Understanding FCT’s practice of insuring over title claims
May 4th, 2015 | By John Tracy
AdvocateDaily.com describes itself as a hybrid legal news platform and blog for its members. Recently, contributor Blair Drummie posted a blog entitled The problem with ‘insuring over’ title claims. In the article he suggests that title insurers are “kicking the can down the road” on title claims which is causing “real problems” for property owners. He went on to state that the same insurers are now having to pay out claims as a result.
The Title Insurance Industry Association of Canada, of which FCT is a member, responded by advising that title insurers follow a two-pronged process that insures over a title claim so that a transaction can close on time with minimal cost and then the claim is processed post-closing. Lawyers always have the option to recommend that an issue be fixed prior to closing because they are the “quarterback” of the transaction. You can view their response here.
The exchange between Mr. Drummie and the Title Insurance Industry Association of Canada raises some key points to keep in mind:
1. The legal adviser is always in the driver’s seat
The real estate lawyer (or notary if in British Columbia or Quebec) always has the option of recommending other options to protect their client’s title. Generally, the title insurer has no interaction with the homebuyer. The lawyer retains full discretion to plot the best strategy to represent their client’s interests, including negotiating easements, pre- or post-closing, title insurance, etc.
2. What is the insurer’s post-closing plan?
If the insurer is going to insure over the claim to meet the closing deadline, ask what the plan is for remedying the problem. The option to insure over is best suited to what I call “paper problems,” such as a spelling inconsistency in the name of a past owner or other small discrepancy or error. In such a case it is extremely unlikely that there will be a legitimate attack on the insured’s title, but it is conceivable. Find out what the insurer’s approach to the problem is before securing the title insurance. And if they are planning to fix the issue, ask them when.
3. The more serious the problem, the less likely that insuring over is a complete fix
As mentioned in point #2, insuring over a problem is best suited to “paper problems” such as:
- A “subject to” interest in the thumbnail legal description for an unresolved spousal interest that might be decades old; or
- A “subject to” interest arising from a previous owner taking title in a maiden name and selling in a married name without the appropriate recital.
In these cases, issuing a policy with no exception to coverage is the simplest and most efficient way in which to resolve the claim. It allows the transaction to close on time and in the event the paper problem turns out to be a real problem, the owner has the coverage of the policy to fall back on.
4. The Agreement of Purchase and Sale
It is not uncommon for an Agreement of Purchase and Sale to deal with the issuance of title insurance and an answer to a title requisition or objection. For example, paragraph 10 of the Ontario Real Estate Association standard form of agreement of purchase and sale provides that a seller may obtain title insurance as an answer to a title requisition. It is also common for the Agreement of Purchase and Sale for a property being sold under power of sale to contain a specific provision requiring the buyer to accept a title insurance policy as an answer to a title requisition.
In keeping with the above, FCT aims to take a reasonable approach to insuring over problems. We recognize that simply insuring over a problem as a method of resolving a claim is generally reserved for simple issues and that many problems should, in fact, be remedied after closing.