The Mortgage Instructions Toolkit provides practical guidance for lawyers responding to lender requests in residential real estate transactions. This page addresses title insurance coverage for legal services.

The situation

Before title insurance, lawyers had to conduct a full review of title and off-title matters (limited by any applicable marketable title legislation) to the extent required to be able to give their clients an opinion on good and marketable title. There was an accepted standard of care - when a lawyer failed to meet that standard, and the client experienced losses, the client had recourse to the lawyer and the lawyer to the lawyer’s errors and omissions insurance.

Title insurance has not changed the standard of care. It has changed the tasks a lawyer usually must do when title insurance is being put in place. Title insurers typically exempt a lawyer from various due diligence searches. For example, a title insurer may not require a building compliance review.

However, a legal error may or may not be covered by a title insurance policy. Title insurance is a specified risk policy, and each title insurer takes a different approach to legal service coverage.

When a client has to turn to a lawyer’s errors and omissions insurance, the results can be costly for the lawyer, including:

• Damage to the client relationship and goodwill.
• Loss of the lawyer’s and their staff’s time.
• Financial consequences, including a higher deductible going forward, an annual surcharge on the lawyer’s insurance rates, and a possible denial of coverage.
• Limited coverage for the defence of the claim, but perhaps not the client’s damages, and a possibility that damages exceed the coverage limit.

Practice Guidance

Questions to ask about a title insurance policy:

• Does the policy cover errors and omissions for all legal services related to the real estate transaction?
• Does the policy limit coverage for errors and omissions for legal services to those related to a covered risk? If so, which risks are covered?
• Is the title insurer licenced to provide both title insurance and errors and omissions insurance? Note that Québec law does not allow dual licences. The Western Conveyancing Protocol which applies to British Columbia, Alberta, Saskatchewan, and Manitoba, offers an alternative approach with coverage for lenders but not purchasers.

Once you have this information, you can discuss with your client the search requirements that the title insurer requires you to make and whether or not the client wants you to undertake others. You can help your client to evaluate which title insurance policy best serves the client and the transaction.

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