Bulletin: OK2016001

Dear Associates:

Title insurers may deal with unresolved title defects by relying on an indemnity from the title insurer who has previously issued a policy without taking exception to the particular title defect. Specific indemnities are often requested from one title company to another. Only a title insurer may indemnify another, and the indemnity is issued by the prior title insurer to the current title insurer, if the prior title insurer agrees.

Several title insurers doing business in Oklahoma recently created an Underwriter Indemnity Agreement (State of Oklahoma - Master Form Indemnity Agreement) (“MIA”) for use by those title insurers, eliminating the need for separate indemnity letters for those matters covered by this new master indemnity. The MIA is “self-executing,” which means that no special action is needed to make it effective in a particular transaction covered by the MIA, so long as the potential defect is listed in the MIA and the prior company did not except to that defect.

At the date of this bulletin, Stewart has entered into MIAs with Chicago Title Insurance Company, Commonwealth Land Title Insurance Company, Fidelity National Title Insurance Company, and First American Title Company. If you have questions about whether Stewart has a MIA in place with a particular title company or whether a particular matter is covered, please check with your Stewart Oklahoma underwriters.

What You Should Know:

• The MIA is intended for use only between title insurers and not between title agents. A title agent may not enter into a MIA that binds its title insurer (s).
• When title insurers enter into a MIA the extent of the liability is negotiated between the title insurers as set out in their specific agreement and as generally described below.
• The indemnification applies only to those specific “Defects” defined in the MIA. Other defects are not covered by the MIA. See the sample covered defects described below.
• In most cases only a prior owner’s policy may be relied upon. A lender’s policy may be relied upon where the insured lender subsequently acquired the property through a judicial or non-judicial foreclosure and is now the seller.
• The covered defect must not have been created by the current owner of the property.
• The prior policy must not take exception to the covered defect. The prior policy will not qualify if the defect is insured around or if it is otherwise the subject of affirmative coverage.

What You Should Do:

If you are considering issuing a Stewart policy without exception for a potential defect in reliance on an indemnity from the prior title insurer, Stewart will rely on the MIA, if it applies to your particular transaction and circumstances. Please follow these guidelines:

1. Confirm that Stewart and the new title insurer have a MIA in place.

2. Confirm that the prior policy covers the same land. Except in certain limited cases involving an insured lender who has foreclosed its mortgage, the prior policy must be an owner’s policy.

3. Please see section IV. Potential Defects below for a list of potential defects addressed in the MIA.  If the defect does not appear to be covered as a Potential Defect, contact your Oklahoma underwriters.

4. You do not need to confirm with an underwriter that you are relying on an MIA, unless you have questions about whether the criteria of the MIA are met. The MIA operates automatically for any covered defect.

5. Indemnification requests that are NOT covered by a MIA should continue to be directed to your Oklahoma underwriters.

6. Confirm that the Stewart policy will be for an amount that would be covered under the specific MIA with the prior title insurer. If the Stewart policy exceeds the covered amount under the prior policy, contact your Oklahoma underwriters.

7. Obtain and retain a copy of the prior policy in your file.

8. Retain a note in your file that you are relying on a MIA with respect to the particular defect.

For your convenience, we set forth below sample language addressing the limitations of liability, potential covered defects, and conditions that typically would be contained in an MIA.

Limitation of Indemnity. The maximum amount of the indemnity of Prior Insurer provided by this agreement shall not exceed the lesser of:

A. the extent of liability of the Prior Insurer under the Prior Policy,

B. the amount of insurance as defined in the Prior Policy;

C. the amount of insurance as defined in the Current Policy; or

D. $500,000.00.

IV. Potential Defects. The Indemnification of Section II of this Agreement shall apply only to the following:

A. Mortgages that have not been effectively released or discharged, but specifically excluding mortgages for which foreclosure proceedings or notice of default have been instituted, revolving credit and equity line mortgages.

B. Attachments, (subject to Section V.D) state and federal judgment liens, child support liens, condominium or community association liens. 

C. Liens for federal estate taxes or for state estate, transfer or inheritance taxes arising by reason of the death of previous owners of the Land.

D. Liens for other federal, state or municipal taxes.

E. Marital rights arising in favor of the spouses of previous owners of the Estate Insured. 

F.  Lack of authority or capacity of the grantor to convey the Estate Insured to the current or previous owner of the Land.

G. Authority of a trustee or attorney-in-fact to convey the title to the Land to the current insured owner or a predecessor in title.

H. A document affecting the Estate not being properly created, executed, witnessed, sealed, acknowledged, notarized, delivered, or recorded in the Public Records. 

I.  Authority of a Personal Representative of a decedent’s estate to convey the title to the Land to the current insured owner or a predecessor in title.

V. Conditions. The following conditions limit the applicability of this Agreement:

A. The Agreement is applicable only for title insurance policies insuring title to land within the State of Oklahoma.

B. The Prior Insurer issued a Prior Policy that provides coverage against loss due to a Defect. This Agreement shall not apply if the Prior Policy insures against loss arising from the Defect by affirmative language in its Schedule B exception or by an endorsement that expressly identifies the Defect.

C. An owner’s policy issued by Prior Insurer shall be the basis of indemnity under this Agreement if the Insured covered by the Prior Policy is the seller or borrower in the Current Insurer’s transaction.

D. This Agreement shall not apply if the Public Records disclose, or the Current Insurer has actual knowledge, that any litigation, proceedings to set aside a conveyance, or foreclosure proceedings arising from the Defect occurred after the Date of Prior Policy.

If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.

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