The big title fight

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Posted by Neil Rose, Editor, Legal Futures

Title insurance: frequently used in propertly development work

Well done to First Title Insurance for taking the plunge and entering the professional indemnity insurance (PII) market for solicitors. I say this not because the company is a Legal Futures Associate, but because there has been considerable doom and gloom about the prospect of new entrants to the market in the wake of the Solicitors Regulation Authority’s decision to hold off abolishing the assigned risks pool until 2013. One top broker told me that four of the six insurers he had been talking to about coming into the market dropped their plans after the decision was announced.

First Title tells me that it has taken its looming liability to contribute to the cost of the pool, along with the possibility that a tidal wave of lender claims could yet wash over conveyancers, fully into account. This is a long-term play. Crucially it is a well-rated insurer (A-) and is looking to write business for smaller firms, particularly (but by no means exclusively) conveyancers.

Conventional wisdom that most insurers run a mile from conveyancing firms was somewhat turned on its head last week by Law Society research that found areas of practice are not central to underwriters. Size of firm is, however, and so by definition the bulk of conveyancers are still caught, but at least it gives hope to small firms that are well run that they will not be prejudiced simply by working in this field.

First Title is an interesting insurer in that a core product is title insurance, which is different from defective title insurance in that it also insures against unknown risks (other providers such as Stewart Title, London & European and CLS are, of course, available). It is a product that has huge traction in other parts of the world, particularly America, and is perhaps more common in commercial property and development work.

At the risk of sounding like a title insurance salesman, and with the caveat that my experience of conveyancing in practice was far from extensive, it has always struck me as rather appealing for residential conveyancers too. It transfers most risks associated with the process away from the solicitor’s PII policy and onto a somewhat more straightforward insurance policy (First Title’s, for example, is no fault), and even better it is usually paid for by the client. It is therefore perhaps no surprise that last year we reported both a Law Society committee and the Council of Mortgage Lenders were investigating the case for making it compulsory.

Despite the name it is not purely about title – after all, the Land Registry guarantees that – but the many things that can go wrong in the conveyancing process. I have personal experience of a planning permission problem that emerged after buying a property that a title insurance policy would, I think, have paid to make good. Instead it came out of my pocket because pursuing any of the advisers involved would have been both difficult (negligence was far from clear cut) and hugely expensive for the relatively small amount at stake.

The main problem seems to be that offering the option of title insurance to a client sounds like an implicit admission from the solicitor that he won’t or can’t do a proper, professional job of checking all the risks. It’s a tough one to get over, but of course the insurers would soon go out of business if this were actually the case and claims came flooding in.

Perhaps this is yet another example of a situation where solicitors need to take a step back and embrace a more pragmatic and commercial approach.