“What more am I getting?”, this is the first question a client asks when a lawyer suggests purchasing title insurance for a commercial transaction. 

Traditionally prior to closing, the purchaser and lender relied on an opinion letter from their lawyers as to the state of title. An opinion letter is exactly as it sounds: on a purchase, a lawyer opines on whether or not the purchaser is obtaining good and marketable title to the property and whether the lender providing purchase financing has a valid and enforceable charge in the expected priority, in both cases based on the scope of searches. In some cases, an opinion is sufficient, but so much more is available from a policy of title insurance.

Turning our minds to the question above “What more am I getting?”, lawyers often immediately focus on fraud and gap coverage, but there are many other benefits. In fact, the Ontario Rules of Professional Conduct require that a lawyer ought to understand the benefits of title insurance in order to properly advise their client.

Time and cost savings are a given when one relies on title insurance, but what about the coverage? The following are some of the benefits to owners and lenders when they rely on a title insurance policy versus a lawyer’s opinion letter.

CRA super-priority liens

FCT’s Lender coverage includes protection against pre-existing super-priority liens that Canada Revenue Agency (CRA) claims with respect to various withholdings by the title holder (for example, payroll withholdings and HST). As we all know, the moment anyone withholds or collects funds on behalf of CRA, the funds are impressed with a trust in favour of CRA, in priority over a mortgage yet to be registered. It is settled caselaw that CRA may trace proceeds into the hands of lenders after the repayment and discharge of a mortgage, leaving lenders exposed to a later claim by CRA when their security has been discharged and they do not have any secured recourse against their prior borrower (1).

A lawyer’s opinion cannot protect a lender against these types of liens and there is no easy way to check with CRA to ensure there are no deemed trusts in respect of the borrower’s funds or if what has been remitted is correct. It is important to note that the nature of the trust and tracing mechanics means a registration on title is not required for CRA to successfully assert its claim.

No-fault insurance versus proving negligence

When the parties have closed with an opinion letter, the client (purchaser and/or lender) rely on the lawyer providing the opinion on title, limited by the scope of searches. If a problem arises following closing, an aggrieved party is left to address the matter between the lawyer, the lawyer’s insurance provider and in some cases, the involvement of the law society but only where the lawyer failed to meet the standards of practice. There are circumstances where everyone does everything correctly and there are still post-closing issues. 

With title insurance, the insured only needs to prove that the problem exists and that the issue falls within the terms of coverage in the policy. There is often no need to sue anyone or prove who is at fault. Title insurance is a resource to call on to fix issues as they may arise within the scope of coverage with often a faster and easier path to fixing the problem, or compensating for the loss.

Duty to defend

All commercial title insurance policies provide for a duty to defend, the cost of which is not deducted from the overall face amount of coverage. If there is a legal challenge to a matter covered under the policy, the insurer will defend the insured’s title. A typical example is when a lien claimant asserts priority over a lender’s security or a third party claims an interest in the land. It is important to note that whatever the insurer covers on defence costs, it does not reduce the amount of insurance under the policy. Not surprisingly, a substantial amount of claims dollars paid are related to the duty to defend provision in the policy. 

As most lawyers know, title insurance provides for wider coverage for clients and it works hand-in-hand with their professional advice. Every single transaction is unique and title insurance enhances your lawyer’s professional judgement and advice and together can provide the best overall protection. Visit FCT.ca to learn more.

(1) Toronto-Dominion Bank v Canada, 2020 FCA 80