Most real estate transactions in Ontario today involve title insurance. Purchasers obtain title insurance to protect against unknown defects in title that crop up after the closing of the transaction, and title insurance policies generally include coverage for legal costs associated with defending title to a property. As an example, if you purchase a property and then a neighbour commences a claim for adverse possession of part of the property (i.e. a claim that the neighbour is the true owner of something you thought you purchased), the title insurance coverage may include payment of the costs of defending the claim.
The issue of what legal costs may be covered by a title insurance policy, or what other costs may be covered, is normally a matter of interpretation of the contract as between the insured property owner and the title insurer. However, Ontario courts have recently looked at what effect cost recovery under a title insurance policy should have on the awarding of costs in litigation. If a property owner receives a payment from his or her insurer pursuant to a title insurance policy, should the owner also be entitled to a costs award against the other party in a dispute? Is there a risk of double recovery? Should that matter?
In 2011, the Ontario Court of Appeal ruled in Krawchuk v. Scherbak that a private insurance exception can apply to permit double recovery: "where a plaintiff recovers under an insurance policy for which he has paid the premiums, the insurance monies are not deductible from damages payable by the tortfeasor". In that case, Ms. Krawchuk had purchased a house with serious latent defects based on misrepresentations by the vendors. She had made a claim for coverage under her title insurance policy and settled that claim with the title insurer in exchange for a payment. The defendants in the action argued that Ms. Krawchuk's recovery in the court action (which did not involve the title insurer) should be reduced in relation to the payment received under the title insurance policy. Otherwise, they argued, Ms. Krawchuk would receive a windfall - double recovery. The Court of Appeal found that double recovery was permitted in that case because it would be inequitable to allow the vendors (the tortfeasors or wrongdoers) to gain an advantaged based on benefits earned by Ms. Krawchuk through the payment of insurance premiums.
But what about a case where there is no tort or wrongdoing? In a case decided in 2016, a judge of the Ontario Superior Court of Justice found that there was no wrongdoing and, on that basis, deducted title insurance proceeds from an award of costs to the successful parties. The case involved use by one neighbour of a roadway that ran through another neighbour's property. The road was not a public highway, and the owners of the road made an application to the Court for a ruling that the road was not an "access road" as defined by the Road Access Act and for an order closing the road. The neighbours made a counter-application seeking the opposite orders.
The Court agreed with the road owners that the road was not an "access road" and issued an order preventing the neighbours from using it. Not surprisingly, the road owners had looked to their title insurance policy for coverage in the matter, which affected title to their property. They received a payment of roughly $25,000 from their title insurer. The application judge found that the road owners used "those fund[s] to defend the application ... rather than accepting payment in compensation for the inconvenience of providing ... access." That is, the road owners could have simply kept the $25,000 as disturbance compensation and allowed use of the road to continue (in which case they would not have incurred litigation costs). Instead, the road owners used the funds received to fund the litigation and were successful in avoiding the disturbance that would have been caused by ongoing use of the road.
Based on that distinction, the application judge deducted the $25,000 title insurance payment from the overall costs awarded to the successful road owners in the case. He distinguished the case from the Krawchuk v. Scherbak case heard by the Court of Appeal on the basis that there was no tort or wrongdoing involved. This was simply a case about whether an "access road" under the Road Access Act did or did not exist. In the absence of a tort or wrongdoing, the application judge was not prepared to allow a double recovery by the road owners through an award of costs.
Read the decision at: Gouett v Mullins.