Title Insurance 101-Arbitration under the Title Policy

Ever since 1992, the ALTA Title Policies have contained a paragraph in the Conditions dealing with arbitration of title claims.  As you know, arbitration is the process where a dispute is handled outside the courtroom by submitting the issue to an independent Arbitrator, chosen by both parties.  Arbitration generally saves both parties money by eliminating the expense of a trial by a judge and jury, but does not necessarily save on attorney’s fees, as it can be just as expensive to have a lawyer collect, organize and argue the evidence before the Arbitrator as it might be in the courtroom.  Arbitration also tends to be faster than going to trial.

The arbitration provisions are set forth in paragraph 14 in the ALTA Owner’s Policy, and paragraph 13 in the Loan Policy.  They provide that in the event of a title claim, either the Insured or the title company may demand that the claim be submitted to arbitration under the Title Insurance Arbitration Rules of the American Land Title Association (“the Rules”).  So long as the policy amount (the Amount of Insurance) is $2 million or less, arbitration is mandatory if either one of the parties requests it.  But if the policy amount is more than $2 million, both the Insured and the Title Company must agree to the arbitration, or else the matter cannot be submitted to arbitration.  Once arbitration has been chosen (either by one party for policies under $2 million, or by both parties for policies over $2 million), it becomes binding upon both parties.  Once judgment has been rendered by the Arbitrator, that judgment can be entered in any court of competent jurisdiction for enforcement.

The title policy gives a very broad right to arbitrate a claim. The types of title claims that may be arbitrated include, but are not limited to,

• “any controversy or claim between the Company and the Insured arising out of or relating to this policy,
• any service in connection with its issuance or the breach of a policy provision, or
• to any other controversy or claim arising out of the transaction giving rise to this policy.[1]”

This means that you can arbitrate any claim arising out of matters insured under the title policy, which would include claims arising from missed easements or other title defects.  It would include any service provided in connection with the issuance of the policy, such as title searches, examination errors, closing errors, or recordation errors.  It also includes the ability to arbitrate claims which arise out of the transaction creating the interest insured by the policy, which can include matters such as fraud or lack of authorization.

Real estate lawyers often require that title companies delete the Arbitration section, especially on commercial title policies.  While title companies will agree to the request, it is usually not necessary to make this request in the first place because many commercial real estate transactions exceed the $2 million threshold mentioned above.  A $5 million title policy does not permit arbitration unless and until both parties agree to it, since the amount exceeds the threshold.  However, even when not necessary, many lawyers have this request on their checklists, so in order to satisfy their customers, the title companies will agree to the deletion.  I think it would be a better use of the insured’s attorney’s time to address matters that might actually affect the Insured, such as requesting survey or zoning coverage where available.

Some attorneys do not want to arbitrate any matter, believing that with arbitration both parties are left with less than they deserve.  In that case, even when the policy amount is under $2 million, these attorneys will require the deletion of the Arbitration paragraph.  Generally speaking, the title companies are also willing to agree to this request.

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Here is my usual caveat:

The opinions stated in this blog are those of the writer, and should not be construed to be a statement of fact or conclusion of law.  Any statements herein should not be relied upon in any litigation, arbitration or mediation.  Statements herein have not been approved by the American Land Title Association, its officers or members.