1.13 Title Insurance

• Library: Real Estate Transactions in Virginia (Virginia CLE) (2019 Ed.)

1.13 TITLE INSURANCE

1.1301 Title Opinions Versus Title Insurance. The nearly universal reliance upon title insurance has blurred the substantive distinctions between the insurability of a title and an opinion on the legal sufficiency (marketability) of a title. A title opinion states or implies whether (or how) the title is actually or potentially encumbered. Title insurance merely specifies types of claims or actions that will obligate the insurer to take remedial actions or furnish indemnification. ¹⁶⁴ Some, if not many, real estate lawyers do not appreciate these distinctions; it is unrealistic to expect clients to do so absent thorough explanations from their lawyers. Thus, whenever a lawyer intends to procure title insurance for a client without performing a 60-year title examination, the lawyer is breaching his or her implied title search duty and is impliedly warranting that the title is free from actual or potential encumbrances, unless the lawyer expressly discloses to the client at the outset the lawyer's intention to limit or eliminate the implied title search duty or title opinion warranty and obtains the client's consent. The lawyer must also furnish the client with an explanation sufficient to enable the client to understand the distinction between title insurance and a title opinion. ¹⁶⁵

1.1302 Reliance on Abstracts and Files of Title Insurance Companies. The extent to which a lawyer has obtained an informed consent from a client who seeks to rely upon a title determines the extent to which the lawyer may ethically rely upon abstracts and "plant files" of title insurance companies or agencies in discharging duties to the client. ¹⁶⁶

[Page 31]

1.1303 Failure to Inform Client of Availability of Title Insurance. An attorney for a purchaser, borrower, or lender has a duty to inform a client about the availability of title insurance. ¹⁶⁷

1.1304 Failure to Obtain Title Insurance. A lawyer who receives funds in trust to pay title insurance premiums in accordance with contract requirements or the desires of the clients and then fails to do so may be subject to disciplinary sanctions such as disbarment ¹⁶⁸ or suspension. ¹⁶⁹

1.1305 Unreasonable Delay in Disbursing Title Insurance Premiums. An unreasonable delay in disbursing title insurance premiums has been deemed sufficient grounds—depending upon the degree or frequency of the delays—for varying degrees of disciplinary sanctions such as disbarment, ¹⁷⁰ suspension, ¹⁷¹ and public reprimand. ¹⁷²

1.1306 Lawyer as Agent of Title Insurance Company. Being a compensated agent for a title insurance company or agency does not per se disqualify a lawyer from procuring title insurance from that title insurer on behalf of a client, provided the lawyer complies with the requirements of LEO No. 1564. ¹⁷³ A lawyer's receipt of "consulting" fees from a title insurer based on the number of title policies procured from the insurer by clients of the lawyer in transactions handled by the lawyer may be construed as acceptance of illegal "kickbacks" in addition to unethical conduct. ¹⁷⁴ The mere fact that an insurer has appointed an attorney as its validating officer authorized to countersign its binders, without direct or indirect compensation for doing so, does not make it improper for the attorney to procure title insurance from the

[Page 32]

insurer on behalf of a client in a transaction being handled by the attorney, provided that there is adequate disclosure to, and consent by, the client. ¹⁷⁵

1.1307 Proprietary Interest in Title Insurance Company. A lawyer who wholly owns or has a proprietary interest in a title insurance company or agency may not procure title insurance for a client from that company or agency unless the client consents upon the basis of full disclosure and...