Basic Principles of Title Insurance
Title insurance has been defined as "...the insuring, guaranteeing, or indemnifying of designated owners of real estate or any interest in real estate against loss or damage that may result because the title is vested in a manner otherwise than as stated in the title insurance policy, because the title is unmarketable, or because the title is subject to liens, encumbrances, or other matters adversely affecting the rights of use, enjoyment, or disposition of the real estate, and not excepted in the policy, all in accordance with the terms of a title insurance policy..." (MCL 500.7301 (a). .
Title insurance is first and foremost a contract of indemnity. As such, it is to be distinguished from a guarantee of the state of the title. A guarantee of the state of the title would require the insurer to always restore the title and in essence to meet the title expectations of the insured.
Title insurance is predicated upon a one-time premium paid at the creation of the title policy. In contrast, casualty insurance premiums are based upon pure risk, that is the actuarial analysis of the probability of an event occurring in the future. Title insurance is also to be distinguished from other forms of insurance in that it is based upon risk elimination, rather than risk assumption. The title insurer gathers information concerning the state of the title and issues a commitment to insure. The commitment lists the liens and encumbrances which the insured has uncovered in the course of information gathering and examination of the title. Unless these liens and encumbrances are eliminated to the insurer's satisfaction prior to the issuance of the final policy, the insurer will take exception to them and there will be no coverage for loss or damage based upon such items.
Title insurance premiums are structured upon rates that progress with the amount of insurance sought. The typical rate in Michigan is an "all inclusive" rate, that is the search and examination fees are figures into the rate structure and are a part of the premium quote.