because of poor construction may be covered by title insurance in the wake of a recent Superior Court decision, Toronto real estate lawyer Matthias Duensing writes in The Lawyer’s Daily.

In this case, the family purchased a cottage in 1999 that had been custom-built by a previous owner. The family’s conveyancing lawyer did an off-title search with the Building Department and eventually discovered a notice had been sent to the owner in 1992, stating that no final inspection of the property had been conducted.

“It was unknown whether a final inspection had ever been conducted — in 1996, a fire at the Building Department destroyed all records pertaining to the property,” writes Duensing.

On the advice of their lawyer, the family decided to buy the property without requesting a final inspection, although they did purchase a standard title insurance policy, he says.

“Twelve years later, the [family] planned on constructing an addition to their cottage. Their engineer conducted an inspection and immediately issued a warning to the family to vacate the property due to structural deficiencies in the construction. Further inspections of the home demonstrated that the original building permit was issued on an incomplete application and that the Building Department had failed to enforce Ontario Building Code standards,” Duensing writes.

He says the family has not been able to use the cottage since 2012.

“They filed a claim against their title insurance policy for their losses, on the basis of a defect in title,” Duensing writes, adding that the insurance company objected to the claim, insisting that the losses are subject to exclusions in the policy.

For the claim to be successful, he says the court accepted that the family must prove:

  • the facts have caused actual loss
  • the facts are title risks under the policy
  • the family did not have knowledge of the title defects
  • the coverage is not precluded by exclusions in the policy
  • the family suffered a loss that was caused by the covered title risk
  • the value of that loss

“After hearing various expert testimony, the court determined that there were Building Code violations in the property, specifically structural deficiencies that rendered the property unlivable until remedied, thereby satisfying the first factor,” says Duensing.

The court said the family’s losses were covered because of an unmarketable title under the policy, he writes in the article.

The defendants tried to argue that exclusions in the policy disqualified the family’s claim, but the court disagreed, says Duensing.

Justice Margaret Eberhard “found that the title insurance policy … does indeed cover their losses due to an unmarketable title, upholding the principles clarified by the Court of Appeal in [a 2015 case],” Duensing writes, adding that a trial to determine the value of the loss is set for November 2018.

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