Christian J. Garris
Title insurance: When defects in title go undetected Protecting buyers of real estate from the negligent research of the title company
Simply put, title insurance is a way of
insuring a buyer of real property against defects in the buyer’s ownership interest in that property. Generally, title insur- ance policies provide coverage for any defect in title such as a lien or an ease- ment. The limitation on such coverage is, however, twofold: the defect must (1) appear in public records, and (2) not be included in the list of defects attached to the title insurance policy. (Lawrence v. Chicago Title Ins. Co. (1987) 192 Cal.App.3d 70). In a way, title insurance protects a
buyer of real property from an interest in the property held by someone other than the seller, which the title insurance com- pany should have found when research- ing the title but failed to find. So, while liability insurance protects the policyhold- er from its own negligence, title insurance protects the policyholder from the negli- gence of the insurance company. This arrangement is unique in the world of insurance.
What is title insurance? California Insurance Code § 104
defines title insurance as follows: Title insurance means insuring, guar- anteeing or indemnifying owners of real or personal property or the holders of liens or encumbrances thereon or others interested therein against loss or damage suffered by reason of: (a) Liens or encumbrances on, or
defects in the title to said property; (b) Invalidity or unenforceability
of any liens or encumbrances there on; or (c) Incorrectness of searches relat
ing to the title to real or personal property. Note that coverage is dependent
upon the defect appearing in the public records, but that there is not a more spe- cific requirement that the defect be “recorded.” Hence, to the extent a defect
42— The Advocate Magazine JUNE 2011
appears in public records but has not technically been “recorded,” there will still be coverage. Most polices require claims to be
made within 90 days of when the insured is on notice of the existence of a claim, but a title insurer may not deny a claim based on late notice unless the insurer can demonstrate actual and substantial prejudice as a result of late notice. (Lagomarsino v. San Jose Abstract & Title Ins. Co. (1960) 178 Cal.App.2d 455, 459; Shell Oil Co. v. Winterthur Swiss Ins. Co. (1993) 12 Cal.App.4th 715, 763.) • Title insurance provides coverage for defects in title not known to the insured Title insurance protects an insured
only against easements, etc. that appear in public records, but what about an ease- ment that does not appear in public records and is therefore not covered? Such an easement normally would not be a problem for the insured since it must be recorded to be enforceable. In other words, there are, at first, three apparent possibilities. First, the easement is record- ed, the title insurance company finds it, and includes it in the policy. The buyer takes subject to the known easement, and there is no coverage under the policy. Second, the easement does not appear in the public records, so it is not included in the policy, but it is not enforceable because it is not recorded so it makes lit- tle difference to the insured. Third, the easement does appear in the public records but the title insurance company erred when writing the policy and did not include it in the policy. The insured could then pursue a claim for the diminu- tion in value caused by the easement. Are these the only three possibilities?
There is a fourth possible situation here where an easement does not appear in the public records, is not included in the policy, but is still enforceable against the insured. This fourth scenario would be if there is an easement by adverse
possession. In this scenario, the easement may be enforceable but there is likely no coverage if the easement does not appear in the public records. • The history of title insurance Buyers of real estate used to assume
the risk that there was something wrong with the title that they thought they were purchasing. Whether it was a lien against the property or an easement undisclosed by the seller, it was up to the buyer to research the issue. If that research proved inadequate, the result would be that the unknown defect would apply, and there might be little recourse available against the seller especially if the seller was unaware of the defect. In many other parts of the world, the government main- tains the record of the ownership of land and its determination as to ownership is conclusive, extinguishing claims that might otherwise prevail and become a defect of title. The United States devel- oped a system of recording title, where there is no conclusive governmental rul- ing as to the ownership of land that can be relied upon by a buyer. Hence, the need arose for private research of public documents to seek out any defects in title. Pennsylvania enacted legislation in
1874 to establish the class of “title insur- ance,” and the first title insurance compa- ny originated in 1876 in Philadelphia. (The History of Title Insurance, The New York Times (Oct. 6, 1888).) The industry quickly spread across
the country. The companies themselves at first collected copies of all of the deeds and related property records for all prop- erties in the city in which they did busi- ness. Called a “plant,” these vast store- houses of documents provided the com- panies with an in-house resource of every- thing needed in order to research all potential defects in title. The idea was that by collecting all of the recorded information themselves, they could avoid
See Title, Page 44
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96