Back to Basics: Negotiating a Title Insurance Policy

    While the title policy price may not be negotiable in New Jersey, there is more negotiation of the terms of the policy happening than one might think at first blush.  The first step is to understand the parts of the contract that can be negotiated.

    Title insurance is a contract of indemnity.  It is not a guarantee as to the condition of title.  As with other insurance, the general concept is that there must be a loss experienced for there to be coverage.  In additional, title insurance covers defense costs for the covered risks not excepted or excluded.

    The title insurance documents consist of two main sections – standard terms contained on the pre-printed Commitment Cover Letter and the Policy Jacket and the transaction specific details on the Commitment and Policy Schedules. Standard terms can be negotiated utilizing select Endorsements. Transaction specific insurance can be negotiated through requests for Amendment to the title Commitment Exceptions and Requirements. However, specific language on Commitment Jackets, Policy Jackets and most ALTA Endorsements are not amendable, because they are filed forms with the Department of Banking and Insurance (DOBI)  that may not be altered.   

Commitment Cover Letter

• Definitions 
• Terms, rights and responsibilities of the proposed Insured and the Company - allows the Company to add Exceptions after the date and issuance of the title Commitment; clarifies the items that appear after the date of the Commitment but before all of the Requirements set forth in the Commitment have been met can also be added as Exceptions.

Commitment Schedules

• Declaration Page – i.e., amount of insurance, proposed insured, type of interest insured
• Legal Description
• Requirements to be met for the Company to provide insurance
• Exceptions specific to the property and/or transaction which will not be covered.

Amendments to the Schedules

• Varies and requested based on changes to the proposed transaction.  Two examples: changing the proposed insured because the individual buyer decided to take title under an LLC name and removing a Requirement because proofs have been provided.
• Negotiating examples include changing coverage language.  Two examples: request to change an Exception from rights of parties in possession to rights of tenants, as tenants only, and adding language to an easement to reflect the words as shown on the Survey. 

Endorsements

• Standard State-wide forms filed with DOBI
• Extensive offerings available for the both the Owner’s and Loan Policy, including: limited coverage regarding easements, spreading the liability across multiple policies, zoning coverage, subdivision coverage.

Policy Jacket

• Covered Risks
• Exclusions – includes excluding loss resulting from many areas covered under police power and risks known to the insured and not disclosed
• Conditions – definitions, claim filing requirements and procedures, defense terms

Policy Schedules

• Declaration Page
• Legal Description
• Exceptions – includes the changes reflected in the amendments made prior to closing and often notes the Endorsements added to the policy that are attached.
• For a loan policy – Schedule B II Subordinate Interests