One of the lesser known benefits of title insurance is that the insurer is obligated to provide and pay for the legal costs of defending the insured’s title if a third party sues claiming an interest in the land.
That was the issue in the case of Knapman v. Deweerd released last month by the Ontario Superior Court of Justice.
Emily Knapman’s cottage property on Whitestone Lake in Parry Sound is next door to one owned by the Deweerd family. Knapman bought her property in 1969 and the Deweerds acquired theirs in 2003.
The apparent boundary between the two properties was marked by a tree line and swamp area. This boundary was approximately 15 to 20 feet from the Deweerd cottage. Unfortunately, the Deweerds did not have the benefit of a land surveyor’s report at the time of their purchase.
After closing, the Deweerds obtained a permit to raise the cottage and construct a permanent concrete block foundation underneath it on the original cottage footprint. The work was completed, and the municipality inspected and approved it.
Sometime later, the Deweerds retained the services of a land surveyor who determined that their cottage encroached by about three inches onto Knapman’s land. The apparent boundary was well into Knapman’s land.
Knapman discovered the encroachment in 2006, and told the Deweerds that their cottage and propane tanks were on her property. The tanks were removed and the Deweerds offered to purchase the disputed strip of land under the cottage, but that offer was refused.
Eventually, Knapman sued the Deweerds alleging that, in addition to the cottage and propane tanks encroachment, the Deweerds removed trees from the boundary line, placed backfill around the Knapman cottage, and created a side lot adjoining her land.
Knapman claimed that her privacy was adversely affected and that the value of her property was substantially reduced.
At the time of their closing the Deweerds purchased a title insurance policy from Stewart Title covering, among other things, the forced removal of all or part of a structure because it extends onto adjoining land. The policy requires Stewart to defend the title of an insured relating to a risk covered in the policy.
When the Deweerds were served with Knapman’s lawsuit, they asked Stewart Title to file a defence on their behalf. Stewart refused, on the basis that the foundation of the house had been upgraded from piers to a block foundation.
Without the support of their title insurer to defend the claim against their ownership, the Deweerds retained their own lawyer to defend the Knapman action, and file a claim against Stewart Title for failing to honour the policy. They also counterclaimed against Knapman asking for a court order requiring her to sell them the disputed portion of her land.
The Deweerds brought a preliminary motion to force Stewart to provide and pay for a defence to the litigation. Stewart’s position was that the removal of the trees, the encroachment of the propane tanks, and the deposit of backfill were not covered by the policy since they all took place after closing. It agreed that its duty to defend was limited to the costs of defending just the cottage encroachment issue.
After hearing arguments in March, Justice Frank Cornell ruled that Stewart Title was required to defend the cottage encroachment claim, while the defendants were required to defend the uninsured claims relating to the propane tanks, backfill, tree removal and the side yard.
Stewart was ordered to pay the Deweerds the full costs of the court application.
The case itself has yet to go to trial, but its lesson is that buying a property without a land survey – especially in cottage country – is very risky. And having to sue your own title insurer is not a pleasant experience.
(Full disclosure: I am a non-voting director of the Law Society of Upper Canada which owns TitlePLUS, a competing title insurer, but I have no role in its operations. )
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Bob Aaron is a sole practitioner at the law firm of Aaron & Aaron in Toronto and a board member of the Tarion Warranty Corp. 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 firstname.lastname@example.org