Eighteen months ago, I wrote about the developing market for title insurance and related services in Canada in an article entitled "American Title Insurance: An Emerging Presence in Canada," published in the January/February 1998 issue of Title News. At that time, the degree to which title insurance had penetrated the Canadian market was relatively small, although other countries’ title insurance activities had been touched upon by others. Title News published an article about title insurance in Mexico in its January/February 1998 issue. Last September, the International Bar Association held a program at its 1998 Vancouver Conference entitled, "Title Insurance vs Investigation Of Title: Friend Or Foe?" with speakers from the United States, Canada, Australia, New Zealand, and Europe. Title News also published an article entitled "Going Global: The U.S. Title Industry’s Next Frontier" in its November/December 1998 issue. ALTA® recently created an International Development Committee under the chairmanship of Mark Winter.
Title insurance and related services are expanding in the international marketplace and this article will update Title News readers about developments here in Canada, as well as in a number of other nations around the world. In Canada, there is a much higher degree of market penetration by title insurers than there was a year ago, with Land America joining Chicago Title, First American, our bar insurer (Lawyers Professional Indemnity Corporation or "LPIC"), and Stewart Title. The current market leader, First American, issued more than 100,000 policies last year, a remarkable number when you consider that title opinions were the only available option just ten years ago.
In the United States, title insurance developed into the standard approach to assuring title to purchasers and lenders for a number of reasons related to the specific laws, recordation systems and business practices of the U.S. Historically, many of those factors were never as prevalent in Canada. The standard of Canada’s registration regimes and the laws regarding solicitor’s negligence were generally reliable. Canada has had national mortgage-lending institutions which performed the fund raising and allocation functions of the securitized mortgage market in the United States. The chartered banks effectively serve as a national clearing house for mortgage funds. Finally, in Canada the federal Interest Act contains a provision which allows individuals to prepay mortgage loans after five years. Accordingly, Canada has an effective 5-year limitation on the terms of mortgages given by individuals and consequently does not have the long-term debt instruments which would be more conducive to securitization.
These kinds of differences exist between the United States and virtually every other country in the developed world. As a result, it is convenient for competitors to argue that the conditions that gave rise to title insurance in the United Sates don’t exist in their country, that everything is "fine" and they don’t need that American product. I heard those arguments in Ontario and Canada a number of times before our own bar insurer, Lawyers Professional Indemnity Corporation (LPIC) decided, in 1996, to issue title insurance policies itself. When I attended the IBA program at its 1998 Vancouver Conference, I heard variations on that same theme from lawyers from England, Germany, Spain, New Zealand and Australia. Unfortunately, that argument, while a convenient way to attack title insurance, doesn’t actually compare and analyze the relative strengths and weaknesses of the local title assurance approach and title insurance. When the product compares favorably, as it now does in Canada, its adoption seems inevitable, despite the historical differences.
The basic characteristics necessary for the provision of title insurance are: 1) that there is a reliable, systematic form of land in existence in the country in question, and 2) that there exists a reasonable system of enforceable laws to support that system. Accordingly, title insurers are currently working in a number of countries around the world to help attain these basic pre-requisites so that a title system and title insurance can operate. These countries include Bolivia, Costa Rica, Hungary, Moldova, and St. Lucia. Stewart Title is the clear leader in assisting nations in developing these standards.
There are at least four strong challenges that title insurance poses to the various local title assurance systems around the world. The first, as with any commercial product, is cost. The second is the ability to insure over hidden or future defects. The third is the manner in which title insurance responds to title defects or claims. The last is the impact of the modern global financial world. I will discuss each of these factors briefly, with examples of how they impact on other jurisdictions.
Costs will vary, but title insurers are not political entities that have a goal of "preaching the gospel," despite the eloquence of Mark Winter of Stewart Title, Hugh Brodkey of Chicago Title, Oscar Beasley of First American, and others. Title insurers are corporations in the business of earning income for their shareholders and, given the investment required to become licensed, hire staff, and market product in a new jurisdiction, they must have the clear belief that a profitable business will result from the contacts and clients developed. Since competitive price is the foundation of a successful business, the insurers are operating where they feel that they can compete successfully on that basis.
In Canada’s largest province, Ontario, all title insurers are routinely insuring over residential survey issues and also reducing costs by not requiring that certain searches or enquiries be completed. First American offers "closing centres" that provide standard services to assist (or compete with) lawyers who carry out such searches and enquiries individually for each purchaser. Stewart Title offers an "Examining Counsel" program, where lawyers are paid a fee for the preparation of policy particulars. LPIC has reduced its premium levels and has recently made its TitlePLUS policy available by phone or by fax as well as on-line. LPIC offers a fixed price to new home purchasers with certain approved lawyers. Price competition is fundamental to success in this jurisdiction.
In England, First American is marketing a title insurance system that it claims will reduce the complexity, length and cost of the conveyancing process ? halving costs. Stewart Title also offers title insurance in the English market. English solicitors point to the value and protection offered by the traditional conveyancing system, but seem to concede that there may be time and cost advantages to the title insurance approach.
In this area, the arguments of the supporters of the traditional roles often focus on real estate agents rather than title insurers. In 1998, for example, the New Zealand Law Society’s President, Ian Hayes, made a speech entitled "Refocusing the Conveyancing Debate," in which he suggested that real estate commissions, not legal fees, were the primary drivers of conveyancing costs. New Zealand lawyers are now entering the residential sales force. The best example of this approach comes from Scotland, with the Edinburgh Solicitors Property Centre (ESPC). Since its incorporation in 1971, the ESPC has grown to become a leading force in residential property marketing throughout east-central Scotland, with 1998 sales in excess of ?1.1 billion in residential property, about 90% of the resale market in and around the Edinburgh area. This sales system is seen as a way for lawyers to recover their residential conveyancing income and, while not a direct response to the pressures of title insurance, is often discussed in articles about title insurance as a way to protect lawyers’ interests.
The second challenge relates to the ability of title insurers to insure over hidden or future defects, an area where they can compete very effectively. This is often discussed in the context of forgery, fraud, capacity, and marital status in the United States. While these arguments are relevant in other jurisdictions, there are two other aspects of title insurance which are just as valuable. One is the future coverage offered to residential purchasers and lenders under extended-coverage policies. Such provisions are now being offered by all of the title insurers in Canada. The other is insurance over the "gap"--the time period from the date of the policy to the completion of recordation. (See Title News article in May/June issue, page 22.) Title insurance provides a material advantage over traditional title investigation approaches, which leave the risk during the "gap" period with the client.
That last coverage can be particularly advantageous in England, where the current system permits vendors to sell to a new purchaser at a better price where an offer is received before the conveyancing process is completed. That process can take from a few days to a few weeks, and if the vendor accepts the new offer, the original purchaser is considered to be "gazumped." Title insurance can speed up the process and insure over the gap to eliminate the risk. This has been a material part of the First American marketing program in England.
The third challenge is the manner in which title insurance responds to title defects or claims. Title insurance contracts are contracts of indemnity and the duty-to-defend obligation in any such insurance contract requires that insurers take steps to defend and protect the insured’s title. This is a positive obligation that is different and higher than that under either statutory claims procedure or lawyers’ errors and omissions policies, which do not respond until a purchaser or lender has suffered a loss, which is then claimed. While commentators from various jurisdictions talk with pride of their statutory or errors and omissions coverage, such as the Solicitors’ Indemnity Fund in England, Lawyers Professional Liability Insurance in Germany, the Solicitors’ Fidelity Fund in New Zealand or LPIC coverage in Ontario, none disputes the superiority of the duty-to-defend obligation in a title insurance policy. Indeed, now that LPIC offers title insurance as well as solicitor’s errors and omissions coverage, it highlights the duty to defend in its promotional material.
In addition, the various insurance funds of law societies around the world have been under a great deal of pressure with the dramatic rise and fall of real estate markets at the beginning of this decade. In the earlier issue of Title News, I outlined the LPIC deficit in Ontario. I can report that the deficit has now been completely eliminated. The New Zealand Solicitors’ Fidelity Fund is available to the client of a solicitor from whom the solicitor has misappropriated monies. Because of a recent very significant claim, New Zealand’s solicitors were advised to pay a "top up" bill of NZ$10,000.00. In England, the Solicitor’s Fidelity Fund is still in the midst of resolving a serious deficit in excess of ?$450 million. That deficit should be paid off over the next five years. It is clearly not appropriate to say that solicitor’s insurance plans around the world are necessarily effective and adequate.
The fourth challenge is the globalization of the world financial community. Title insurance was developed in the United States to some extent because of the need to have national, not local, standards. As we move to a North American free-trade zone and a highly integrated world economy, the same problems that existed state-to-state in the 1930’s now exist country-to-country. At the moment, not only is the title insurance industry in a position to cross international boundaries more easily than individual nations’ errors and omissions programs, but it also has the advantage that America is the dominant player in the global economy. Title insurance is a system that American multinational corporations are familiar with. While the German speaker at the IBA conference proudly said that "we don’t need your American money to fund our transactions," that statement is becoming less and less true as time goes on and the world becomes a more integrated financial entity.
In addition to the countries specifically mentioned above, title insurance is being offered in Australia, South Korea and throughout Latin and South America. Title insurance is likely to be offered in any jurisdiction in which title insurers feel that they can be competitively responsive to the needs of the country and can compete effectively.
Over the past few years, title insurance and related services have been offered more and more around the world. This is true not only in America’s closest neighboring countries - Canada, Mexico and countries in the Caribbean - but also in South America, Europe, Asia, and Australia. As there was in Canada, there are and will be challenges from the suppliers of other local methods of assuring title, usually each country’s bar. However, as has happened in Canada, the products, skills, and expertise developed in America’s highly competitive title insurance industry, make growing acceptance for title insurance and related services likely. While Stewart and First American are most active at the present time, all major insurers are soon likely to compete throughout this growing worldwide marketplace.
The author is a partner in Lang Michener (Toronto). Bruce has written and lectured extensively on title insurance in Canada. He is the author of three extensive sections on title insurance in the CCH Ontario Real Estate Law Guide, and is the contributing editor of the book "Title Insurance - A Guide to Regulation, Coverage and the Claims Process in Ontario" by Lang Michener. The author may be reached by telephone at (416) 307-4112, or by e-mail at bmckenna @toronto.langmichener.ca.