Ontario homeowners who have purchased title insurance policies are the big winners in a Court of Appeal decision released last week.
When Paul and Stefanie MacDonald bought their Toronto home back in 2006, they arranged a title insurance policy with Chicago Title. Seven years later they discovered that a load-bearing wall had been removed during renovations by a previous owner. Without the wall, the second floor of the structure was unsafe to use.
The City of Toronto issued an order to remedy an unsafe building under section 15 of the Building Code Act. The MacDonalds made a claim under their title insurance policy for the cost of installing a temporary support for the second floor, and then permanent repairs to make the home structurally sound.
The MacDonald’s title insurance policy provides coverage for a list of itemized risks if they affect title on or after the policy date, including expenses to repair the house because of any outstanding notice of violation. The policy also covers the owners if title is unmarketable, allowing another person to refuse to perform a purchase agreement.
Chicago Title refused to pay the claim on the basis that there was no coverage for the loss under the terms of the policy.
Last year, the MacDonalds applied to Superior Court for a declaration that the policy provided coverage to them, and that the insurer was obligated to compensate them for the money that they had spent.
The judge held that the city work order was not a risk covered in the policy, and that the MacDonalds had valid title despite the order.
In September, the MacDonalds appealed the ruling before a three-judge panel of the Ontario Court of Appeal. Gavin Tighe, counsel for the MacDonalds, prevailed in having the lower court’s decision set aside and obtaining a judgment that the title insurance policy is binding on the insurer and provides indemnity to his clients.
The appeal court also awarded the MacDonalds $18,000 in costs of the appeal, and $32,800 in costs for the original hearing.
Writing for the Court of Appeal, justice William Hourigan cautioned that Canadian courts must interpret title insurance policies to ensure that “consumers are treated fairly and that their reasonable expectations are protected.”
Had the lower court’s decision been allowed to stand, justice Hourigan noted that it would have caused chaos in the real estate bar, since off-title issues like city work orders would not have been covered by title insurance policies.
The Court of Appeal decision means that title insurance policies should be interpreted to promote a reasonable commercial result, and they should not be interpreted in a manner which would nullify the coverage provided by the policy.
Courts are required to interpret policies to promote the true intent and reasonable expectations of the parties at the time the contract was signed.
Toronto real estate litigator Michael Carlson, who was not involved in the case, praised the appeal court’s decision as the most important title insurance case in Canadian history.
“The court,” he said, “has come out in favour of a broad and consumer-friendly interpretation of title insurance. More importantly, title insurance now covers city work orders to remedy an unsafe building.”
“This,” he added, “is an enormous victory for consumers as coverage for these orders has been routinely rejected by some title insurance companies in the past.”
Bob Aaron is a Toronto real estate lawyer and frequent speaker to groups of home buyers and real estate agents.
He can be reached by email at firstname.lastname@example.org, phone 416-364-9366 or fax 416-364-3818.
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