Subrogation is a term that refers to the legal right of an insurance company to recover the amount of the claim paid to the insured from a third party that caused the loss. Subrogation is common in car insurance, but it can also apply to title insurance. In this article, we will explain what subrogation means in title insurance and how it works.
Contents
What is Title Insurance?
Title insurance is a type of insurance that protects the owner or lender of a property from any defects or liens on the title of the property. Title insurance covers the risk of losing the property or having to pay additional costs due to errors or fraud in the title transfer process.
Title insurance is usually purchased at the time of closing a real estate transaction. The buyer or lender pays a one-time premium to the title insurance company, which then issues a policy that covers the insured for as long as they own or have an interest in the property.
How Does Subrogation Work in Title Insurance?
Subrogation in title insurance works similarly to subrogation in other types of insurance. If the title insurance company pays a claim to the insured due to a defect or lien on the title that was not discovered or disclosed during the title search, the title insurance company has the right to sue the party that caused or failed to disclose the defect or lien.
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For example, suppose you buy a house and obtain title insurance from Company A. Later, you discover that there is an unpaid tax lien on the property that was not recorded in the public records and was not detected by Company A during the title search. You file a claim with Company A, which pays you for the amount of the lien and any legal fees you incur. Company A then has the right to subrogate against the seller of the house, who was responsible for paying the taxes and disclosing any liens on the property.
What are the Benefits of Subrogation in Title Insurance?
Subrogation in title insurance benefits both the insured and the insurer. For the insured, subrogation means that they can receive prompt payment for their claim without having to pursue legal action against the third party that caused their loss. For the insurer, subrogation means that they can recover some or all of their losses from the third party and reduce their overall claims expenses.
Subrogation also serves as a deterrent for fraud and negligence in real estate transactions. By holding the parties accountable for their actions or omissions, subrogation encourages them to be more careful and honest in transferring titles and disclosing defects or liens.
What are the Limitations of Subrogation in Title Insurance?
Subrogation in title insurance is not always possible or successful. There are some situations where subrogation may be waived, limited, or denied by the insurer or by law. Some of these situations include:
– The insured agrees to waive their subrogation rights in exchange for a lower premium or a faster settlement.
– The insurer waives its subrogation rights as part of a settlement agreement with the third party.
– The third party is insolvent, bankrupt, deceased, or cannot be located.
– The statute of limitations for filing a lawsuit against the third party has expired.
– The defect or lien on the title was created or consented by the insured.
– The defect or lien on the title was known or should have been known by the insured before purchasing the property.
Conclusion
Subrogation is an important concept in title insurance that allows the insurer to recover its losses from a third party that caused or contributed to a defect or lien on the title of a property. Subrogation benefits both the insured and the insurer by providing prompt payment for claims and reducing claims expenses. However, subrogation is not always available or successful, and there may be situations where subrogation is waived, limited, or denied by either party or by law. Therefore, it is advisable to consult with a professional title agent or attorney before buying or selling a property and obtaining title insurance..
