Home buyers, and real estate lawyers, had some fantastic news before Christmas from the Ontario Court of Appeal.
In MacDonald v. Chicago Title Insurance Company of Canada, a motion judge’s bizarre understanding of “title” was properly corrected by the Court of Appeal, with the intervention of LawPro (lawyer’s insurer in Ontario). I will not delve into the entire decision, but limit this article to the prominent issues.
In this case, the homeowner had purchased a home in 2006, and it was not until 2013 that the owner discovered that load-bearing walls had been removed without a building permit from the City of Toronto. The homeowner was subsequently ordered by the City to remedy this serious structural danger.
The homeowner’s lawyer had obtained title insurance for the homeowner with Chicago Title Insurance Company of Canada, and as a perfect use of the title insurance, the owner put a claim to the insurer for the costs involved in complying with the City’s order. The insurer denied the claim, and thankfully, the homeowner did not give up and initiated an action against Chicago Title seeking, among other things, a declaration for coverage and indemnification.
Before I go on, here’s some handy background on Title Insurance.
Title insurance is relatively new in Canada, but dates back to the mid 1800s in Pennsylvania and has a very rich history in the United States. The vast majority of home-buyers in Ontario today, perhaps in the 99 percentile, have their lawyer purchase title insurance during the real estate closing.
It’s a one-time purchase, or premium, and applies as long as the homeowner, its relatives or heirs own the home, and protects owners from unknown title defects, certain municipal work orders and permit matters, survey-related issues, and encroachments, among other things.
In this very important case, where case law is scant on title insurance matters in Ontario, and Canada generally, the Court corrected a very unusual decision by a judge on a motion for Summary Judgment by the homeowner. The Motion judge had concluded that the City order was not a defect on title because it had not been registered on title. This, of course, is blatantly false.
Orders are not registered on title, and are only discovered by “off-title searches”. Title insurance, as lawyers advise clients, provides coverage for such searches and therefore these searches are not conducted by lawyers (although nothing prevents a lawyer from conducting them regardless).
More importantly, the Motion Judge’s concept of “Title” was flawed, and the Court of Appeal properly addressed this matter in this decision. Relying on LawPro’s submissions, the Court noted that ” “title” meant more than just those claims/impediments/documents that are registered against title, and also included defects that would only be discoverable through off-title searches.”
The contrary position reached by the motion judge essentially would “create chaos” as purchasers throughout the province have instructed their lawyers not to conduct off-title searches. For instance, in all of my meetings, I advise clients about such coverage, and to suddenly have a judge rule otherwise on his own volition is absurd, not to mention irresponsible.
Generally, the Court of Appeal adopted the general principles of contract law, and those specific to the interpretation of insurance law, and these must “be applied rigorously in the interpretation of insurance contracts.”
In this spirit, the Court interpreted “Unmarketable Title” broadly, which is defined in the Chicago Title’s policy as one “which allows another person to refuse to perform a contract to purchase, to lease, or to make a mortgage loan.” The Court noted that, as Chicago Title submitted, just because “someone might be willing to purchase a dangerously defective building does not mean that it is marketable under the Title Policy.”
In the end, the Court concluded that, first, the defect in issue had rendered the property unmarketable as defined by Chicago Title’s own policy, and secondly, in interpreting an exclusion narrowly, the defect is not excluded under the policy.
For a full reading of the case, here’s the link.