Title Insurance, What It Is, and What It Is Not
Title Insurance insures against loss or damage sustained by an insured by reason of the condition of the title being other than as stated in the policy. It is an indemnity agreement as to the title of the land, not the condition of the land.
Title Insurance is not casualty insurance and, in fact, differs from all other forms of insurance in three major ways. First, it insures losses in the future based upon events that happened in the past. All other insurance protects the policy holder from loss in the future because of something that happens in the future, e.g. a car accident or illness. Second, title insurance collects only a one-time premium and all premiums are the same based upon the title insurer's rates filed with the Department of Insurance, irrespective of the risk. Third, where an Owner's Policy is concerned, coverage continues long after the insured sells the property.
Types of Title Insurance
There are two basic types of title insurance. One is for a lender or mortgagee called an ALTA Loan Policy; and the other is for a purchaser or owner of the property identified as an Owners' Policy. The policy forms themselves have been standardized throughout the United States by the combined efforts of the American Land Title Association (ALTA) and representatives of the mortgage banking industry.
The ALTA Loan Policy insures a lender/mortgagee the lien created by the mortgage is a valid and enforceable lien on the property; and is a first and best lien as well. Coverage begins at the date and time the mortgage is filed for record and continues until such time as the mortgage is paid. Consistent with this, the dollar liability of the title insurer decreases as the loan is amortized and the principal reduced. Assignees of the mortgage are insured without the necessity of a new policy.
The Owner's Policy insures the purchaser/owner as to the integrity of title and that no other person or entity has a claim superior to that of the insured. The effective date of the policy is the date and time the deed is recorded and continues even after the insured has sold the property. Similarly, coverage would continue after the death of the insured to the benefit of the insured's heirs. However, a subsequent purchaser of the insured's property is not covered by the policy. Rather, the new owner would have to purchase a new policy.
Both of these policies have similar characteristics. Generally, they both afford protection against missed liens, encumbrances and similar defects whether or not such matters are found of record. That is, there is extended coverage for "off-record" risks without additional premium. Some examples of off-record risks include insanity, forgery, fraud and missing heirs. Perhaps the most important feature is the duty to defend against an adverse claim covered under the policy. This duty to defend includes coverage for expenses such as attorney's fees and defense costs, the latter which might include such items as expert witness fees. Hand-in-hand with this is a duty to indemnify. That is, the obligation to reimburse the insured for monetary loss up to policy limits. As an aside, any legal expenses paid by the title insurer are not applied against the dollar limits of the policy.
The policies are not, however all encompassing. Some matters are specifically excluded from coverage unless included by endorsement under unique or special circumstances. Generally such endorsements carry an additional premium. Examples of exclusions are zoning and building code ordinances, Environmental Protection Agency liens, taking of property by eminent domain or other exercise of police power, bankruptcy or insolvency claims. Other exclusions include matters created or assumed by the insured, matters not known by the title insurer but known by the insured and claims which result in no loss to the insured. Additionally, coverage for matters such as encroachments (survey matters) and mechanics' liens may be limited.
In some areas of Ohio, primarily Northeast Ohio, a Title Guaranty is another form of title evidence requested. A title guaranty guarantees the title company has found everything that is of record. Off-record risks are not covered nor is there coverage for attorney fees and defense costs.
In Ohio, premiums are filed by each title underwriter with the Department of Insurance. Premiums charged cannot differ from the rate filing. Subject to minimum premium rates, the premium for an ALTA Loan Policy is generally $4.00 per $1,000.00 of the original mortgage amount; while an Owner's Policy normally carries a premium of $5.75 per $1,000.00 of the purchase price. The premium rates are reduced somewhat as the amount of insurance reaches certain levels. Endorsement premiums range from fixed amounts (e.g. $75.00 for EPA Endorsements) to percentages (e.g. 20% of full premium for a Zoning Endorsement). Re-issue rates (credits) are also available for loan and owner's policies upon presentation of the old policy if issued within the previous 10 years.