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Issue 37 | January 2016

LIANSWERS

This newsletter includes information to help lawyers reduce the likelihood of being sued for malpractice. The material presented is not intended to establish, report, or create the standard of care for lawyers. The articles do not represent a complete analysis of the topics presented, and readers should conduct their own appropriate legal research.
Title insurance ruling covers homeowners in hidden, illegal renovations case

In December 2015, the Ontario Court of Appeal established scope on the extent of title coverage when it ruled that a title insurance policy covered defects from renovations that didn’t meet code or have municipal approval. In MacDonald v. Chicago Title Insurance Company of Canada, 2015 ONCA 842, the standard form insurance contract covered the homeowners, who learned seven years after their purchase that a load-bearing wall had been removed during renovation work undertaken by the previous owner without a building permit. The Court ruled that the title insurance policy covered a post-closing remediation order from the city with regard to illegal renovations.

The homeowners had initially brought a summary judgment motion in the case, but the lower court judge ruled that their title coverage did not protect them as the house remained marketable in spite of the illegal construction, and where the city work order was not registered on title, a summary judgment was granted in favour of Chicago Title.

The appeal judge, Justice C. William Hourigan disagreed with the motion judge’s interpretation of the contract, stating that municipal work orders “are a defect that can only be discovered by what are commonly known as ‘off-title searches’”, noting that “the restrictive scope of title insurance contemplated by the motion judge would cause chaos in the real estate bar as, no doubt, purchasers of title insurance throughout the province has instructed their solicitors not to conduct the off-title searches on the understanding that such defects were covered by their title insurance.”

Hourigan ruled that the property was unmarketable within the definition of the title policy due to the previous owner’s failure to obtain the necessary municipal approval for the changes, and awarded the couple their costs for the appeal and the earlier motion application.