As we continue on in our quest to better understand and interpret Title Insurance contracts (a challenge, at the best of times), we, at Davidson Cahill Morrison LLP, offer the following question: Does a title insurer have an obligation to indemnify under a policy for the costs of repair or can the title insurer demolish portions of a residence and then pay the corresponding diminution in value to the homeowner? Can a homeowner receive a combination of both options as covered title risks? These are common and very reasonable questions asked of us here at Davidson Cahill Morrison LLP. Read on for the interesting answer as decided by Justice Toews of the Court of King’s Bench of Manitoba. Please do keep in mind that this decision is currently under appeal by the Lawyers’ Professional Indemnity Company, so we may hear more on these questions from the Manitoba Court of Appeal in the coming months.
Let’s get started.
Jack and Maria Abiusi purchased a 3,500 square foot resale home on the southwest edge of Winnipeg, Manitoba. They paid $1,100,000 for the home and their purchase closed on March 1, 2021. Through the Winnipeg law firm that represented them on the transaction they purchased a “TitlePLUS” policy of title insurance from the Lawyer’s Professional Indemnity Company, now LawPRO, the Errors and Omissions insurer wholly owned by the Law Society of Ontario. How, and why, the Law Society of Ontario is in the business of insuring homebuyers in Manitoba is a topic for another day.
The Abiusis contributed $300,000 of their own funds and granted a mortgage to the Steinbach Credit Union (“SCU”) for the remaining $800,000. LawPRO’s “TitlePLUS” policy includes coverage for the Mortgagee which is distinct from the other title insurers who each insure Purchasers and Mortgagees under separate Owner and Loan policies. Add this to the list items in need of regulation and standardization discussed in my August 7, 2025 post.
As described in the Agreed Statement of Facts reproduced in the Manitoba Court of King’s Bench decision (Abiusi et al. v. Lawyers’ Professional Indemnity Company, 2025 MBKB 131 (CanLII), https://canlii.ca/t/kg7mr, Jack and Maria applied for a Building Permit to allow them to renovate the home on March 3rd, two days after Closing. As their contractor began to renovate the home, he discovered mould in the floors and walls. Upon discovering more defects Jack contacted the Planning Department of the City to speak to someone about the unpermitted work done to the home. On April 22nd the City inspected the home and immediately issued a violation notice that noted violations of the Municipal By-laws.
In their explanatory letter the City explained that the detached garage had been converted into an “attached garage” without required permits and a bedroom, bathroom and sunroom addition were constructed on the Residence without required permits.
The Abiusis claimed under their TitlePLUS policy. LawPRO admitted there was coverage so there is little discussion in the decision of either the applicable covered risk or any possible exclusions. The Abiusis and LawPRO submitted an agreed statement of facts and we can presume the coverage that was agreed to was pursuant to the following provision (emphasis added):
TITLE COVERAGE
This POLICY insures you if you suffer an ACTUAL LOSS because of any of the risks listed below, provided they affect your TITLE as of the POLICY DATE (except for risks (8) and (15) which are insured if they arise or occur after the POLICY DATE);
(1) ….
(13) any order by a court or other authority after the POLICY DATE forcing you to remedy any of the following conditions existing as of the POLICY DATE:
(a) a breach of a zoning by-law;
(b) the lack of approval from a conservation or similar authority for the existing residential structure; or
(c) the lack of a building permit for the existing residential structure;
Given that LawPRO admitted coverage it appears they believe the “lack of a building permit” affects “your TITLE”. See our earlier commentary on the different structures of the title insurance policies available in Canada. It really is well past time for these insurers to be regulated and these policies to become standardized.
The Abiusi decision is however very helpful in its analysis of the damages payable after coverage has been found or admitted. All of the title insurance policies sold in Canada today contain a version of this Condition found in the Abiusis’ TitlePLUS policy:
Our Choices When You Notify Us of a Claim
After we receive your claim notice or otherwise become aware of a matter for which we are liable, we can in our discretion do one or more of the following:
a) Pay the claim against your TITLE;
b) Repair, replace or relocate any building, structure or improvement on the LAND;
c) Remove any building, structure or improvement from the LAND altogether and pay you any resulting diminution in value to the LAND; […] If you incur settlement costs, legal fees and expenses, we will not reimburse you for them unless they have been approved by us in advance.
[It is worth noting that this 2021 language again differs significantly from the corresponding Condition found in a TitlePLUS policy issued by LawPRO in Ontario in 2024]
The TitlePLUS policy purchased by the Abiusis also contained the following Condition:
OBLIGATION TO PAY
Our obligation to pay for any one or more claims made under this POLICY is limited to the lesser of: a) your ACTUAL LOSS; or b) the POLICY AMOUNT in force when the claim is made; plus any costs, fees, and expenses we incur in defence of any third party claim and the reimbursement of rent for substitute accommodation, and this limit shall apply regardless of any other terms and provisions of this POLICY. If we remove or rectify a claim, we will have no further liability for it except for any ACTUAL LOSS that remains afterwards.
[Again, there are potentially important differences from the 2024 Ontario policy]
I’ll note here that the POLICY AMOUNT in force when the claim was made was the same, as is normally the case, as the Purchase Price the Abiusis paid for their home, $1.1M. I need to quote two other provisions from the TitlePLUS policy prior to discussing the decision. The policy defines “Actual Loss” as follows:
“ACTUAL LOSS” means any direct financial loss incurred by you or any MORTGAGE LENDER:
- due to a decrease in the value of your TITLE or the LAND;
- due to bringing your LAND into compliance with any of the title risks covered by items (11) to (16) of your Title Coverage, and with respect to the MORTGAGE LENDER items (6) – (11) of the Mortgage Coverage;
- arising directly from a delay in the sale, mortgaging or leasing of your LAND; or
- arising from any of the risks listed under the Legal Services Coverage.
It is again worth noting that LawPRO, by this construction of its policy, describes items 11 through 16, one of which is item 13(c) the lack of a building permit, as “title risks” and items 11 through 16 as “Title Coverage”.
One final quote from the language in the Policy. This section is relevant as the Abiusis had to move from their house and find rental accommodations (and they then purchased a condominium) while the work on their home was being completed. From the Agreed Statement of Facts:
“The Policy further provided for indemnification for alternate living expenses as follows: If you cannot live on the LAND because of a risk covered under this POLICY and you rent reasonable substitute accommodation, we will repay you for your actual rent until you can live on the LAND or we settle your claim.”
The Abiusis submitted an estimate with their claim. That estimate showed that it would cost $848,000 to fix the deficiencies in the home and that other expenses, like their living expenses would need to be added. LawPRO retained a structural engineer that suggested two alternatives for dealing with the deficiencies.
The Parties submitted an agreed Statement of Issues for determination by the Court. From our perspective the most interesting issue was the following:
“Subject to the Policy limits, does the Defendant [LawPRO] have an obligation to indemnify the Plaintiffs [the Abiusis] for the costs to repair or replace the Residence, or is the Defendant permitted to remove portions of the Residence and to indemnify the Plaintiffs for any resulting diminution in value to the Property, or indemnify the plaintiffs based on a combination of these options?”
The Abiusis position was that LawPRO must indemnify them for the cost of repairing or replacing the house. I’ll call that the “Repair or Replace” option. LawPRO believed it could elect to remove non-compliant portions of the home and indemnify the Abiusis for any resulting diminution in the value of the property. I’ll call that the “Diminution in value” option. The parties had obtained estimates. The Abiusis estimate for Repair and Replace was over $840K. LawPRO’s estimate to remove and pay the diminution in value was significantly less.
To support their argument LawPRO cited the principles for interpreting insurance contracts set out by the Supreme Court of Canada in Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33. They relied on the “Our Choices” Condition referenced above and suggested to the Court that given the underlying value of the land, if vacant, was $550,000 to pay the Abiusis the maximum amount of $1.1M under the policy would be to grant the Abiusis a “windfall and run contrary to the principles set out in Progressive and the principles of insurance law generally.” LawPRO believed the Policy gave them that choice.
The Court did not agree. The Court favoured the argument made by counsel to the Abiusis, Timothy Frey of Merit Law in Winnipeg. Mr. Frey advanced the position that LawPRO was obliged to indemnify the Abiusis for the cost of repairing the deficiencies. Mr. Frey cited two leading title insurance cases. The 2015 case of MacDonald v. Chicago Title Insurance Company of Canada, 2015 ONCA 842, and the 2016 case of Gemeinhardt v. Babic, 2016 ONSC 4707. He argued those cases support the proposition that to permit LawPRO to simply remove the unpermitted part of the house and pay the resulting diminution in value would not produce a “reasonable commercial result”.
It was also submitted by Mr. Frey, as was found in Gemeinhardt, that the title insurers market their policies to real estate lawyers:
“… in a manner so as to encourage them not to complete due diligence searches prior to purchase and instead, to rely upon the title insurance policy for coverage. As a result of this marketing, the insured, the plaintiffs should be entitled to receive compensation for the repair costs to the Residence to the full value of the Policy rather than the lesser amount of the diminution in value.”
The Court also referenced the finding in Gemeinhardt that to accept LawPRO’s position would mean the policy coverage was “completely useless to the insured”.
What a difference a couple of words can make. After Gemeinhardt we now have (at least) a third reported decision following the reasoning of the Ontario Court of Appeal in MacDonald. When the MacDonald’s lawyer recommended they purchase title insurance from Chicago Title their policy only covered insureds that were “forced to remove” portions of their building built without a building permit. At that time every other title policy available in the marketplace covered the insured being “forced to remove or remedy”. Chicago tried to deny coverage on the basis that the MacDonald’s were not being forced to remove anything. The unpermitted work had already removed too much – an interior supporting wall, and their policy did not say “or remedy”.
The title insurance industry in Canada really needs to settle on a standard form of policy. We have no idea how lawyers today are recommending one Company’s policy over another’s.
This case also makes it perfectly clear, again, that Courts are not impressed by title insurer marketing efforts that tell lawyers they do not need to spend $100-$150 of their clients’ money as a Disbursement to search for “any adverse matter” at the Building Dept. before Closing. If the Insurers can’t agree amongst themselves to do this then the regulators responsible for the market conduct of Property and Casualty insurers must.
Perhaps to save them from themselves.
