I just learned that my house was renovated without a proper permit from the city. Do I have title insurance coverage for the necessary repairs?
A client recently asked me this question. He had purchased his home two years ago and last year noticed that the main floor ceiling was starting to sag.
A structural engineer determined that a critical supporting wall had been removed during renovations by a previous owner. The house was not safe to live in unless temporary construction jacks were installed to keep it from collapsing.
My client is contemplating a title insurance claim for the costs of repair. His policy provides protection if the owner is forced by a government authority to remedy the structure if any portion of it was built without a necessary building permit. However, the policy is ambiguous about coverage if a municipal violation notice was not on file with the city at the time the property was purchased.
The question is: if the property does not comply with the building code but the city doesn’t know about it, is there title insurance coverage?
Michael Carlson, a Toronto litigation lawyer experienced in title insurance claims, said my client should have coverage if a city work order requiring repairs was issued after he purchased the property.
Carlson referred me to Krawchuk v. Scherbak, a 2011 Ontario Court of Appeal decision dealing with a Sudbury house with foundations so defective the house had to be lifted off the ground so that the footings, basement floor and foundations could be replaced. The city’s work order was issued after the property was purchased, and Stewart Title voluntarily paid the owners $105,000 in damages on a house that had been purchased for $110,100.
The court noted that Stewart Title would have been on the hook in any event as title insurance is specifically designed to protect against future municipal orders targeting pre-existing defects.
Despite the appeal court’s decision, some title insurers still refuse to pay such claims.
Gavin Tighe is counsel for Paul and Stefanie MacDonald who are suing Chicago Title Insurance Company for the cost of complying with a city order to remedy an unsafe building.
The claim results from an unpermitted renovation that converted their Toronto house to an open-concept design. It was completed without adequate structural support.
The case has not come to trial, and none of the facts has been tested in court. Chicago Title is defending the claim on the basis that the policy “is not intended to cover construction defects occasioned by a prior owner,” and that the loss claimed by the MacDonalds is not covered by the title policy.
Patrick Michel is claims counsel for Chicago Title. He said in an email the company would not comment on the litigation, but that “each claim is handled individually on its own facts.”
So what does a homeowner do when discovering, long after closing, that a prior renovation was done without a permit but there is no city order to comply?
The city of Toronto has an unwritten policy that it will not inspect or issue compliance orders to satisfy the requirements of a title insurance claim. This seems to me to be a breach of the city’s obligation to enforce bopth the provincial building code and the municipal building standard bylaws.
My advice is that buyers of renovated houses insist on proof the work was done with a permit, and choose their title insurer carefully.