What Happens if Your Title Insurance Claim is Denied in Ontario?

Title insurance serves as a safety net for property owners, shielding them from hidden defects that might not be discovered during the purchase process. It covers issues like:

Liens
Encroachments, and
Zoning violations that could affect ownership rights.

This insurance offers peace of mind by protecting against unexpected legal disputes and financial losses or damages related to the title.

However, not all title insurance claims go smoothly. In some cases, claims get denied, leaving property owners vulnerable to significant costs. Understanding what steps to take after a denial is crucial. It is even important for those dealing with construction defects or title disputes in Canada. These issues, ranging from unpermitted building work to zoning code violations, can lead to claims rejections if not properly documented.

The purpose of this blog is to provide clarity on what happens when a title insurance claim is denied. It outlines the steps property owners can take to protect themselves and how construction law services may help when title disputes arise.

Different Types of Title Insurance in Ontario

Title insurance is an insurance policy or product that protects against certain unknowns related to a property’s title. There are many types of title insurance, and though they differ, both the lender’s and owner’s policies insure against defects in the title.

It’s worth noting that title insurance lasts for as long as you own the property. Some insurers even permit you to purchase title insurance at any time. However, title insurance works in conjunction with other research, such as obtaining an up-to-date survey of the property you are purchasing, and it does not replace the need for careful boundary research.

It is important to remember that title insurance does not cover all boundary-related issues and it does not replace good boundary research.

Lender’s Title Insurance

Lender’s title insurance is often required by the mortgage lender when securing a mortgage. This policy protects the borrower and the lender’s interest in the property, ensuring they are indemnified against defects in the property’s title that could affect the mortgage.

Issues such as fraudulent claims, unpaid utility bills, before purchasing defects such as encroaching fences, non-title issues like unpaid property taxes, or costs associated with other covered risks can affect the property. The insurance product ensures that these risks are mitigated, and it lasts for as long as the mortgage exists.

Owner’s Title Insurance

Owner’s title insurance, although optional, is purchased when you buy a property and is highly recommended. This protects the home buyer or purchaser from title defects caused by the previous owner, such as unpaid taxes, neighbour’s easement disputes, and other hidden issues like fraudulent liens.

It also protects against defects made under the policy, including renovation errors and the lack of a clear title. The importance of title insurance lies in the additional coverage it provides, such as protection against disclosed errors or unreported change of use violations. This protection lasts for as long as the owner holds the title and can be transferred to heirs.

Commercial Title Insurance

Commercial title insurance covers risks for business properties, offering protection from zoning violations, costs associated with disputes, and easement issues, among other concerns. Due to the nature of commercial real estate, these policies are often more complex and can offer a range of covered risks.

Business owners can also choose to insure against losses from property taxes, disputes included and excluded in the documents or covered by the title insurance policy.

Residential title insurance

Residential property title insurance protects the buyer of a home, condo, rental unit, or other properties like vacant land or cottages. It helps cover title defects, including encroachments, fraudulent activity, and neighbour’s disputes, and indemnify against errors such as a missing building permit.

This insurance product ensures that issues that may arise after purchasing the property are taken care of, particularly when they involve the property’s title. If you have questions about title insurance as part of your real estate transaction, please contact us.

Common Reasons for Denial of Title Insurance Claims

Policy Exclusions

Title insurance policies often include specific exclusions that limit provided coverage. For example, if a building permit violation exists or unpermitted work has been completed, the policy may not cover these issues.

Policies can exclude certain risks such as non-title defects, and unreported renovations, or included and excluded in the documents that may affect coverage. In Canada, some insurers only cover structural defects if they impact the title, meaning a boundary dispute or missing permits may not qualify.

Incomplete Documentation

Claims may be denied due to missing or incomplete documentation. If the homeowner fails to provide proof of zoning violations, defects, or other critical evidence, the insurer may refuse to process the claim.

This is why it is essential to gather all necessary paperwork when filing a title insurance claim. When reviewing your documents, ensure all details are present to prevent any denials.

Dispute Over ‘Forced Removal’ or Remediation

Some title insurance policies only cover the forced removal of a structure. Insurers may interpret this clause strictly. For instance, if a homeowner must make repairs rather than remove a structure entirely, the insurer could deny the claim. This happens when insurers argue that repairs, like shoring up a wall, do not count as forced removal.

Steps to Take After a Denied Title Insurance Claim

Review the Policy Terms

The first step is to thoroughly review your policy and the denial letter to understand what is covered under the policy and any non-title exclusions. Understand the exact reasons for the denial and compare them to what your policy covers.

Look for specific clauses related to exclusions or limitations, especially around construction defects or title disputes. This will give you clarity on whether the denial was valid or if there might be room for appeal.

Contact the Insurer for Clarification

Reach out to your insurer for a detailed explanation of the denial. Sometimes, insurers deny claims due to misunderstandings or incomplete information. You can request further clarification on the rejection and ask if there are alternative solutions, such as arbitration, that could resolve the dispute without escalating to legal action.

Gather Additional Documentation

If the denial was due to incomplete or missing information, gather all necessary documents including prior to purchasing surveys, utility bills, and proof of zoning violations to support your claim. This may include photographs of the defects, building permits, proof of expenses related to the issue, encroach violation or faulty fence placement. Strong documentation helps reinforce your case during an appeal process.

File an Appeal

If you believe your claim was unjustly denied, follow the insurer’s appeals process. This often requires submitting an appeal letter, along with any additional evidence. Ensure you stick to the deadlines and guidelines outlined in the denial letter.

Legal Recourse for Denied Claims for Title Fraud

Appeal the Decision

Most title insurers provide an internal appeal process as the first step to contest a denied claim. You can request a formal review of the denial by providing additional evidence or clarifications that support your claim.

It’s essential to follow the insurer’s guidelines for appeals, ensuring that all required documents are submitted on time. This step often resolves disputes without the need for further action.

Pursuing Litigation

If the appeal does not lead to a favorable outcome, the next step may involve pursuing legal action. Filing a lawsuit allows you to challenge the denial through the court system. This is especially useful in complex cases involving title insurance disputes or construction defects, where proving the marketability of the title or issues like unpermitted work may require expert legal assistance.

Working with an experienced real estate litigation law firm is crucial for navigating these complexities and building a strong case in court.

Alternative Dispute Resolution (ADR)

Alternative dispute resolution methods such as mediation and arbitration offer a quicker, more cost-effective alternative to going to court. Mediation involves both parties working with a neutral mediator to reach a mutually beneficial agreement.

Arbitration, on the other hand, is more formal, with an arbitrator making a binding decision based on the facts presented. These methods are often less adversarial and can result in faster resolutions without the expense of full litigation.

How Cowan & Carter Law Firm Can Help

Our experienced construction lawyers in Ontario offer title disputes and construction law services. The construction law firm in Ontario is well-versed in handling complex cases, particularly those involving unpermitted construction, zoning violations, or bad faith from title insurance companies. Our legal team assists clients in navigating the appeals process, gathering evidence, and pursuing alternative dispute resolutions like mediation or arbitration.

When legal action becomes necessary, Cowan & Carter civil lawyers in Ontario help property owners protect their investments by representing their interests. We ensure that the full extent of your rights is upheld.

Conclusion

Understanding the terms of your title insurance policy and acting swiftly after a claim denial are essential steps in protecting your property rights. Consulting with legal professionals, especially those experienced in construction litigation and title disputes, can help you navigate these complex situations. Cowan & Carter’s expertise ensures that property owners can address denied claims and resolve construction issues effectively.

Contact Cowan & Carter today for civil law services. Let our experienced team of litigators help safeguard your property and ensure your rights are fully protected.

Published on September 25, 2024