Some Title Insurance is Better Than Others

In the world of real
estate, it’s not very well known that title insurance policies vary
significantly from one company to another.

When it comes to basic
title protection, though, policy coverage among insurers is very
similar. Title insurance typically protects home buyers against loss
from risks which are listed in the policy, including another person
having an ownership interest in the property, outstanding liens,
construction without a permit, fraudulent title dealing, breach of
zoning bylaws and other circumstances which could result in loss.

But unlike insurance
policies in other fields, some title insurance policies also include
coverage for risks that are not specifically itemized.

This type of protection is called legal services coverage and not every title insurer offers it.

In plain language, if a
mistake in a real estate transaction occurs due to a lawyer’s
negligence, legal services coverage in a title policy protects the owner
— even if the mistake falls outside the specific risks listed in the
policy.

I often say that there
is no such thing as a simple real estate deal. There are numerous
aspects of a real-estate transaction in which mistakes can occur, even
though the owner has received good and valid title to the property.

A real-life example of
legal services coverage occurred when a purchaser signed an agreement
to buy a lakeview condominium unit, described as Suite 5321 and Unit 5
Level 2. It turned out that Unit 5 Level 2 was actually Suite 5531,which
did not have a view of the lake.

In reviewing the status certificate, the buyer’s lawyer missed the inconsistency.

The buyer took title to a unit he had no intention of buying and the lakeview unit was sold to someone else.

Normally, since the
purchaser received good title to the numbered unit in his purchase
offer, the loss would not be covered by a title insurance policy.

In this case, however,
the legal services coverage came into play and the insurer compensated
the buyer for the difference in value between the two units.

Other examples of
legal services claims might include putting incorrect names on the deed,
land transfer tax and income tax implications, errors in calculating
the adjustments between buyer and seller, and financial consequences of
the purchase.

In Ontario, only two
title insurance companies are authorized to issue policies which provide
legal services coverage: FCT Insurance Company Ltd. (First Canadian
Title), and Lawyers’ Professional Indemnity Company (LawPRO —
TitlePLUS).

(Disclosure: I am a non-voting director of the Law Society, which owns LawPRO. I have no role in its operations.)

TitlePLUS routinely
includes legal services coverage in all its Ontario residential purchase
policies, and FCT does not include it although it is licensed to do so.

In the case of
TitlePLUS, any negligence or mistake by a lawyer in providing legal
services for a real estate purchase transaction is covered by the
TitlePLUS policy whether or not the mistake is a specific insured risk
set out in the policy.

This coverage is included in the policy without extra charge to the lawyer or buyer.

FCT Insurance offers
what it calls E&O Extra coverage to lawyers who pay a one-time
annual fee. The coverage reimburses the lawyer for his or her deductible
and insurance premium surcharge if the client sues the lawyer due to an
error in the transaction which is not covered by the title insurance.

With FCT, the homeowner would have to sue the lawyer in order to recover any losses.

Although Stewart Title
is unable to provide legal services coverage, it does offer what it
calls StewartPROTECT for an extra premium with each policy.

The wording of the
coverage suggests that there is no protection from lawyer mistakes for
post-closing errors (such as payout of funds) or mistakes (such as
calculation errors) which do not affect use and enjoyment of the
property. Stewart, though, may provide protection outside policy
boundaries.

Home buyers who want
the broadest possible protection with their title insurance policies
should always discuss legal services coverage with their lawyers before
closing.