Do I Need Insurance For My Title Insurance?

In the insurance industry, title insurance is known as a “long-tailed” liability risk, which means that it is common for claims to be made many years after policies are issued. For this reason, owners of real estate, their lenders and their counsel have long scrutinized the financial health of title insurance underwriters. Thus, when LandAmerica Financial Group, Inc.—the parent company owning the stock of two title insurance industry stalwarts—filed for bankruptcy protection recently, the specter that a major title insurance company, like any other insurer, could be financially impaired and subsequently default on its coverage obligations caused shockwaves in real estate circles.

We now know that LandAmerica Financial Group’s financial problems were isolated from its title insurance subsidiaries, Lawyers Title Insurance Corp. (“Lawyers”) and Commonwealth Land Title Insurance Co. (“Commonwealth”). Lawyers and Commonwealth, which together comprised the third largest title insurance company in the United States, have been sold to Fidelity National Financial, Inc. (“Fidelity National”) under the watchful eye of the Bankruptcy Court in Richmond, Virginia and Nebraska insurance officials. The sale closed on December 22, 2008. By all accounts, LandAmerica’s title insurance subsidiaries, which were subject to a statutory rehabilitation proceeding under Nebraska law, are operating and serving their clients in an uninterrupted manner as members of the Fidelity National family of companies. As of September 30, 2008, Fidelity National reported a combined pro forma claim reserve of $2.6 billion and an investment portfolio of $5.2 billion.

Stakeholders in the title insurance industry dodged a bullet as a result of the sale of LandAmerica’s title insurance subsidiaries to Fidelity National. Residual questions about “what could have happened?” are likely to go unanswered, including the most central question of all: What would have happened if these title insurance companies, or any other title insurance company for that matter, failed and were subject to liquidation? There are many important questions here, and we address some of them below.