The Limits of Title Insurance: Toronto Buyer Soaked with Vendor's Final Water Bill

Bob Aaron in Legal, Home Buying

When Donna bought her home near Warden Ave. and Ellesmere
Rd. last summer, she had no idea she would get stuck with the final
water bill of the former owners.

When the transaction closed in
July, Donna's lawyer Rachel Loizos got a standard form undertaking from
the sellers. An undertaking is a promise, among other things, to pay
all final utility accounts.

As of the closing date, the City of
Toronto had not issued a final water bill based on the meter reading on
that day. When the bill for $137.87 arrived, Loizos wrote Bang-Gu
Jiang, the solicitor for the sellers, requesting payment of the bill,
which was their responsibility.

In the vast majority of cases,
sellers are responsible, and pay their final bills for gas, water and
hydro, although water is the only bill that can actually be added to
the tax bill to create a lien on the property.

The sellers in
Donna's case had apparently moved back to Hong Kong, and did not pay
the bill. The sale was completed in Toronto by someone using a Power of
Attorney document, and the former owners were "unreachable" in Hong

Eventually, the city transferred the arrears, plus
interest and fees, to the property's tax bill. Loizos then submitted a
claim to First Canadian Title, the title insurer, which insured the
purchase transaction under its Platinum Policy.

In February, First Canadian responded to the claim for $137.87. A
clerk in its claims administration department advised that the First
Canadian title insurance policy does in fact cover charges incurred for
public utilities supplied to the property prior to the date of the
policy, except for final meter reading charges.

To trigger
coverage, First Canadian required proof the arrears did not relate to
the final meter reading. Since that was exactly what the arrears were
for, the claim was not covered by the policy.

Last week I
contacted First Canadian to verify what their policy is for cases like
this. Susan Leslie, vice-president of claims and underwriting for the
company, confirmed to me "we do not pay claims for final meter
readings, as they are not covered under the policy."

Title Guaranty Company also provides title insurance in Ontario. A copy
of their Gold Policy emailed to me some time ago shows an exclusion for
final meter readings, similar to the wording of the First Canadian

Kathleen Waters is the president and CEO of the
Lawyers' Professional Indemnity Co. (LAWPRO), which is owned by the Law
Society of Upper Canada. Until recently, she was president of
TitlePLUS, a division of LAWPRO that operates its own title insurance

A word of disclosure is necessary at this point. I am
an elected bencher (director) of the Law Society of Upper Canada, which
owns LAWPRO and TitlePLUS. That company insures all Ontario lawyers for
errors and omissions. As a bencher, I have no role in the operation of
LAWPRO or TitlePLUS except to approve or not approve their annual
reports, along with more than 50 other bencher colleagues. I do not sit
on the board of LAWPRO and do not attend its meetings.

I asked
Waters last week whether the TitlePLUS policy covers arrears resulting
from final meter readings. In an email to me, she replied that, "the
TitlePLUS policy does NOT have an exclusion built in for final utility
bills as I have often seen in other title insurance policies. We simply
say that we cover `liens ... arising as a result of public utility
arrears ...'"

In the end, Donna got hit with paying the final
water bill, plus fees and interest, which were really the
responsibility of the former owners. Although the amount of the bill
was relatively small in comparison to the price of the house, it was
still a bitter pill to swallow.

Donna and her lawyer learned
the hard way that not all title insurance policies are the same. If
TitlePLUS had insured the transaction, the company would have paid the
final water bill.

The lesson of her story is that purchasers
should always review with their real estate lawyers what is – and what
is not – covered under their title insurance policies.

Bob Aaron is a sole practitioner at the law firm of Aaron &
Aaron in Toronto.  Bob specializes in the areas of real estate,
corporate and commercial law, estates and wills and landlord/tenant
law. His
Title Page column appears Saturdays in The Toronto Star and weekly on Move Smartly.  E-mail

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