By Thomas D. DeMatteo
Vice President & General Counsel
ABC Companies

Title insurance is a contract which provides insurance to pay the cost of a loss if any interest adverse to the property owner is not reflected in the policy. The insuring company promises to defend the title against adverse claims, subject to the provisions of the policy.
Title insurance is not an absolute guarantee as to the status of title or of possession of property. In the event of loss of possession or other title defect, the insured will receive money damages measured by the amount of actual loss or damage sustained, subject to the face amount of the policy. The insurance company will also pay the costs and expenses incurred in defense of the title.
Title insurance is unique from other forms of insurance in that it is retrospective in nature. It protects against defects that arose in the past, but are discovered in the future. It protects against title losses resulting from defects which exist as of the date of the policy, rather than anticipating some future defect.
The rate charged for title insurance includes services for searching the public records and examining the title, as well as the agent's commission and the underwriter's premium for risk.
Because title insurance companies are insurers who take risks for a premium, title insurance provides greater protection against title defects than is generally available under the abstract and attorney's opinion method of assuring title.
For example, an abstract with attorney's opinion discloses only discoverable defects in title, that is, defects which are apparent from the public record, as evidenced by the abstract from which the attorney's opinion was prepared. However, a title insurance policy not only protects against these discoverable defects, it also protects against certain hidden risks. All of the following defects could cause the invalidity of a conveyance essential to the chain of title:
1. Fraud, forgery or duress in the execution of documents affecting title.
2. False impersonation of the owner of land.
3. Documents which appear on their face to be deeds to transfer title but which are intended between the parties to be collateral security for some debt.
4. Execution by a minor or incompetent person.
5. Undisclosed heirs or family members.
6. Wills not discovered at the time of the owner's death.
7. Improper notice of judicial proceedings to those with interests in real property.
8. Deeds executed but not actually delivered.
9. Deeds conditionally delivered where non-occurrence of the condition renders the deed void.
10. Deeds delivered under invalid power of attorney.
11. Marriages or divorces not disclosed by the public record resulting in property rights.
12. Abstractor or other company's error.
Few insurers in other fields are able to say that one of the functions of their policies is risk elimination. Its own personnel conduct the search and examination of the records so that all known title defects which the company is not "insuring over" may be noted on the preliminary commitment and cured, or eliminated, prior to or at the time of closing. Before the company issues its final policy, these various record defects are either eliminated, or shown as exceptions to the policy coverage.
The commitment to insure is the initial document issued by the title company, stating the terms on which the insurer will issue the title insurance policy. The final policy gives the status of the title on the effective date of the policy and insures against loss in the event the title ends up being different from that reflected on the policy.
The primary types of final policies are the owner's policy and the loan policy. The primary types of coverage are standard coverage and extended coverage. The owner's policy may be used to insure an estate of ownership, occupancy or possession. Liability under the owner's policy continues for as long as the insured either has an insurable interest or has liability under any conveyance given. The loan policy may be used to insure the interest held by a lender as security for the payment of a debt. Liability under the loan policy decreases as payments are made on the mortgage, and terminates upon satisfaction of the debt.
It is important to remember that the named insured is the only person or entity protected by the specific policy. The loan policy does not insure the owner's interest, and the owner's policy does not insure the lender's interest.
Footnote: Gilmore, Barbara, Title Insurance Basics, Minnesota State Bar Association, June 2003.
Thomas D. DeMatteo also is an adjunct professor of law at Hamline University School of Law in St. Paul, Minn.