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Title Insurers' Duty to Defend An Important Aid With Property Litigation Costs

A recently reported case Hanis v. Teevan, 92 O.R. (3rd) 594 is an October 2008 Court of Appeal decision that examined the "duty to defend" obligations under two general liability insurance policies.

Dr. Hanis was hired in 1972 by the University of Western Ontario, fired in 1986 and charged with a criminal offence in 1987. He sued Western and most of the Hanis claims, such as the one on which Hanis obtained judgment, wrongful dismissal, were not covered by the insurance policies. Hanis alleged conflict of interest, infringment of copyright interests, unfair treatment as an employee, wrongful dismissal, misappropriation of property, interference with ongoing contractual relationships and malicious prosecution. Hanis lost on all claims but the one for wrongful dismissal.

After the trial, the insurer argued that the only matter for which it was obliged to bear costs was malicious prosecution and felt that a fair allocation of the cost was 80% to Western and 20% to the insurer. The trial judge held that the factual foundation underlying the claims was the same and it was impractical, artificial and next to impossible to allocate, with any precision, the legal expenses incurred with respect to what the insurer had called “covered, mixed and uncovered” claims. The lower court judge found that only a small portion of the defense clause related exclusively to uncovered claims and allocated 95% of the defense costs to the insurer.

The Court of Appeal held that the allocation of defense costs is not about a question of fairness or equity but rather of what an insurer agreed to do in its insurance policy. The insurance policy in question obliged the insurer to defend in the name and on behalf of the insured, any civil action that may be brought against the insured on account of and had a list that included malicious prosecution. Once the obligation to defend existed, the fact that there was no express language in the policy that qualified that obligation or suggested it did not apply to “mixed claims” mean that the insurer was responsible for all costs, except for those entirely unrelated to the claim it was obliged to defend. That resulted in the extreme allocation of 95% to the insurer and 5% to the insured while most of the trial focused on other matters.

When I think of the case in the context of title insurance policies, it becomes clear that a title insurer’s duty to defend adds a very significant advantage when title insurance coverage is purchased by a home purchaser or lender.

The provision in the title insurance policy is relatively simple:

“The Company will also pay the costs, legal fees and expenses incurred in defence of the title, as insured, but only to the extent provided in the Conditions and Stipulations”.

While the Conditions and Stipulations provide that the insurer controls the action, can settle claims and can pay the total amount outstanding on the policy or the diminuation in value of the property to limit its litigation costs, they do not include provisions for any allocation of costs. The coverage provided in the policy and normally acquired endorsements is so broad-reaching that there is very little affecting title or use of the property that the duty to defend would not extend to.

Since there is no provision in a title insurance policy for the allocation of costs on “mixed claims”, the Court of Appeal in the Hanis case will govern and a title insurer will pay the cost of defending almost any claim affecting the property. The obligation of the insured to contribute to that expense will be minimal.

Bruce McKenna

January 31, 2009 in Title Insurance | Permalink

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