Duty to defend. Another customer care tool for your clients
Jun 4th, 2014 | By Paul Miron
In my last blog posting I touched on how title insurance brings coverage solutions and/or efficiencies to commercial transactions depending on how lawyers/notaries decide to use it. In this post I will discuss how it can also be a great customer care and retention tool. With title insurance you have the ability to turn a potentially stressful situation into a positive experience for your customers specifically when an issue arises post-closing and the duty to defend provision is triggered.
What is this duty to defend?
Duty to defend essentially means that if anyone challenges or raises an issue that is covered under the policy, it is then the title insurer’s responsibility to pay all the legal costs and expenses to defend the insured’s interest in the land. The duty to defend is included in both residential and commercial policies, but for the purposes of this blog I will speak to its application to commercial properties.
How does it work?
You can be the best commercial real estate lawyer or notary on earth and do everything possible to ensure your client’s real estate purchase is a secure investment, but issues can still come up — issues that are out of your control that can leave you with an unhappy client.
The most common covered title risk that triggers the duty to defend is when third parties claim interest in the insured’s land. In most instances the third party has a valid claim; however, often claims are completely invalid. Some of the most common scenarios are:
The valid third-party claim:
• The Land Registrar may have neglected to bring forward an interest on conversion into the Land Titles system (e.g.an old easement) or an instrument is registered on the wrong parcel.
• The surveyor made an error on the location of the boundaries and it turns out the neighbour actually owns some of the insured’s property.
The invalid claim:
• This tends to happen when there is an intentionally difficult or opportunistic neighbour involved. There is clearly no issue or error at all, however a neighbour believes he/she has a right to the insured’s land. Often times this individual is motivated by another matter altogether and the end goal is to pressure the insured into offering a concession.This is probably the most prevalent invalid claim issue and definitely the most frustrating to deal with as an owner or as a lawyer/notary.
Regardless of whether the claim is valid or not,nothing can be done as a legal professional to avoid the issue. Furthermore, the unhappy client may be pointing the finger at his or her legal counsel in frustration. What happens next is dictated by whether or not the client has a title insurance policy in place.
The resolution without title insurance
Without title insurance the property owner’s lawyer or notary would explain the issue, the next steps and then quote the legal costs and expenses required to try and resolve the dispute/issue (even if it is a bogus claim!). Upon resolution, not only would the client be out legal expenses, but could be stuck with a diminution in value if the resolution is unfavorable.
The resolution with title insurance
With title insurance in place, lawyers and notaries have the ability to explain the issue to the client and let the client know that since the claim relates to a covered title risk, all legal fees and related costs are covered under the policy. At this point, we would retain a lawyer to defend the insured’s interest in the land, often providing an option to the existing lawyer/notary to continue on with the file to ensure the client is handled with the best possible care without additional cost.
It’s important to remember that FCT’s duty to defend takes effect whether the third-party claim is valid or not, as long as it relates to a covered risk. Also, there is no maximum dollar amount capping these costs and invoking this benefit does not reduce the amount of insurance. A significant portion of our claims dollars spent on commercial policies falls under our duty to defend coverage and many commercial legal professionals have seen firsthand how valuable this tool can be.
Has the duty to defend helped you provide a great customer experience? Let us know by commenting below or contacting us at FCTblog@fct.ca.