Is Your Lawyer Acting as an Unlicensed Insurance Agent?

My previous posts have been written for homeowners and discussed considerations related to whether or not they have a claim under their title insurance policy. In those posts I urge homeowners to consult lawyers, like those at Davidson Cahill Morrison LLP, that have had title insurance claims experience. This post raises questions for lawyers that order title insurance for their clients. It also explains why homeowners should not be asking their real estate lawyer whether they have a valid claim under their title insurance policy.

As I referenced in my October 1, 2024 post on Title Insurance Exclusions, lawyers don’t see themselves as insurance agents, but one wonders:

In Ontario the Insurance Act defines an “agent”:

“agent” means a person who, for compensation, commission or any other thing of value,

(a)…., or

(b)  solicits insurance on behalf of an insurer or transmits, for a person other than himself, herself or itself, an application for, or a policy of insurance to or from such insurer, or offers or assumes to act in the negotiation of such insurance or in negotiating its continuance or renewal with such insurer,

and who is not a member of the Registered Insurance Brokers of Ontario;

Lawyers are not members of the Registered Insurance Brokers of Ontario so the exception in the last sentence does not apply. Now let’s look at the other elements (separated by the word “or” meaning only one needs to fit) that make someone an insurance “agent”.

“Solicits insurance on behalf of an insurer…” Homebuyers, even very experienced ones, don’t typically enter their lawyer’s office with a firm view about the utility of title insurance and the particular insurer they would like to buy from. Their lawyer tells them about title insurance; which company or companies the lawyer deals with; what the policy covers; how much it costs; what their mortgage lender will require; and how much money the lawyer may save in disbursements by omitting some searches. Lawyers solicit title insurance on behalf of title insurers – and they sell you on the purchase of the policy.

“Or transmits, for a person other than himself, herself or itself, an application for, or a policy of insurance to or from such insurer…” Homebuyers do not apply for title insurance. Their lawyer conducts (or orders from a freelance title searcher) the title search and sends the results to the insurer typically on the insurer’s ordering platform built into the document processing software used by the law firm. The lawyer makes that application for another person (the Homebuyer(s)/Insured(s)/client(s)). Homebuyers are not typically sent their policy by the title insurer. Lawyers transmit applications to the insurer and then when the insurer has transmitted the policy to the lawyer, the lawyer transmits it to the insured, typically after Closing.

“Or offers or assumes to act in the negotiation of such insurance…” The policy (sometimes preceded by a Commitment to Insure) is sent by the insurer to the lawyer for review. If any changes, endorsements, or schedules need to be negotiated that negotiation takes place between the lawyer and the insurer. The Homebuyer/prospective insured is not typically involved in these negotiations other than to confirm instructions. Issues of continuance and renewal are not relevant to title insurance as it continues for as long as the insured has an interest.

But what about the opening line of the definition?  That to meet the definition of “agent” a lawyer has to do at least one of these things for: “compensation, commission or any other thing of value”.

Lawyers, the Bar Associations that represent lawyers’ interests, and the Law Society charged with regulating lawyers in the public interest might argue that when they order title insurance for their clients lawyers are not doing so for “compensation, commission or any other thing of value”. But they’d be wrong.

• The Real Estate Transaction Levy Surcharge. Real estate lawyers in Ontario are required by the Law Society to send a $65.00 Transaction Levy Surcharge to the Law Society every time they open a file. The Law Society then sends that money to LawPRO, an Errors & Omissions insurer owned by the Law Society. Lawyers do not need to pay that Transaction Levy Surcharge if every party to the Real Estate transaction (typically the Buyer and the Lender) is buying title insurance – a “thing of value”.
• To be exempt from the levy the lawyer must choose a title insurer that has entered into the Law Society’s form of “Release and Indemnity” agreement pursuant to which the title insurer must agree not to sue the lawyer, the Law Society or its E&O insurer, and further will pay the lawyer’s legal fees if the lawyer is sued. Another “thing of value”.
• Title insurers tell lawyers they can skip some of the searches they would have been required to conduct were they opining on the transaction. This includes the typically $100-$150 search of the records at the Building Department – a troubling practice discussed in my earlier Commentaries. Lowering what the lawyer must charge in disbursements allows the lawyer to quote a lower price and attract more clients. Another “thing of value”.
• There are various issues around how lawyers are compensated by the title insurers in return for orders through something called an “Examining Counsel Fee”. No matter how one views those issues there is no doubt that lawyers are “compensated” by the insurers for ordering policies.
• We’ve seen those agreements specify that the lawyer can pay the premium using his/her credit card to personally earn the Credit Card points. Another “thing of value”. And by the way those agreements can prohibit your lawyer from representing you in the event you have a claim. Another reason to start the process with a firm like Davidson Cahill Morrison LLP.

It is hard therefore to conclude that lawyers acting on residential real estate transactions are not insurance agents under Ontario’s Insurance Act. This has some serious implications given other requirements of the Act, including the fact lawyers are not licensed as agents which is an offence (s.392.2 (6)). While the Registered Insurance Brokers Act contains an exception to the requirement that all Insurance Brokers be registered for “lawyers, accountants or actuaries acting in their professional capacity there is no such exception for lawyers in the Insurance Act.   

As discussed in my October 1, 2024 post on the “Knowledge Exclusion”, it would seem to be very clear that anything known to the Lawyer/Agent is imputable to the Insurer. Insurance contracts are contracts of utmost good faith. You can’t get insurance for a boat that won’t float without telling the insurer all about it. The interesting thing with title insurance is that it is possible, even likely, that the Lawyer/Agent will come to know more about matters relevant to the policy than the Homebuyer. It is the Lawyer/Agent that searches, then reviews, the Title. It is the Lawyer/Agent that conducts, then reviews, any off-title searches related to the Land (as those terms are defined in the policies). Possibly most problematic, it is the Lawyer/Agent that conducts other due diligence, possibly additional due diligence, on behalf of the Homebuyer’s mortgage lender. This is particularly true with Private Lenders as they can require additional due diligence together with a policy.

It is possible, even likely, that Lawyer/Agents may be in the awkward position of knowing more (or being deemed to know more) about matters related both to the Title, and to the Land than the Homebuyer/Insured. One assumes that Lawyer would be found to have a duty to disclose that knowledge to his/her client, the Insured – and to his/her Principal, the Insurer.

Lucky for the lawyer the title insurer will have released and indemnified them.