Defective title insurance

A defective title indemnity policy insures against potential liability arising from a specific title defect. Defective title indemnity policies are widely used in the property industry.

If a title defect or breach of a restrictive covenant is identified in the due diligence process, this can affect value. As a result:

•
a lender may be less willing to finance the purchase of the property, and/or
•
a buyer may seek a price chip

A defective title indemnity policy does not remedy the title defect, it is an indemnity against loss. If it is available in the market, it can offer a solution to deal with the risk caused by the title defect and thereby allow the transaction to proceed. Insurance may not be an appropriate solution where the possible consequences of the risk materialising or being enforced are not solely financial. Some common title defects that may be insurable include:

•
lack of rights—for example a required right of way or services: a title indemnity policy can provide compensation for loss in the event that the owner is prohibited from exercising a right of way, or using services,

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