The widespread availability of Title Indemnity Insurance at modest cost has changed the face of modern conveyancing. These days it is common for the Conveyancer faced with a defective Title to arrange or ask the Seller to arrange such a policy and provided that this is forthcoming the transaction usually proceeds to completion. The Conveyancer arranging the Policy will often have delegated authority from the Insurer to issue the policy on standard terms. Instead of the anxious consternation caused by a potentially deal breaking problem the transaction appears to proceed seamlessly and without any negative warnings, or, advice from your Conveyancer.
Unfortunately, although Title Indemnity Insurance is very useful and is the right answer for many title defects there can be hidden problems, which are not always highlighted at the time. Title Indemnity Insurance is like any other Insurance contract and is a contract of utmost good faith. This means that you are under a duty to disclose material information even if it is not specifically asked for. Information is likely to be material if it would influence an Underwriter in writing the business either at all or as to terms and premium.
If we return to the seamless conveyancing transaction where quite often the Seller’s Conveyancer provides the Insurance policy, what has the Buyer been told about the information, which was given to the Insurer? It is possible for the insurance to be written on the wrong facts or for some relevant facts to be withheld or for the policy to be unsuitable for the facts of the case due to the cover under the Policy. The full terms of the Policy are not often provided yet it will be a matter of interpretation of the Policy which will determine whether any claim is payable or outside the terms of the Policy or specifically excluded.
An important exclusion applying to most Policies is if you make any contact with any party who might cause a claim under the Policy, it can invalidate the cover. This means not contacting the Council if it is Planning or Building Control matters or the neighbour if it relates to a boundary, or anyone with the benefit of a restrictive covenant. This is usually fine provided that your Conveyancer has warned you not to do so.
One general problem with Title indemnity Policies is not really the Policy, which might be suitable for the objective of providing an Indemnity, but the fact that title defects can have many effects, which might not be covered by such a Policy.
If I am buying a property, which could be the subject of third party claims, should I be totally reassured by the existence of such a Policy. The first thing that I would do is to ask my Valuer what the immediate effect on the value of the property might be. If Buyers generally might discount the value of your home you need to know at the time of purchase. If the defect became a real problem it might involve such practical and physical disruption and inconvenience that a Buyer knowing that, for example, the cost of re-building would be covered by the insurance, would still look for a discount. Further, the lack of such things as Planning and Building Regulation Completion Certificates, routinely covered by such Insurance, might be hiding serious construction problems, particularly on new Buildings and conversions and a prudent Buyer might still seek a price discount. It is really important that you do not just rely on the Insurer accepting the risk, because even if the Policy is valid and covers the risk and no exclusion clauses apply, the risk accepted by the Insurer will be defined in narrow terms, whereas your risk is much wider. It is necessary to imagine the risk crystallising and to consider all of the practical effects which would ensue, Then you need to assess the chances of the risk materialising in your given case. This will depend upon the facts. At this point you can decide, with the benefit of the Policy, are you prepared to take that risk.
Matthew Wilkinson