If you are planning to buy a property, you may have heard of title insurance. Title insurance is a type of insurance that protects you from any defects or issues with the title of the property you are purchasing. It covers you from any losses or damages that may arise due to liens, encumbrances, fraud, forgery, or other problems that affect the ownership or validity of the title.
But what happens if you discover a problem with the title after you have bought the property and filed a claim with your title insurance company? How does the title insurance company recover the costs of defending or settling your claim? This is where subrogation comes in.
Subrogation: A Legal Mechanism for Recovery
Subrogation is a term that describes the transfer of rights and claims from one party to another. In the context of title insurance, subrogation means that when you file a claim with your title insurance company, you assign your rights and claims against the party that caused the title defect to your title insurer. This allows your title insurer to take legal action against the responsible party to recover any damages or losses incurred by you.
For example, suppose you bought a property from John, who claimed to be the sole owner of the property. However, after closing the deal, you found out that John’s ex-wife Mary had a half-interest in the property and did not consent to the sale. You filed a claim with your title insurance company, which agreed to pay you for your losses and defend your title. By doing so, your title insurer acquired your rights and claims against John and Mary, and can sue them for fraud and breach of contract.
Benefits of Subrogation
Subrogation is beneficial for both you and your title insurer. For you, subrogation means that you do not have to worry about pursuing legal action against the party that caused the title defect. Your title insurer will handle all the legal aspects of your claim and seek recovery from the responsible party on your behalf. You can focus on enjoying your property without any hassle or stress.
For your title insurer, subrogation means that they can recover some or all of the costs associated with defending or settling your claim. This helps them maintain their financial stability and keep their premiums affordable for their customers. Subrogation also serves as a deterrent for fraudsters and dishonest sellers who may try to sell properties with defective titles.
Limitations of Subrogation
Subrogation is not a guarantee that your title insurer will be able to recover the full amount of your claim from the responsible party. There may be situations where subrogation is not possible or feasible, such as:
- The responsible party is unknown, unreachable, insolvent, or deceased.
- The responsible party has a valid defense or counterclaim against your title insurer.
- The cost of pursuing legal action against the responsible party exceeds the potential recovery.
- The statute of limitations for filing a lawsuit against the responsible party has expired.
- The policy terms or applicable laws waive or limit the right of subrogation.
In such cases, your title insurer may have to bear the loss without any recourse. However, this does not affect your coverage or compensation under your title insurance policy.
Subrogation is an important concept in title insurance that allows your title insurer to recover the costs of defending or settling your claim from the party that caused the title defect. Subrogation benefits both you and your title insurer by relieving you from pursuing legal action and helping them maintain their financial stability. However, subrogation is not always possible or successful, depending on various factors. Therefore, it is advisable to consult with your title insurance company and understand their subrogation policy before buying a property.
According to Investopedia, subrogation is a term describing a right held by most insurance carriers to legally pursue a third party that caused an insurance loss to the insured. According to ACKO, subrogation in insurance is a term that refers to “substitution”. According to Smart Real Estate Nerd, subrogation in title insurance claims involves the transfer of such rights and claims to the title insurer by the insured in the event of an issue with the title.