Most purchasers of real property, and almost all of their lenders, obtain title insurance. Title insurance, however, is not a cure‑all. This article addresses the coverage that title insurance provides to you and the rights of your title insurance company in dealing with a claim from you.
Your Owner's Policy of title insurance insures your title to your real property. Examples of potential insurable claims you might have include recorded restrictive covenants, easements, or rights‑of‑way that you were never told about; improperly executed conveyances; prior, uncancelled deeds of trust; improperly, incomplete, or even missing legal descriptions of your insured land; claims by an adjoining property owner to part of your insured land; your lack of a right of access to your insured land; and many other defects or encumbrances that adversely affect the title to your real property.
Title Insurance Coverage
Your title insurance policy is a contract and obviously the best starting point for determining coverage. As with most insurance policies, your title insurance policy has insuring language, exclusions, exceptions, and conditions and stipulations. The insuring language insures the title to your property "as of Date of Policy" against loss or damage, "not exceeding the Amount of Insurance," sustained or incurred by you as a result of certain title defects listed in your policy, including such things as "any defect in or lien or encumbrance on the title."
There will be exceptions from your coverage listed in Schedule B of your title insurance policy. Schedule B will list as exceptions to your coverage such matters as existing liens or encumbrances, restrictive covenants, easements, matters shown on a recorded plat, or other obvious title issues that you know or should know about.
There are also exclusions from your coverage for problems related to zoning laws, eminent domain, usury, and things of that nature that title insurance companies do not insure unless you ask and pay for an endorsement to your policy. Your title insurance company will require that you meet certain requirements and supply it with additional information in order to get most endorsements.
The exclusion most often relied upon by title insurers to deny coverage is the following exclusion:
3. Defects, liens, encumbrances, adverse claims or other matters:
a. Created, suffered, assumed or agreed to by the Insured Claimant;
This exclusion has generated a significant amount of litigation, including some in North Carolina, and has been used successfully by title insurance companies to defeat certain claims.
In a case decided in Maryland, the insured owners received a deed for all of "Lot 9" in a subdivision and obtained title insurance from the defendant title insurance company. The recorded plat of the subdivision did not show any road or other encumbrance on Lot 9. However, a survey of the property obtained by the insured owners at the time of closing showed that a certain road ran across a part of Lot 9, allowing others to go across Lot 9 to get to their own property. This, of course, negatively affected the use of Lot 9 by the owners and the value of their property. They sued, but the Court, in ruling for the title insurance company, held that the insured owners knew or should have known about the road since it was shown on their survey, knew or should have known what they were getting, and freely elected to purchase the property despite knowing that the road cut across their lot.
In a Connecticut case, the Court determined that because the insured owners knew at the time of closing that the legal description of their property in their deed contained a house the sellers did not own, they could not seek reimbursement from the title insurance company for the loss of the home. Title insurance does not provide coverage for title problems that are created or agreed to by the owner who is insured.
Making a Claim
Making a claim against your title insurance policy is a very simple process. All that is required is written notice from you in a reasonably prompt fashion to the address of your title insurance company listed in your policy. Typically, title insurance companies will not stand on too much formality with regard to the giving of notice or the providing of proof of loss or damage. In my experience, once notice of your claim is received, a claims representative will be assigned who will communicate with you and gather the information that is necessary to assess your claim and determine a course of action.
It should be noted that all title insurance policies contain provisions requiring the insured parties to cooperate in assisting their title company in defending or resolving a claim. Accordingly, if the title insurance company requests information or documentation from you, it is necessary for you to provide it if you possibly can.
If litigation has been instituted against you, a copy of the lawsuit should be provided with the notice of your claim. Your policy requires that your title company, "at its own cost and without unreasonable delay," provide for your defense in any litigation in which any third party asserts a claim adverse to your title or interest in your real property as insured by your policy, "but only as to those stated causes of action alleging a defect, lien or encumbrance or other matter insured against by [your] policy." The ability of your title insurance company to defend the claims that pertain to covered title defects asserted against you in a lawsuit and to reject the defense of other claims is somewhat unique to title insurance policies. For example, a lawsuit brought against you to dispute a boundary line may also include claims against you for damages for assault or slander if exchanges between you and the other property owner became heated. Your title insurance company would not be required to defend the claims related to assault or slander. Regardless, lawsuits involving title issues can be complex and expensive, and having a title insurance company paying the attorney defending you is a significant benefit.
Your Title Insurance Company's Options
Upon receiving your claim, your title insurance company will have several options. It can pay you the policy limits and be relieved of further liability. It can settle with the party who has made a claim against you or can reach a monetary settlement with you to pay you the difference between the value of your property burdened by the title defect and its value if the title defect did not exist.
The option that title insurers frequently take is to settle with, or litigate against, the third party who has made a claim against their insured customer in order to cure or resolve the title defect. As long as the title insurance company does that in a reasonably diligent manner by any method, including litigation and the completion of any appeals therefrom, it will have fully performed its obligations to you with respect to that matter and will not be liable to you for any loss or damage caused by the matter. Awaiting the conclusion of litigation and all appeals can be agonizing, especially if you want to sell your property, but that is clearly a right your title insurance company has.
Title insurance is a very good thing to have and offers many protections for what is usually a very valuable asset. However, a claim will often take considerable time to resolve, and the process can sometimes be frustrating. If you find yourself in need of assistance with any aspect of a title problem, your best course is to consult an attorney with experience in dealing with such issues.
© 2013 Ward and Smith, P.A. For further information regarding the issues described above, please contact .
This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.