Huge title insurance case reaches conclusion

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It has been dubbed one of the most important insurance cases of its generation – and now a protracted battle regarding title insurance has come to an end in the Supreme Court of Canada.

The court has decided to uphold a ruling, dismissing an insurer’s appeal – and in the process has prompted many title insurers to review their policies.

According to a Toronto Star report, the case revolves around Paul and Stefanie Macdonald who bought a home in the city that they believed had been poorly renovated by its previous owner. When they attempted to undertake renovations of their own, they found that load-bearing walls had been taken out without building permits – making the second floor unsafe for use. This prompted the city of Toronto to issue a work order to support the unsafe floors with the Macdonalds paying out $75,000. They made a claim to Chicago Title on their insurance policy to cover these costs because the policy was said to provide coverage if the title was unmarketable. However, the claim was denied as the company stated that it was not covered under the policy.

This, in turn, prompted court action beginning in 2014, with the judge ruling that the municipal work order resulted from a hidden defect that was not covered under the policy. It stated that the work order did not affect “ownership of the land” as it was not registered on the property title – even though work orders are never registered against the title.

According to the Toronto Star report, work orders in the province affect a property even when ownership is transferred – and while in the past lawyers would carry out a search for work orders this is often deemed no longer necessary because it is assumed that title insurance will protect the owner.

It was last year that the decision was reversed with the insurer ordered to pay more than $50,000 in costs with the ruling suggesting the hidden defect made the title unmarketable. Now an appeal by the insurer has been dismissed and the ruling upheld.

The consequences of the ruling are far-reaching because it suggests any house with hidden defects could have an unmarketable title – prompting some insurers to quickly adjust their policies to ensur they exclude coverage for significant hidden defects.

Now the risk appears to lay with buyers and the insurers who will still offer coverage.
  • Martha Smith on 2016-11-21 2:37:13 PM

    Lawyers now have to do a search
    Same as before title insurance

  • Mortgage Mike on 2016-11-21 3:02:05 PM

    More so than just that, buyers have to do their due diligence on the state of a property, and buyers have to be willing to sue former owners who've done illegal renovations. Only by bringing the consequences home to the people who've flouted the law, can we fix the issue of rampant illegal and dangerous renovations.

  • Gary on 2016-11-21 5:00:59 PM

    So now what do you do when title insurance renegs on the size of the land...clients purchase a purported 60 acres (as per listing & offer) and it turns out to be only 51 acres--and title insurance wants no part of the ensuing conflict

  • Appraiser on 2016-11-22 12:11:28 PM

    I would like to get into the hidden defect insurance market. Lots of policy revenue, very few claims.

    Insurance companies could offer it as a 'rider' on future policies for an additional premium. Canadians love insurance.

  • Title Ron on 2016-11-30 2:28:03 PM

    A complete misunderstanding of the title insurance policy and the meaning of the word "marketable." Marketable title refers to the state of the title itself, not whether someone would buy the property. Ms. Smith is incorrect because the defect was not one found in the public records as defined by the title insurance policy. The judges appear to have wanted to achieve a particular result regardless of what the policy stated.

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