Title Insurance Doesn't Insure Good Title
by Patrick Daly | 2012/02/20
I have handled title insurance claims for three different underwriters (two national, one regional). As you are probably aware, most claims are submitted by foreclosure firms on lender's policies, as their pre-foreclosure title search has revealed some title issue. I continue to see a common misperception in claim letters from foreclosure firms regarding the coverage afforded by a title insurance policy. Specifically, insured claimants are frequently of the opinion that the title insurance policy insures that the insured has good title. It doesn't. Rather, the title insurance policy insures against actual monetary loss occasioned by one of the covered risks. The distinction is important, as many claimants (operating under their erroneous belief that the policy insures good title) believe that the insurer must clear the title so that it is "good." The policy contains no such obligation. In fact, the burden is on the claimant to prove that a defect has caused the insured to suffer a loss. Absent such a loss, the claim can be denied (in the 2006 ALTA policy jackets, see Exclusion 3.(c)). I received a claim today, the claim letter for which states that title insurance insures that title must clear. No, it doesn't. Claim denial letters routinely being with the following: "The nature of the Insured's policy of title insurance is that of a contract of indemnity under which an insurer will indemnify an insured against loss suffered according to the terms and conditions of the policy." In other words, title insurance is a contract of indemnity, and not a guarantee of title. A Maryland appellate court has held the same. See, e.g., Stewart Title Guaranty Co. v. West, 110 Md. App. 114 (1996). Now that I have that out of my system, let me return to writing "no loss" denial letters.
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