Brian Chrystal is a Scottish qualified lawyer, economist and expert witness in insurance matters. He has direct underwriting experience with major UK insurers and has developed innovative insurance structures in Eastern Europe and elsewhere. Brian is technical director of IREDD (Intelligent Real Estate Due Diligence Ltd).
Title indemnity insurance can transfer risk for clients
– but lawyers should beware of creating new risks for themselves
Even the best property lawyer cannot expect to remove all the uncertainties which can affect a real estate transaction. “Uncertainty” may mean doubts about ownership, about a buyer’s ability to use the land for the intended purpose, or about its acceptability as security for a lender.
Looking for a solution takes time, costs the client money, and may not give a conclusive result. Clients have short memories – a risk which client and lawyer considered acceptable on the way in to the transaction may become contentious if it affects terms at exit. For peace of mind, risk needs to be identified and transferred away from both client and lawyer.
Title indemnity insurance is a proven and cost-effective way of identifying and encapsulating the risk created by uncertainty and of transferring the risk of a damaging financial outcome to a third party. Properly used, title insurance can help transactions complete on time or, in some cases, at all. It can give both client and lawyer greater confidence that the asset will be acceptable to a subsequent purchaser and a lender, and that its value will be protected.
The lawyer needs to be aware that insurance may be the best approach but, crucially, also needs to be careful how the solution is applied. To do its job effectively, any title insurance needs to pass a few simple tests. In effect, the lawyer who takes on the job of obtaining insurance may be deciding that:
- the problem is properly expressed as an insurance risk and the policy requested is suitable (but is the risk the lawyer has asked to be covered the real root of the problem?)
- the insurer chosen is the best in the circumstances (but could another insurer have offered a better solution?)
- the cover meets the client’s current and likely future needs (but will the policy respond in the way the client expects?)
- the level of indemnity is sufficient (but does it represent the whole extent of the property which may be affected?)
- the structure of the indemnity is appropriate (but should it also cover delay cost and revenue losses as well as capital loss?).
Lawyers do not receive training in this area other than insurers’ occasional CPD sessions, so their potential exposure is obvious if a client facing a loss decides that the lawyer neglected to give thought to all of these criteria.