What Title Insurance Does Not Do

In a prior article I wrote about title insurance. A reader asked whether all title policies are the same and whether, because you have a policy, you therefore have good title. My answer was, not on your life. The exceptions schedule attached to your policy is hand tailored for each closing, and what one hand gives (the coverages page), the other (the exceptions page) may take away. Remember that the advice was to read carefully the exceptions page(s).

There is another important difference between title insurance policies, and this difference often causes me to tell clients to be careful. Each title policy is underwritten by a major national insurance company. All underwriters are rich, and they can all pay their claims. But each underwriter is represented by agents who actually write each policy. The agent can put in, or take away, whatever exceptions or coverages are appropriate. The agent can also write a policy that shouldn’t be written.

Why would an agent write such a policy? There are several reasons. One is simply oversight. Title examination is almost always done by employees of the national underwriter in a local office. If they overlook something in their report to the agent, the agent’s policy will be wrong. Another reason a policy could be wrong involves poor judgment by the agent. For instance, if I know there is an old easement through the property which might not permit development, but almost no chance that the easement is still valid, either because no one has ever used it, because of vague or poor conveyance language, or for any other technical reason, I could rationalize that the easement doesn’t apply. In a several million dollar deal, the title insurance premium is many thousands of dollars and that premium is very attractive. If I know this deal will never close in the event that I list the easement as an exception to title, I might choose to write the policy on the slim chance that no one would ever attempt to use that easement, especially after a building is already constructed over it. If I am wrong, the Buyer has title insurance, and while I will probably live long enough to spend the premium, I may not live long enough to experience the problem.

For a title agent to do that intentionally, without permission of the underwriter, and without pointing out the possibility to the insured, would be dishonest. Obviously, it happens.

The insured could be casual enough to believe the error doesn’t matter since a national underwriter will take care of the problem. But remember that the underwriter’s duty is only in the amount of the policy. If it becomes cheaper for the underwriter to pay out the policy amount and let the insured solve his own problem, that is exactly what the underwriter will do. If the insured has a policy in the amount of the land purchase, and has added an expensive building, the building is uncovered by title insurance. In addition, any defect known to the insured, but not known and accepted by the underwriter, is an absolute defense to payment under the policy.

If my client is going to be putting a significant improvement on title-insured land, and if I’m not writing the title insurance, I want to see a complete abstract of title, so that I know exactly what assumptions are made and what documents are ignored when the title insurance is written. In addition, I will supplement the amount of title insurance to cover the total value of both the land and the building.

Title Insurance policies may be as different from each other as the title agents who write them. Like the carpenter, electrician, and plumber, our work may soon be covered up by other work, or by time. But just like those trades, what you don’t see may be important.

Don’t let your closing agent be chosen by convenience or by someone else’s business arrangement. Chose your agent by his or her experience and reputation for integrity.