Commercial Title Insurance: Don’t let big picture thinking stop you from caring about the details
Title insurance can be a useful tool in commercial real estate transactions as policies usually provide coverage that will shield buyers from risks that can affect ownership and/or future marketability of a property.
While it is tempting to assume that the coverage afforded under a commercial title insurance policy would be similar to that of a residential policy – the reality is not so. Given the complex nature of commercial transactions, each commercial policy can vary materially from transaction to transaction.
For example, there is a misconception that the standard coverage under a commercial title insurance policy includes coverage for work orders or open permits that would have been disclosed through a building department search. Most residential policies provide such coverage – which is marketed as a key benefit of having title insurance. In fact, such coverage is not routinely available through commercial policies. Some commercial policies may provide no coverage at all for claims of this type or may provide only limited coverage for work orders (or other defects) in relation to incorrect statements received in response to a building department search. In the latter case, coverage will only be provided if a search is completed and an incorrect response is received prior to closing. A policy may well contain other limitations to the coverage which must be analysed as well.
It is therefore imperative to review the details of the coverage being offered by a title insurer in connection with a commercial transaction, and to talk about the limitations of coverage with the client to assist him or her in determining which of the standard title and off title searches should be conducted in advance of closing. Through this discussion, the client will be in the best position to provide informed instructions regarding whether any searches should be waived or not. If the client chooses to waive a search in relation to a risk that is not otherwise covered under the title insurance policy, then these express instructions should be noted and the client should be warned of the risk associated with the decision. Of course, all of this should be confirmed in writing. In doing so, you will protect yourself in the event that issues are discovered post-closing that could have been discovered by you had you conducted any searches that you were instructed to waive during the course of handling the transaction.
This article is by Nadia Dalimonte, LAWPRO Claims Counsel