How Do Title Insurance Claims Work in Michigan? What Property Owners Should Know.

Most people buy title insurance at a real estate closing, file the policy away, and never think about it again. But when a title defect surfaces, such as an undischarged mortgage, a boundary dispute, or a competing claim to ownership, that policy may be the only thing standing between you and a significant loss. Here is what Michigan property owners should understand about how title claims actually work.

TITLE INSURANCE IS NOT LIKE OTHER INSURANCE

Title insurance differs from property-casualty insurance in a fundamental way. An insurer that issues homeowners or auto policies assesses risk and charges a premium for unanticipated future losses. A title agent and title insurance company, by contrast, do not simply assess risk; they proactively eliminate the risk before issuing the policy. Title defects can be identified in advance, which is the purpose of the title commitment. Between the issuance of the commitment and the policy, the title agent is tasked with clearing known defects and encumbrances on the insured property.

Unlike most insurance, a title policy has no expiration date tied to annual renewal. Once issued, the policy remains in effect until the property is sold or refinanced. This is important because a title claim can arise decades after closing on the purchase of property.

HOW TO SUBMIT A TITLE CLAIM

When a covered issue arises, insureds usually submit the claim to the agent who sold the policy. But it is advisable to also send a copy of the claim directly to the title insurance company/underwriter that issued the policy. This is a good practice with any type of insurance and the insurance policy will provide the address and other information needed to submit a claim to the insurance company directly. Upon receiving the claim, a title insurer claims handler will investigate and make a determination on coverage under the policy, much like a property casualty claim.

Depending on the nature of the defect and whether litigation is pending, the insurer may:

1. Undertake curative action to fix the defect;

2. Defend the insured in litigation;

3. Pursue quiet title relief; or

4. Indemnify the insured for the loss.

THE COMMITMENT IS NOT THE POLICY. IT IS MORE AKIN TO AN INSURANCE PROPOSAL.

A critical point that trips up many property owners: the title policy, not the title commitment, is the controlling contract for coverage purposes. Title policies include an integration provision, which means the commitment does not impose obligations or govern the parties' rights once the policy is issued.

The Michigan Court of Appeals confronted this distinction in Pal Properties LLC v Ticor Title Insurance Co. There, a buyer tendered roughly $125,000 at closing to an issuing agent to pay off existing mortgages. The agent deposited the funds in escrow but never properly disbursed them. Unfortunately, a prior mortgage was never discharged, the deed was never recorded, and the buyer ultimately lost the property to foreclosure. The agent went out of business and the money was gone.

The buyer pursued the title insurance underwriter, arguing it was responsible for its agent's misconduct. The court disagreed. It held that the agency contract limited the agent's authority to issuing title insurance and did not authorize the agent to conduct closings on the underwriter's behalf. Being an agent for one purpose does not confer agency status for all purposes. The court also rejected the argument that the underwriter had a duty to supervise its agent's escrow activities, and held that industry assumptions about underwriter oversight were insufficient to establish apparent agency.

IMPORTANT TAKE AWAYS FOR MICHIGAN PROPERTY OWNERS

1. Confirm the policy actually issued. In Pal Properties, the insurer's first defense was that no policy ever issued because the commitment's requirements were never satisfied. After every closing, confirm you received the final title policy and not just the commitment.

2. Keep your policy accessible. Claims can arise many years after closing, long after the closing file is forgotten.

3. Notify both the agent and the underwriter of any claim, in writing.

4. Do not assume the underwriter stands behind everything the closing agent did. As Pal Properties shows, the underwriter's responsibility for its issuing agent is narrower than most buyers assume.

5. Get help early on coverage disputes. Title insurers, like other insurers, may deny claims by characterizing defects as excluded, known, or created by the insured.

THE BOTTOM LINE

Title insurance provides real protection, but coverage disputes turn on the policy language, the specific defect, and how the claim is presented. If a title problem has surfaced on your Michigan property and your title insurer is delaying, deflecting, or denying, experienced coverage counsel can often change the trajectory of the claim.

KUTINSKY PLLC represents Michigan policyholders in insurance coverage disputes, including title insurance claims. Contact us to discuss your situation.