Title Insurance in Ontario: What It Covers and What It Does Not!?

Our clients, Samuel and Laura*, purchased a property expecting the seller’s existing mortgage to be paid out and discharged as part of closing. Before closing, our office received the required documentation from the seller’s solicitor concerning the payout and discharge.

Over the following year, our office repeatedly requested confirmation that the mortgage had been discharged. We then received an unexpected communication from a lawyer representing the seller’s mortgage lender: the lender had never received the payout.

The seller’s lawyer initially maintained that payment had been made and provided a wire transfer confirmation. Further investigation revealed that the wire contained an error and the funds had been returned to the lawyer’s account. The seller’s solicitor had not noticed the returned funds, leaving the mortgage unpaid for more than a year.

Interest and arrears continued to accumulate. The seller’s lender pursued power of sale proceedings, leaving Samuel and Laura facing enforcement against a property they had purchased a year earlier.

What Exactly Is Title Insurance, and How Could It Help Samuel and Laura?

When buying a property, most purchasers focus on the price, mortgage, and physical condition of the building. However, problems affecting ownership, outstanding debts, or legal rights can create significant expenses after closing.

Title insurance is a contract under which the insurer agrees to indemnify, or compensate, an insured for actual loss or damage arising from covered risks. Many covered risks originate before the policy date but are discovered afterward. Certain protections, including some forms of fraud coverage, may extend to later events.

For an owner, the policy protects the insured ownership interest against specified title defects and other covered matters. For a mortgage lender, it protects the insured mortgage interest against specified risks, including certain problems affecting the mortgage’s enforceability or priority.

An owner’s policy does not replace a lender’s policy, and a lender’s policy does not insure the owner.

Title insurance is available for both residential transactions, including houses, condominiums, and cottages, and commercial transactions, including office buildings, retail premises, and industrial properties. Owner’s and lender’s policies are available for both, subject to the applicable underwriting requirements and policy terms.

Four established providers are commonly encountered in Canadian real estate transactions:

• Chicago Title Insurance Company (“CTIC”).

• FCT Insurance Company Ltd. (“FCT”).

• Stewart Title Guaranty Company (“Stewart Title”).

• Lawyers’ Professional Indemnity Company, through its TitlePLUS program (“TitlePLUS”).

What Can Title Insurance Cover?

Coverage varies between policies. Potential insured risks include the following:

Outstanding Mortgages and Other Claims Against Title

A seller’s mortgage may remain registered because it was not paid out or properly discharged. Other outstanding claims may also affect the purchaser’s ownership or the lender’s security.

Samuel and Laura’s experience illustrates how an unresolved mortgage can become a serious problem long after closing. In their case, title insurance through CTIC covered the additional shortfall arising from the unpaid mortgage during that period, helping resolve the outstanding mortgage issue.

Recovery from the responsible parties, including any involvement of the seller’s lawyer’s professional liability insurer, LAWPRO, is a separate matter. Our clients did not have to first complete a professional negligence lawsuit to obtain assistance with the covered loss.

Undisclosed Property Tax Arrears

Suppose the municipality advises you after closing that the seller owed property taxes that were already due before the policy date. Certain undisclosed arrears or errors in tax account information may be covered.

This differs from taxes becoming due after the policy date, which are generally the owner’s responsibility.

Fraud, Forgery, or Impersonation

Coverage may respond when someone uses a stolen identity or forged documents to transfer ownership or register an unauthorized mortgage.

The insurer’s response depends on whose interest is insured, the policy wording, and the circumstances of the fraud. Certain policies provide protection against specified fraud occurring after the purchase.

Survey Defects, Encroachments, and Access Problems

Certain policies cover losses arising from boundary irregularities, encroachments, or other matters that an updated survey would reveal. Coverage may also address a lack of insured access rights.

For example, Stewart Title reports an Ontario claim involving a home that extended onto neighbouring land. After the neighbour demanded removal and commenced proceedings, the insurer arranged a lot-line adjustment that allowed the home to remain in place. The reported payout was $58,000.

However, not every misplaced fence or measurement discrepancy results in an insured loss.

Certain Zoning and Municipal Compliance Problems

Coverage may address certain existing violations involving zoning, setbacks, or unpermitted work, including circumstances where an authority requires correction or removal.

In one published Ontario claim, a purchaser acquired a building containing three commercial units and one residential unit. The municipality subsequently required removal of the residential unit because the zoning did not permit it. Stewart Title reports paying $555,000, covering removal costs and the resulting loss in property value.

Coverage for an existing violation does not guarantee approval of a purchaser’s future renovations or intended use.

Construction Liens

Certain liens arising from construction work begun before the policy date may be covered, subject to underwriting requirements and exclusions.

This should not be confused with protection against unpaid bills for renovations commissioned by the insured after purchasing the property.

Errors in Public Records or Legal Descriptions

Registration mistakes or an incorrect legal description may affect what was legally transferred or mortgaged.

For instance, Stewart Title describes a transaction in which the transfer and mortgage were registered against only one of two intended property interests. The insurer retained counsel to obtain a court correction, allowing the owners to proceed with a later sale.

Certain Condominium Issues

Potential coverage includes undisclosed common expense arrears and certain defects in a condominium’s legal creation.

This does not automatically cover future special assessments, increases in condominium fees, or physical problems in the building.

What About Water and Sewer Services?

The distinction between a problem with the legal rights supporting existing services and a physical service problem is important.

For example, FCT has published an Ontario claim involving water and sewer lines that crossed neighbouring property. When relocation became necessary, the insurer covered the cost of moving the lines.

However, title insurance does not automatically pay to connect a property to municipal water where no connection existed. A property may legitimately rely on a private well.

Broken pipes, poor water pressure, insufficient well output, and unsafe drinking water should not be assumed to be covered. These matters require separate investigation and review of the applicable policy.

Can a Known Defect Be Insured?

Sometimes. A known problem must be disclosed to the insurer for underwriting review. The insurer may agree to cover it, impose conditions, or exclude it.

CTIC’s published information describes coverage for certain accepted known defects and an undertaking to insure a subsequent purchaser on the same conditions upon payment of a premium. Any such protection on resale should be confirmed in writing for the particular defect and transaction.

A policy obtained to address one concern may also provide its other applicable coverage. This does not mean every unknown problem is insured: exclusions, exceptions, and conditions still apply.

What Does Title Insurance Generally Exclude?

Physical and Structural Conditions

Title insurance is not a building warranty.

A leaking roof, broken furnace, or defective foundation is generally a physical-condition issue. If an inspection reveals that a house lacks a proper foundation, the buyer should not expect title insurance to pay to construct one.

A separate covered municipal enforcement issue may require its own assessment, but discovering a structural defect alone does not establish coverage.

Incorrect Advertised Square Footage

If a listing advertises 2,500 square feet but the home measures only 2,100 square feet, buyers should not assume title insurance will compensate them.

An inaccurate interior measurement or a seller’s misrepresentation may require separate legal advice. An error affecting the land’s legal description presents a different question, but coverage must still be established.

Known Risks Not Disclosed to the Insurer

Problems identified in an inspection, survey, municipal notice, or other pre-closing information should be brought to the lawyer’s and insurer’s attention.

A buyer should not assume that an undisclosed known problem will be covered.

Other Exclusions and Limitations

Depending on the policy, these may include:

• Government legislative, regulatory, and expropriation powers.

• Matters created, permitted, assumed, or agreed to by the insured.

• Claims that cause no actual insured loss.

• Taxes not yet due and payable at the policy date.

• Mineral and extraction rights.

• Environmental contamination and environmental compliance.

• Property assessment or market value disputes.

• Misrepresentations made by the insured.

Specific coverage provisions may qualify an otherwise broad exclusion. The policy must therefore be read as a whole.

Does Coverage Increase as the Property Appreciates?

Some residential owner’s policies include inflation protection.

CTIC’s published summary describes protection for appreciation up to a 200% maximum. The issued policy should be reviewed to confirm how this protection is calculated and the applicable ceiling.

Buyers should not interpret this as unlimited coverage or a guarantee of payment at the property’s current market value.

What Are the Insurer’s Obligations?

For a covered claim, the insurer’s obligations may include:

• Defending the insured interest: Providing counsel and paying covered defence expenses.

• Resolving the problem: Taking steps to correct a defect or remove a covered claim.

• Compensating the insured: Paying an actual covered loss, subject to policy limits.

• “No-fault” protection generally means the insured does not first have to prove someone else’s negligence. It does not mean that every loss qualifies for payment.

Additional protection may be available through endorsements, such as CTIC’s Transaction Protection Endorsement, which addresses certain covered transaction errors. Its inclusion and scope should be confirmed.

How Much Does It Cost, and How Long Does It Last?

For a purchase, the premium generally depends in part on the purchase price and amount of insurance. The property’s location, type, insurer, and additional coverage can also affect the quote.

Title insurance generally involves a one-time premium paid when the policy is issued, rather than annual renewal payments. Ask whether the quote includes owner’s and lender’s policies, endorsements, and applicable taxes.

The effective date is specified in the policy and should correspond to the insured transaction. Owner’s coverage generally continues while the insured retains the protected interest. Lender’s coverage relates to the insured mortgage debt and is governed by the policy’s terms.

Certain policies extend protection to heirs, a spouse, children, or qualifying trusts. Confirm the transfer provisions before changing ownership, as coverage does not necessarily follow every transfer automatically.

What Should Buyers Confirm Before Closing?

Ask your lawyer:

• Am I receiving an owner’s policy?

• What coverage and endorsements are included?

• What property-specific exclusions or exceptions apply?

• Have known problems been disclosed and accepted for coverage?

• What are the insurance limits and transfer provisions?

• How do I report a potential claim?

Report a potential claim promptly and follow the insurer’s requirements before incurring expenses or negotiating a settlement.

At The Six Law Group, we help clients understand their closing arrangements and the protection being obtained. Samuel and Laura’s experience demonstrates why that protection can matter long after the keys have changed hands.

* Names and identifying details in our client example have been changed or omitted to protect confidentiality. Published claims are attributed to the reporting insurer.

This article provides general information and is not legal advice. Coverage varies by insurer, jurisdiction, policy, endorsements, exclusions, and circumstances. An insurer’s general coverage summary does not replace the issued policy, and past claims do not guarantee a similar outcome.