July 2010 Vol. 3, No. 6

Underwriters' Bulletin

Claims Corner

Exclusions from Coverage: Created, Suffered, or Assumed

Title insurance coverage is created by the contractual relationship between the title company and the insured. The jacket that accompanies the Owner's Policy of Title Insurance (policy) outlines the terms and conditions of the contractual relationship between the title insurance company and the insured. The first part of the policy jacket outlines what constitutes covered risks under the policy. The policy jacket then outlines the Exclusions from Coverage.

This Claims Corner deals with one of the Exclusions from Coverage that is enumerated on the jacket:



3. Defects, liens, encumbrances, adverse claims, or other matters

a. Created, suffered, assumed or agreed to by the Insured Claimant

This Exclusion from Coverage means that an insured is not covered under the policy for any conduct of the insured that resulted in the defect, lien, encumbrance, or adverse matter. Any obligations that were assumed by the insured are similarly not covered. For example, if a real estate contract states that the insured is assuming a mortgage that is a lien on the property, the insured cannot then make a claim because the mortgage was not disclosed on Schedule B of the policy. Similarly, if an insured has created a title defect because of how title was taken, the insured would not have coverage for any lack of marketability or for any resulting title defect based on how title was taken. An example of an insured suffering a matter would be a judgment against the insured.

If an insured is named in a lawsuit that alleges misconduct of the insured, a claim requesting the title company to defend the insured will likely be denied because it is a defect that was created by the insured. An example of this is a lawsuit brought against an insured lender that alleges that the lender negligently disbursed a construction loan.

If you have any questions about title insurance coverage or claims, contact Christine Sparks,csparks@atgf.com, 312.752.1408.

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[Last update: 7-30-10]