Insurance must cover missing wall, court rules

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 MacDonalds’ 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 covered them and that the insurer was obligated to compensate them.

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 threejudge 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 “consumers are treated fairly and that their reasonable expectations are protected.”

Had the lower court’s decision been allowed to stand, Justice Hourigan noted, it would have caused chaos in real estate law, since off-title issues such as city work orders would not have been covered by title insurance policies.

The Court of Appeal decision means title insurance policies should promote a reasonable commercial result and not in a way that would nullify the coverage provided.

Courts must interpret title 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 has come out in favour of a broad and consumer-friendly interpretation of title insurance,” he said. “More importantly, title insurance now covers city work orders to remedy an unsafe building.

“This is an enormous victory for consumers, as coverage for these orders has been routinely rejected by some title insurance companies in the past.”

Carlson noted that the MacDonald decision marks a sea change in the treatment of title insurance claims for the costs of remedying unsafe buildings.

Bob Aaron is a Toronto real estate lawyer. He can be reached at bob@aaron.ca, on his website aaron.ca, and Twitter @bobaaron2.