March 22, 2022 | Christianah
In one of our earlier posts, we analyzed the benefits of title insurance to real property purchasers. We explained that it protects certain unmarketability of title, thereby granting homebuyers peace of mind when purchasing a property. In today’s post, we will revisit the 2015 case of MacDonald v Chicago Title Insurance Co of Canada, 2015 ONSC 1068 and the effect of that decision on present-day title insurance.
The plaintiffs purchased a multi-storey house and acquired title insurance over the property in 2006. Unknown to them, the property had been renovated by the previous owner, such that they had removed load-bearing walls without obtaining the requisite building permits. This made the upper floor of the house unsafe to use. After becoming aware of this fact, the plaintiffs received an order from the City of Toronto, directing an installation to support the hazardous floor. This repair work cost about $75,000, and the plaintiffs claimed the amount under their title insurance policy with Chicago Title.
The contention, in this case, touched on whether the prior unsafe renovations affected the unmarketability of the title, such that the insurer would cover it. As one might have guessed, the insurance company argued that this physical defect did not affect the marketability of the title; instead, it affected the property and was not covered by the title insurance policy. The lower court agreed with the insurer’s reasoning that the title insurance policy did not cover the latent physical defect.
To the surprise of the insurance industry, the Court of Appeal reversed this decision, advising that it was a limited interpretation of title insurance and held that title marketability extended to the hidden physical defects. Thus, Chicago Title was held liable for the repair work incurred by the plaintiffs.
The effect of this decision is that it shifts from the common law position where the quality of a property is distinct from its marketability of title. The terminology of the latter refers to the title and undisputed ownership. As expressed in the 2016 edition of the Six-Minute Real Estate Lawyer series, “MacDonald has effectively intermingled unmarketability of title with unmarketability of property.”
Unmarketable title has therefore been expanded to include the guarantee that a property is entirely free from latent physical defects. Since the approval of this case by the Supreme Court, insurance companies have since amended their policies to expressly exclude liability for physical defects in a property.
Although this case charted a new course in legal interpretation, it does not undermine the benefits of title insurance, which is the protection against unmarketability title.
If you’re considering purchasing or refinancing a property, it is advisable to speak with a lawyer to determine whether a title insurance policy is a good solution to protect title to your property.
At Northview Law, we would love to discuss any real estate concerns you may have. You can book a free consultation with Northview Law by following this link or contact us at 416-639-7639. We look forward to hearing from you soon.