Interpretation of Title Insurance Policies re: Real Estate
Real estate title insurance is different than most other types of insurance. As opposed to assuming the risk of loss for future events (e.g., life insurance, property & casualty insurance), it eliminates risk of loss from past events (i.e., a real estate’s title at the time of purchase). A title insurance policy comes about when the insurer analyzes county real estate records affecting title to a particular piece of property. An analysis is done to determine whether any title/ownership defects exist. Assuming everything checks out, a policy is then issued to insure against any prior defects. The insurance company puts itself on the line and assumes risk that nothing was overlooked or misinterpreted.
Like with most insurance policies, there are often quite a bit of exceptions to coverage. “Provisions limiting or cutting down, or avoiding liability in the coverage made in the policy are construed most strongly against the insurer.” State Farm Mut. Auto. Ins. Co. v. Mid-Continent Cas. Co., 378 S.W.2d 232, 235 (Mo. Ct. App. 1964). The insurer has the burden to prove that an exclusionary clause applies. Id. Accordingly, there is a strong preference in parsing down the effect and scope of exclusionary language.
In practice, after the section identifies items subject to coverage, there will be a document captioned “Schedule B” enumerating exclusions. Generally, if a lien, encumbrance or other item is excluded from coverage, the title insurer must use clear, precise and unambiguous language. To give examples, one case has held that unless a policy expressly excludes a recorded/reserved easement, it must be insured. Similarly, another case has held that where a title policy excluded an easement by identifying its book and page number with the recorder of deeds, it was properly excluded. Policies are interpreted on a case-by-case basis. In real estate law, moreover, there are times when things which are not recorded with a recorder of deeds can impact a particular piece of property. Examples of this include adverse possession claims and implied easements. These usually cannot be covered.
Based on the foregoing, it is advisable that you review the contents of your title insurance policy. From experience, this is rarely done. When someone is purchasing/selling real estate, there are many other things going on and more attention is often given to the logistics of the sale, mortgage, moving, etc. Individuals don’t scrutinize the terms of a title insurance policy until after a problem arises.
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