by Merv Burgard, Q.C
The buyers in this case bought a multi-storey home and their lawyers ordered title insurance. A few years after purchasing the house, they undertook some renovations. They discovered that the previous owners had removed a load-bearing wall that rendered the second floor unsafe. The previous owners had not obtained a building permit for those renovations.
The city issued an order requiring the new owners to make physical changes in order to support the floor of the property, which they did. These buyers then claimed those costs from their title insurance company, which refused that claim. The buyers sued the insurance company and lost the case that went before the first judge. They appealed to the Ontario Court of Appeal and won their claim as well as costs of over $50,000.
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The appeal court ruled that the insurer had too narrowly interpreted the policy provisions. The failure to obtain a building permit for this structural change affected the marketability of the property of a potentially dangerous building, even if a municipal work order was not registered on title.
“These types of policies must be interpreted to ensure that consumers are treated fairly and that their reasonable expectations are protected.” Off title issues such as these are not usually researched by buyers’ lawyers when title insurance is provided. Any other decision by the courts would “cause chaos” in the real estate bar.
The Law Society intervened in the Court of Appeal to agree with the buyers and referred to agreements with title insurance companies that had negotiated with them when changes were being made to insurance legislation. Any other decision would affect lawyers’ transaction levies that would be charged to buyers and would not be a reasonable commercial result.
MacDonald v. Chicago Title Insurance Company 2015 ONCA 842 (CanLII)
This is an important case on title insurance and the way that litigators, insurance companies and courts should view contracts that provide indemnity to clients. The Law Society intervened to protect lawyers and their clients as we negotiated several years ago. Otherwise lawyers would have fought harder against a change to the Insurance Act that allowed title insurance in Ontario. I was part of that fight and this case brought back memories of some anxious meetings.
REALTORS® and lawyers should advise their buyer clients that the one-time expense of title insurance is a good investment.
Mervin Burgard, Q.C.
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