In 2006, when the American Land Title Association’s Forms Committee revised both the Owner’s Policy and Loan Policy, one of the major changes was a revision to the insuring provisions of the policy. While previous ALTA policies contained an unnamed list of generic insuring provisions, the 2006 policies were revised to clarify these insuring provisions, and to make them a specific named part of the title policy. This section is now called “Covered Risks”, and the list of covered risks has been expanded, not only to list examples of what is covered, but also to include new coverages. This blog will discuss Covered Risk Number 2, and will specifically discuss the laundry list of examples that were added to the policies under Covered Risk Number 2(a).
Before the 2006 policies were adopted, paragraph two of the insuring provisions read simply:
“2. Any defect in or lien or encumbrance on the title;”
Covered Risk Number 2(a) of the 2006 policies now reads as follows :
“2. Any defect in or lien or encumbrance on the Title. This Covered Risk includes but is not limited to insurance against loss from
(i) forgery, fraud, undue influence, duress, incompetency, incapacity, or impersonation;
(ii) failure of any person or Entity to have authorized a transfer or conveyance;
(iii) a document affecting Title not properly created, executed, witnessed, sealed, acknowledged, notarized, or delivered;
(iv) failure to perform those acts necessary to create a document by electronic means authorized by law;
(v) a document executed under a falsified, expired, or otherwise invalid power of attorney;
(vi) a document not property filed, recorded, or indexed in the Public Records including failure to perform those acts by electronic means authorized by law; or
(vii) a defective judicial or administrative proceeding.”
One of the first things to notice is the sheer number of examples of defects that are now included in the revised paragraph. Risks that were simply implied under previous policies are now specifically expressed in the 2006 policies. Also, note that the list of defects covered under Covered Risk 2(a) is not limited by those shown, but may include other types of defects that are covered but not listed: “includes but is not limited to…”
Next, notice the use of capitalized terms in the Covered Risk. Terms such as “Title”, “Entity” and “Public Records” are now defined in Paragraph 1 of the Policy Conditions, which follow the Covered Risks and Exclusions. You should refer to these definitions to make sure you understand how each term is used in the title policy.
It is important to understand that while the 2006 Covered Risks now has this laundry list of defects that are included under the parameters of Covered Risk 2(a), the coverage has not changed. All of these items listed under Covered Risk 2(a) are defects that were previously covered by the insuring provision number 2, but weren’t specifically named. These risks are the basic types of risks that title insurance was originally created to indemnify for, and the examples were added to make it clear just what type of defects were intended to be covered. For example, fraud and forgery have always been covered, but by naming them and adding examples of other types of forgery such as impersonation, it makes it clear that the policy is intended to cover the various aspects of this type of risk.
Likewise, the failure to properly execute, notarize or deliver a document affecting the title has always been considered a defect in the title that would trigger a policy claim, but now this type of defect is specifically named as a Covered Risk. This risk is different from the Covered Risks listed at 2(a)(vi), which deals with improper filing or recording of documents. You can have a properly executed and delivered document, but it may be recorded in the wrong county, and that defect would be covered under 2(a)(vi).
Another type of title defect that was commonly included under insuring provision number 2 and which is now listed under Covered Risk 2(a) are defects arising from a defective judicial or administrative proceeding. An example of this type of risk would be probate proceedings where an heir has been missed, or proper notice has not been given to all necessary parties.
Because of new technology and new laws authorizing electronic signatures and electronic recording of title documents, the ALTA wanted to make it clear that any title documents that were properly executed and recorded using legally adopted electronic means would be included under this section.
It is important to remember that any policy coverage listed under the Covered Risks is subject to the Exclusions from Coverage, the Exceptions from Coverage contained in Schedule B of the title policy, and by the Conditions.
As usual, here is my caveat: The opinions stated in this blog are those of the writer, and should not be construed to be a statement of fact or conclusion of law. Any statements herein should not be relied upon in any litigation, arbitration or mediation. Statements herein have not been approved by the American Land Title Association, its officers or members.
Janice Carpi – National Underwriting Counsel, GRS Group http://grs-global.com
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