BEWARE OF HIDDEN TERMS IN TITLE INSURANCE
When purchasing real estate, it is common for the buyer, and the buyer’s attorney, to exam a preliminary title report. The preliminary title report identifies the property, the owner, and liens affecting the property. Decisions are made and actions taken based upon the preliminary title report. It is not until several days or even weeks after the close of escrow that the actual title insurance policy arrives. It is seldom read and often filed away with the property documents.
The title insurance policy, however, contains the actual insuring language and agreements of the title insurer. This language is seldom contained in the preliminary title report. It can come as a surprise to the buyer later on.
In the case of Wolschlager v. Fidelity National Title Insurance Company, 11 Cal. Ap.4th 784 (2003) the title policy provided that all claims would be subject to arbitration. There was no mention of the arbitration provision in the preliminary title report. When Wolschlager sued over a denied claim, Fidelity demanded arbitration. Wolschlager argued that the arbitration provision had not been in the preliminary title report and that he had no practical opportunity to learn of the arbitration clause, or that he was giving up the right to a jury trial. Fidelity argued that the policy said, “copies of the policy forms should be read. They are available from the office which issued this report.” The California Court of Appeal found that this language in the preliminary title report was sufficient to bind Wolschlager and required the case be arbitrated. The lesson learned here is to inspect before the close of escrow the copy of the actual insurance policy to be issued as well as the preliminary title report.
