Foreign Markets--And the Birth of the EAGLE Policy

What Goes Around

 by Albert Rush

When First American first offered title insurance in Canada in 1991, it was in the wake of several competitors who previously tested the market without success.

Throughout the provinces of Canada, real estate closings were, and still are, controlled by solicitors (lawyers). Though many solicitors saw advantages to title insurance, such as facilitating closings and reducing their exposure to malpractice claims, others viewed it as an unjustified expense. Still others were concerned that offering title insurance might cause clients to question the solicitor's role in conveyancing.

Lenders, likewise, were skeptical. Title insurance was an unknown, untried and untested product.

Tom Grifferty

In fact there were times, according to Tom Grifferty, our manager of Canadian operations, that he could not give the product away. "One day," recalls Grifferty, "I got an angry call from a loan compliance officer, asking 'What's this (policy) doing in our loan file?'. She wanted to trash it."

And there were other discouraging factors. The Canadian provinces enjoy well-maintained land registry systems. From Ontario westward there are established Torrens systems. In British Columbia, the land registry is on-line and searches can cost as little as $15.

But a lot has changed. Today, the demand for title insurance is significant, and growing. So much so that the Law Society of Upper Canada now offers it's own title insurance product through solicitor members.

What happened?

Cliff Morgan

Mainly, two things: First, through the efforts of a team led by First American's Underwriting Director, Cliff Morgan, new policy forms were designed to meet the needs and capture the interest of the Canadian market. Working with Grifferty and Canadian in-house solicitor, Ed Frackowiak, and meeting with dozens of representatives of Canadian banks, law firms and regulatory agencies, this team developed title insurance coverages which are now standard in Canada.

To Morgan this involved learning about Canadian laws and practices, recognizing their similarities to American ways, and identifying risks we have found to be insurable in the United States.

For example, Morgan learned that Canadian lenders routinely required surveys for residential loan transactions. First American was willing to offer title insurance, without a survey, including coverages to address those lender concerns which had caused them to require surveys. These coverages insure against such potential problems as encroachments, zoning violations, lack of access, off-record easements, and violations of restrictions. Based on his U.S. experience, Morgan knew and was able to convince others that these are insurable risks for an ordinary-residential title policy.

By eliminating the survey-requirement, Canadian consumers can now save several hundred dollars (even after paying for title insurance) in a typical transaction.

Once the ink dried, our Canadian policy forms looked much like ALTA-approved forms commonly used in the United States, with some different terminology, and with some built-in coverages available elsewhere only by endorsement.

The second force of change was a new marketing spin. After years of slow progress, Grifferty and his sales staff hit upon the idea of marketing the policy as insurance covering the process of closing, rather than just insurance of the condition of record title.

This different spin caught attention in the Canadian market. Well aware that many problems are created in the closing or settlement process, or post-closing but before going to record, many solicitors and lenders expressed interest in coverage for such problems. These include such risks as forgery, intervening matters recorded but not discoverable at or near the time of closing, and failure to properly index recorded instruments so they can be located in a subsequent search of the land registry.

This marketing strategy, along with growing recognition that in many cases availability of title insurance speeds up closings and reduces costs, has resulted in greatly increased acceptance of title insurance throughout Canada, and has paved the way for introduction of title insurance in another country whose laws and practices are very similar to Canada's and Australia.

...Comes Around

Now this becomes the story of how designing title insurance products for Canada and Australia has resulted in new coverages in the United States.

One evening in mid-1996, Ontario's CTV News reported the story of the Berkovitz family, whose home was threatened with foreclosure by a lender unknown to them.

The solicitor who handled the Berkovitz home purchase learned from the land registry that the seller's mortgage was paid off and discharged of record, so the solicitor certified title without paying the prior mortgage, and the seller walked away with $158,000 more than he was entitled to.

It turned out the recorded discharge was a forgery.

Faced with two mortgages against their home, totaling almost twice it's value, the Berkovitzes hired another lawyer to defend against foreclosure. After three years in litigation, they won. But their legal expenses totaled $35,000 and they couldn't afford to pay. So again, they faced the prospect of losing their home.

CTV's Consumer Advocate, Dale Goldhawk, came to the rescue, lobbying a government-backed land title assurance fund to pay the Berkovitz legal bills. Although their liability wasn't clear, fund officials agreed "in this particular case" to help out.

Concluding his news report, Goldhawk displayed a First American policy, telling viewers that the Berkovitzes' three year ordeal could have been avoided if they had purchased this newly available insurance coverage.

Tom Grifferty saw the newscast, and sent a video copy to Cliff Morgan.

Morgan was naturally pleased, but it bothered him knowing that in fact most forgeries affecting homeowners occur post-policy, and are therefore excluded from title insurance coverage. A shame, he thought.

The Canadian newscast that changed American coverages.	Consumer Advocate Dale Goldhawk.

This was the seed for the idea of post-policy forgery coverage.

The more he thought about it, the more convinced Morgan became that this risk would be reasonable to be underwritten by title insurance. Incidents of forgeries involving land are not overwhelming in number, and title insurers know better than homeowners what to do about them.

Most importantly, Morgan was struck with the great comfort this should provide the homeowner. He thought of his own parents, retired and living on a fixed income. He easily imagined that a forged mortgage recorded against their home could quickly wipe out their savings and ruin their health.

He brought the idea back to the home office and got nods. He tossed out ideas for other post-policy coverages in bull sessions with his senior underwriting staff. The old policy forms began to look like yesterday's news.

On February 11, 1997, First American introduced in California its new policy forms, called the "EAGLE Policy", for owners and lenders. Designed for residential properties only, the EAGLE Policy adds ten important coverages to the ALTA-approved extended coverage owner's form, and eighteen new coverages to the extended coverage loan policy form.

Building on our Canadian experience, the EAGLE Policy includes as standard many types of coverage previously available only by endorsement. Also, it provides for automatic increases in the policy amount, as well as coverages for many post-policy risks normally beyond an owner's or lender's control.

The EAGLE Policy has been extremely well received in California, and elsewhere. First American is strongly committed to see it gain the widest possible acceptance throughout the United States, as local conditions and practices permit.

And what may the future hold? The Company continues to explore foreign markets for its title insurance products, as well as its array of real estate information service products. As we go forward, we hope to continue to be able to apply insights and experience gained elsewhere for the benefit of the American homeowner, investor and lender.

Albert Rush is Senior Vice President and National Counsel of First American Title Insurance Company, Santa Ana, California.

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