Title Insurance - Part 2 of 3 #322

By Gerry Neely
B.A. LL.B

A lender’s policy, whether residential or commercial, contains the basic risks plus a broader coverage than is provided in the buyer’s policies, referred to in Column 321. Those risks include, interesting enough, the invalidity of the mortgage due to usury laws, encroachments on to or from the insured lands. These risks are more fully described in the policies of title insurance.

The residential policy insurance for one lender contains a total of 24 different insured risks - one of which is for an event that occurs after the policy date, namely, the encroachment upon the insured property of an improvement constructed after the policy date. This is a "post policy date" event, which can only be covered if it is specifically stated to be in effect after the policy date.

Each policy also contains a second area of coverage, and that is the legal fees that may be incurred by the insurance company in the defence of the insured title. These costs could be substantial, particularly for insurance covering commercial properties. The policy does not limit the fees the insurance company may incur and the fees are not deducted from the amount of insurance. The policies give the insurance companies a number of options including paying the claim, defending it, or canceling the policy by paying to the policy holder, or the claimant, the insurance and costs, fees and expenses incurred up to that time.

Under one owner’s policy, the insurance continues during the period the owner retains an interest in the land, or holds a vendor take-back mortgage, or remains liable under a warranty covenant in favour of the buyer of the insured lands. However, the policy does not remain in force for the buyer of the lands or the buyer of the owner’s interest in a take-back mortgage.

Commercial properties include residential properties containing more than four units, mixed use properties, farm properties generating an income, vacant commercial or industrial land and leasehold interests. Exclusions from coverage include defects known to the owner but not disclosed to the insurer prior to closing, expropriation, and environmental issues. A title insurer may insure a known title defect where the risk of loss is acceptable.

According to an industry spokesperson, the advantages of title insurance include: closings are facilitated, particularly where there are no known survey or title defects; known defects can be unwritten and insured; title and off-title searches are eliminated; clients save disbursement costs; and the need for up-to-date survey is eliminated, or there is broader coverage such as coverage for fraud and forgery which is more than an up-to-date survey and title search can provide. For lawyers, the advantage of title insurance is that the liability is shifted from the lawyer to the title insurer.

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