Madison Title Agency | Madison 1031 | LeaseProbe/Real Diligence | Madison SPECS

By Ira Karas, Esq., Counsel, MCRES

In simple terms, title insurance protects real estate owners and lenders against losses that arise as a result of liens, encumbrances or defects in the title to the property that are not excluded by the specific terms, conditions, exclusions and exceptions of the policy. While real estate professionals are familiar with the specific exceptions contained in Schedule B, they often aren’t aware of the impact that the preprinted exclusions of the policy have on coverage determinations by title insurers. Recently, the New Jersey Appellate Division discussed the most litigated exclusion of the policy, Exclusion 3(a), which excludes from coverage matters “created, suffered, assumed or agreed to by the insured.”

In the case of Carrington v. Chicago Title Ins. Co., a decade after the insured purchased a property and obtained title insurance, the insured’s siblings sued the insured, claiming that they had an agreement with the insured pursuant to which they would all purchase the property in the insured’s name due to their poor credit history.  According to the siblings, title would be put in everyone’s names once their credit had improved.  The insured sought coverage from the title company, who denied coverage under Exclusion 3(a) (and another exclusion) because the defect was agreed to by the insured. The insured then sued the title company, alleging that the title company had unlawfully failed to provide a defense. 

Court Decision
The trial court granted Summary Judgment in favor of the title insurer. On appeal, the Appellate Division affirmed the trial court’s grant of Summary Judgment, holding that the title insurer had no duty to defend a lawsuit initiated against the insured that was based on an alleged agreement with the insured regarding title to the subject property. 

When purchasing property and obtaining title insurance, it is important that an insured understands that not all defects to title are covered by the policy. As demonstrated by the instant case, when entering into an ancillary agreement that may affect title to the property, an insured should consult with his or her attorney as to whether and to what extent that agreement may affect coverage. [1]

It is important to note that the title insurer properly denied coverage in this case regardless of whether the insured’s siblings’ allegations were true: The title insurer's obligations are governed by the allegations.