Loss from things that were already wrong with the title on the day the policy was issued: forgery and impersonation in the chain of ownership, an undisclosed heir, a recording or indexing error, a lien the search missed, no legal right of access, and title that cannot be sold, plus the cost of defending against the claim.
A title policy is four documents stapled together and they are read in order. Schedule A says who is insured, for how much, and over what land. The Covered Risks list what the insurer stands behind. Schedule B lists the exceptions, meaning the specific things on this parcel the insurer will not stand behind. The Exclusions and Conditions say what no policy of that form covers and how a claim is handled.
Everything below is the general shape of the ALTA forms in wide use. A particular file is governed by the particular policy, and the two pages worth reading before closing are Schedule B and the Exclusions, because that is where a general promise becomes a specific one.
The covered risks
The catalogue is narrower than people assume and deeper than they expect. Each of these is a defect that existed before the policy date and that a search may not surface.
- Title vested in somebody other than the person the policy says owns it.
- Forgery, impersonation, duress, incompetency or lack of authority anywhere in the chain of ownership, including a deed signed by a person posing as the owner.
- A deed that was never properly executed, witnessed, acknowledged or delivered, or an electronic signature that failed the requirements for one.
- An undisclosed or missing heir with an interest in a property that passed by inheritance, and a spouse's community property interest where the record showed no marriage.
- Recording and indexing errors: an instrument filed under a misspelled name, a legal description typed wrong, a release recorded against the wrong parcel.
- Liens and encumbrances the search did not reach, including an unreleased old mortgage, a judgment, unpaid taxes and a mechanic's lien for work done before closing.
- No right of access to and from the land, which is a defect a buyer can otherwise discover only by needing to drive there.
- Unmarketable title: a defect serious enough that a later buyer or lender may refuse the property even if nobody ever wins a claim over it.
- The duty to defend. The insurer pays for the lawyers on a covered claim, whether or not the claim eventually succeeds.
The exclusions, which are where most surprises live
Exclusions apply to every policy on that form. They are not a comment on this parcel.
- Government power. Zoning, land use, building and environmental regulation, and the enforcement of them, are excluded, as is eminent domain. A policy insures who owns the land, not what may be built on it.
- Matters created, suffered, assumed or agreed to by the insured. A lien you granted is not a defect.
- Matters known to the insured, not in the public records, and not disclosed to the insurer in writing before the policy date. Knowing about a problem and staying quiet defeats coverage for it.
- Matters attaching after the date of policy. A judgment recorded against you next year is your own affair, subject to the limited post-policy coverage some residential owner's forms add.
- Defects that cause no loss to the insured.
- Creditors' rights and bankruptcy issues, where an earlier transfer is later set aside as preferential or fraudulent.
Schedule B, and standard against extended coverage
Schedule B is the parcel-specific half. A standard policy customarily excepts the rights of parties in possession, easements not shown by the public records, unrecorded mechanic's lien claims, mineral and water rights severed earlier, taxes and assessments not yet due, and any matter an accurate survey and inspection would disclose, which sweeps in most boundary and encroachment questions.
Extended coverage removes several of those standard exceptions, normally on the strength of a survey and an inspection, and costs more from the same filed rate schedule. The expanded residential owner's forms published by ALTA go further again, adding cover for some post-policy forgery, certain building permit and zoning violations and encroachments found later. Which form is being issued is stated on the commitment.
One more thing about Schedule B: exceptions can often be negotiated away before closing rather than accepted. An old lien can be paid and released, an heirship cleared, and where a matter can be cured the insurer will remove the exception or issue an endorsement over it.
What the insurer actually does on a claim
There are three outcomes, and they are the insurer's choice rather than the owner's. It clears the defect, which is what happens in most cases and often costs the insurer far more than the premium. It defends the title in court and pays that cost. Or it pays the loss, capped at the amount of insurance in Schedule A and measured by the diminution in value the defect causes rather than by what the owner feels the trouble was worth.
Notice matters. Every form requires prompt written notice of a claim, and coverage can be prejudiced by sitting on one. Nevada requires the insurer to keep the evidence of its search and its determination of insurability for at least five years under NRS 692A.220, which is part of what makes an old file reconstructable when a claim arrives long after closing.
Questions people ask
Does title insurance cover boundary and survey problems?
A standard policy excepts matters an accurate survey would disclose, which is most boundary and encroachment questions. Extended coverage, survey coverage and the expanded residential forms take in more of it. The Schedule B pages of the specific commitment are the answer for a specific property.
Does it cover problems that start after you buy?
Generally no. The policy is backward-looking and excludes matters attaching after the date of policy, so a lien you incur later or a neighbour dispute that begins later is not covered. Some expanded residential owner's forms add narrow post-policy coverage, most usefully against somebody forging a deed out of your name.
Does title insurance cover unpaid property taxes?
Taxes that were already a lien and were missed by the search are a covered risk. Taxes and assessments not yet due and payable are a standard Schedule B exception, and taxes falling due after closing are the owner's, being a matter attaching after the policy date.