Court Rules Title Insurance Must Cover Cost After Support Wall Found Missing
Imagine discovering that the previous owner of the house you purchased had illegally removed a retaining wall and the municipality was demanding you bring the structure back up to the building code at your cost. Now imagine that the courts have ruled your title insurance policy on the property is not liable to paying for the nescessary repairs. That was the scenario facing one family until they took their case to the Ontario Court of Appeal. The Court of Appeal overturned the decision by the lower court and awarded the home owners their legal costs. The ruling will be a welcome relief to everyone who has purchased a previously renovated home and helps reinforce the message that title insurance can help solve many big, real life problems for homeowners caught in difficult situations through no fault of their own. Title Insurance doesn’t cover everything and isn’t a cure all but it does provide coverage for many title defects people encounter on a regular basis. Read more about the case on Canadian Lawyer and below you will find a summary and analysis of the ruling by articling student Andre Shymanski.
MacDonald v Chicago Title Insurance Co. of Canada, 2015 ONCA 842 – After discovering that a previous homeowner had removed load-bearing walls without a municipal building permit, the McDonalds made a claim under their title insurance policy (the “Title Policy”) for the costs of repairs needed to make their home structurally sound. The title insurer (“Chicago Title”) denied the claim based on a lack of coverage under the Title Policy.
The MacDonalds brought a motion for summary judgment seeking a declaration that a structural deficiency affecting their home was covered under the Title Policy. Specifically, they pointed to Covered Title Risk 11, which provided coverage under the Title Policy where, on the Policy Date:
11. […] Title is unmarketable, which allows another person to refuse to perform a contract to purchase, to lease, or to make a mortgage loan.
Since no municipal work order had been registered on the MacDonalds’ Title, the motion judge found that title remained marketable, although at a lesser value than the purchase price, and that the Covered Title Risk 11 did not apply in the circumstances.
The MacDonalds appealed the motion judge’s decision to the Ontario Court of Appeals (“ONCA”).
Before the ONCA could address the interpretation of the Title Policy, it held that the standard of review for the interpretation of standard form insurance contracts was correctness. In doing so, the ONCA distinguished the Supreme Court of Canada’s decision in Creston Moly Corp. v Sattva Capital Corp., 2014 SCC 53, where palpable and overriding error was held to be the appropriate standard of review for questions of contractual interpretation because they raises issues of mixed fact and law.
In justifying its decision, the ONCA pointed out that the factual circumstances surrounding the formation of standard form contracts are far less important because insureds cannot negotiate terms and are forced to “take it or leave it”. Further, the ONCA found that correctness was a more appropriate standard of review for standard form contracts because their interpretation has significant precedential value, specifically to all insureds having purchased the same policy.
Turning to the interpretation of the Title Policy, the ONCA held that term “unmarketable” in Covered Title Risk 11 had to be interpreted broadly on account of it being a coverage provision. As such, it was deemed irrelevant and overly restrictive for the motion judge to postulate that the MacDonalds’ home might have been “marketable” had they lowered their asking price.
The ONCA explained that the correct approach to the issue of coverage was to determine whether the home was unmarketable insofar that a potential purchaser could refuse to close a deal upon learning of the defect.
The ONCA also rejected the argument that coverage was excluded because the defect was discovered years after the Policy Date. The court explained that there was nothing in the Title Policy indicating that undiscovered defects rendering title unmarketable were excluded from coverage. And further, even if an exclusion could be implied, exclusion provisions must be interpreted restrictively. Lastly, the ONCA pointed out that the defect was present and affected the marketability of the MacDonalds’ title on the date of purchase even if they were not yet aware of that fact. This conclusion was supported by the ONCA’s previous decision in Krawchuk v Scherbak, 2011 ONCA 352.
Ultimately, the appeal was allowed and the order below was set aside.