Like every insurance policy, a policy of title insurance contains sections dealing with what it is insuring, the conditions of the insurance, and how to file a claim. Today we will discuss the various parts of the ALTA Owner’s Policy of Title Insurance, and what they mean to the insured. The ALTA Owner’s Title Policy has five sections: (1) the Covered Risks, (2) the Exclusions from Coverage, (3) Schedule A, (4) Schedule B, and (5) the Conditions. CAVEAT: Please remember that this is a very general description of the parts of the title policy, it is not intended to be a full explanation of title policy coverage, and should not be relied upon for any legal questions you may have concerning coverage or claims.
Covered Risks
This is the first section of the title policy. It lists what kinds of risks the policy insures against. However, the policy makes it clear that the insurance of the listed risks are subject to (1) the Exclusions listed following the Covered Risks, (2) any exceptions listed in Schedule B, and (3) the Conditions. In the most current ALTA Owner’s policy, there are ten covered risks listed in the policy. Some of the most important covered risks are:
- the risk that someone else owns your property,
- that there is some defect or encumbrance on your title caused by fraud or forgery,
- that there is a lien for real estate taxes or assessments that are due but unpaid,
- that your title is unmarketable, that is, you are unable to sell your property to a purchaser because of a title defect, or
- that there is no right of access to and from your land.
For a complete list of the Covered Risks, you should review an actual ALTA Owner’s Policy of Title Insurance, or ask your local title agent.
In connection with a claim involving one of the Covered Risks, the title policy explicitly states that the title company will also pay costs and attorney’s fees incurred in the defense of any matter insured under the policy, but this is subject to the Conditions of the policy.
Exclusions
The policy Exclusions limit the coverage of the policy. They deal with issues that are outside the control of the title company, and for which the title company assumes no liability. The ALTA Owner’s Policy contains five exclusions, which include matters such as governmental regulations on the land and eminent domain, as well as title matters created or agreed to by the insured, or title defects known to the insured but not disclosed in writing to the title company prior to the date of the policy. The policy does not insure against any defect or title issue that is created or attaches to the property after the date of the policy. Also, the policy does not insure against the effects of bankruptcy law on the transaction creating the insured interest.
Schedule A
Schedule A is similar to the declarations page on other insurance policies. It sets forth the specific information on the title and policy, such as the Date of Policy, the Amount of Insurance, the Insured, the Legal Description of the land insured by the policy, and the estate insured, such as Fee Simple or Leasehold. Schedule A must be attached to the policy in order for the policy to be valid.
Schedule B
Schedule B lists the various exceptions to the title that the title company found when it performed its title search. Common exceptions would be things such as prior unreleased mortgages on the property, easements, taxes, restrictions on the use of the property, and any other limitations on the title such as homestead rights or survey issues if no survey has been performed. By listing various items as exceptions, the title company is telling the insured that these items are not covered by the title policy, and that the title company will not pay a claim or defend against a claim based on these excepted items.
Conditions
This section outlines the relationship between the insured and the title company. Paragraph 1 contains the definitions of certain terms used in the policy. Terms such as “Insured”, “Insured Claimant”, “Knowledge”, and “Public Records” are defined so as to eliminate any ambiguity. There are several different paragraphs setting out how a claim under the policy is handled, including how to provide notice of a claim, what is required to prove loss, and the requirement that the insured must cooperate with the title company in the handling of the claim. The Conditions describe the rights of the title company to pay or settle the claim, and the determination, extent and limitation of liability. Most policies also contain a paragraph which allows the insured or the title company to demand arbitration if the amount is under Two Million Dollars.
These are the basic components of the ALTA Title Policy. In addition to the basic policy form, the title company may, on the request of the insured, attach one or more endorsements to the policy providing additional insurance on specific matters that are not covered by the policy, such as zoning matters, or where there are specific access issues. We will discuss the various ALTA endorsements in a future blog.
I strongly recommend that anyone purchasing title insurance should read all of these sections of the policy so as to better understand what you are getting. A title insurance policy provides a significant amount of protection for a person purchasing real estate. As mentioned in the first Title Insurance 101 blog, the coverage of a title policy lasts for as long as the insured owns the property, and all for the cost of a one-time premium. Try getting your automobile insurer to agree to that!