In virtually any real estate purchase transaction in Ontario, whether it is the acquisition of a commercial or residential property, obtaining title insurance has become “standard”.
Title insurance is an insurance policy that protects residential or commercial property owners and their lenders against losses related to the property’s title or ownership.
A title insurance policy may provide protection from such losses as:
- Unknown title defects (title issues that prevent you from having clear ownership of the property);
- Existing liens against the property’s title (e.g. the previous owner had unpaid debts from utilities, mortgages, property taxes or condominium charges secured against the property);
- Encroachment issues (e.g. a structure on your property needs to be removed because it is on your neighbour’s property);
- Title fraud;
- Errors in surveys and public records; and
- Other title related issues that can affect your ability to sell, mortgage, or lease your property in the future. 1
In MacDonald v. Chicago Title Insurance Company of Canada, 2015 ONCA 842 the Court of Appeal has recently considered the scope of coverage which should be provided to a party purchasing title insurance. 2
The MacDonalds’ brought a motion for summary judgment seeking coverage under their title insurance policy (the “Policy”). They sought coverage and indemnification for a dangerous structural condition affecting their Toronto home (the “House”).
Load bearing walls on the first floor of their House had been removed during renovation work undertaken by a previous owner without a building permit, rendering their second floor unsafe.
The MacDonalds learned of the danger, and that no building permit had been issued for the work undertaken by the previous owner, seven years after their purchase of their House. The City of Toronto subsequently issued an Order to Remedy an Unsafe Building, requiring that the MacDonalds undertake work to temporarily support the floor. The Order (like all other City orders) was not registered on title through the Registry or Land Titles systems in Ontario.
The MacDonalds did the required temporary work, and made a claim under their Policy for the costs of those repairs, as well as the permanent repairs needed to make the House structurally sound.
On the motion, the judge concluded that the MacDonalds were not entitled to coverage under the Policy. He found that the Policy language was unambiguous and only applied where title was rendered “unmarketable”, whereas in the present case, their home remained marketable, even though it was marketable for an amount that was less than what the MacDonalds had paid for the House.
The Court of Appeal
The MacDonalds were successful in appealing the decision. The Court of Appeal found that they were entitled to coverage under their Policy. In allowing the appeal and granting the MacDonalds summary judgment on the issues of coverage and indemnification under the Policy, the Court of Appeal made a number of interesting legal findings both in respect of the interpretation of the Policy itself and how the Court should generally review insurance policies on an appeal3.
In setting aside the lower Court decision, the Court of Appeal expressly found that the judge erred in finding that the Policy only applied to orders that were formally registered on title. The Court of Appeal found that title insurance is and was always intended to apply to off-title defects as well.4
This was a significant finding by the Court of Appeal because applying the restrictive scope of title insurance contemplated by the motion judge would have caused chaos for real estate lawyers because purchasers of title insurance throughout the province have been advised by and then instructed their solicitors not to conduct off-title searches on the understanding that such defects were covered by their title insurance.
The Court of Appeal also found that the motion judge’s very narrow reading as to what title insurance was supposed to cover “permeated his analysis” of the Policy and in particular his interpretation of the meaning of the word “unmarketable”. The Court of Appeal found that the express language of the Policy stated that the House was unmarketable where the defect “allows another person to refuse to perform a contract to purchase, to lease, or to make a mortgage loan” and in the present case there was no serious dispute that “the discovery of the dangerous condition of the Property would permit a purchaser to refuse to close a purchase transaction.”
The title insurer’s position on the Appeal rested upon three arguments:
- That the structural condition of the Property is a latent defect that is excluded from coverage under the Policy;
- That the Policy was never intended to cover the type of loss suffered in the present case, and had it been so, the premium would have been much higher; and
- That because the unpermitted construction was discovered many years after the policy date, it was excluded under the Policy.
The Court of Appeal rejected each of these arguments finding that:
- The dangerous condition on the Property flowed directly from the failure of the previous owner to attempt to obtain the necessary municipal approval and that failure made the MacDonalds’ title unmarketable for which the Policy applied;
- It would be commercially absurd for the appellants to bear the loss caused by the insured’s failure to properly draft the coverage provisions and properly price the policy; and
- Trying to introduce a discoverability concept was not supported by the language of the Policy. The title was unmarketable within the meaning of the Policy from the moment the appellant acquired the Property, even If they were not yet aware of that fact.
The Court of Appeal’s decision reiterates (and arguably broadens) the types of claims that could be covered by title insurance. If a structural issue or other issue that impacts upon title to your property arises, even if you discover it years after your purchase of the property, you may wish to consult with a lawyer to determine whether your title insurance may respond to the claim that has arisen.
- Understanding Title Insurance, Financial Services Commission of Ontario ↩
- In doing so, the Court of Appeal also considered whether a contract of title insurance should be interpreted in the same manner the Supreme Court of Canada has recently established for the manner in which other types of contracts are to be interpreted. ↩
- Whenever a matter is being appealed, an appeal Court must determine how much (or how little) deference should be given to the decision of the judge who heard the original hearing. Generally, the greater the deference an appeal Court concludes it must give to the judge hearing the original matter, the more difficult it is to convince an appeal Court that the lower court decision should be reversed.
In the present case the Court of Appeal concluded that although the leading Supreme Court of Canada case dealing with contractual interpretations, Sattva Capital Corp. v. Creston Moly Corp. (2014) 2 SCR 633, 2014 SCC 53 supported adopting a deferential standard of review, the Court of Appeal held that the standard of review in contract interpretation cases applicable to standard form insurance contracts like the Policy should be correctness (i.e. less deference should be given to the lower Court’s decision).
The Court of Appeal concluded that unlike the contract at issue in Sattva, a standard form policy would not require a Court to consider the factual matrix surrounding the creation of the contract, because there was no real negotiation in this type of case. The Court also distinguished Sattva on the basis that the Supreme Court of Canada noted that the interpretation of a contract usually has no impact beyond the interest of the parties, whereas the interpretation of the contractual language in the Policy would impact upon thousands of people with similarly worded title insurance policies. ↩
- In reaching this conclusion, the Court cited the following quote by Marguerite E. Moore and Janet M. Globe in Title Searching and Conveyancing in Ontario, 6th ed. (Markham, ON: LexisNexis, 2010), at p. 500 with approval:
There is a multitude of potential off-title, land-related inquiries which may be completed on behalf of a purchaser, lender, or any other interested person. A law clerk/conveyancer will check for liens, work orders, restrictions on use, compliance or non-compliance with federal, provincial, and municipal (by-laws) regulations, and information on land and government regulation and programs in general. (Emphasis added.) ↩