Title Insurance
An indemnity contract under which a title insurer agrees to defend the insured against title defects existing as of the policy date and to pay losses up to the policy amount. Texas title insurance is heavily regulated, premium rates and policy forms are promulgated by the Texas Department of Insurance. Two principal forms: T-1 owner's policy (protects buyer); T-2 loan policy (protects lender). One-time premium paid at closing.
Title insurance is an indemnity contract under which a title insurer agrees, in exchange for a one-time premium paid at closing, to defend the insured against title defects existing as of the policy date and to pay losses up to the policy amount. Unlike most insurance products that protect against future events, title insurance protects against past events that may surface later, undisclosed liens, defective deeds in the chain of title, forgeries, errors in public records, and similar issues predating the policy. In Texas, the commissioner of insurance fixes and promulgates premium rates, and title insurers may use only forms the commissioner has prescribed or approved.
Owner's policy vs. loan policy
The two principal Texas title insurance products are: (1) T-1 Owner's Policy, protects the buyer (or other owner) against title defects affecting the insured estate, with coverage equal to the purchase price; remains in force as long as the insured (or successor heirs) holds title; covers defense costs in addition to loss amounts. (2) T-2 Loan Policy, protects the lender against title defects affecting the priority of the insured mortgage; coverage equal to the loan balance; decreases as the loan is paid down; assignable with the loan. Most commercial closings include both, the owner's policy benefits the buyer; the loan policy benefits the lender.
The commitment process
Title insurance issues only after a commitment process: (1) the title company performs a title search reviewing the chain of title, encumbrances, easements, restrictions, judgments, taxes, and other matters of record; (2) the title company issues a title commitment identifying the proposed insured, the property, the policy amount, and the proposed exceptions; (3) the buyer reviews the commitment and objects to specific exceptions; (4) the parties resolve objections (cure, waive, or terminate); (5) closing occurs and the policy issues. The commitment review and objection period are critical, exceptions in the commitment become exceptions in the policy and are not insured.
Standard policy structure
The Texas commitment (Form T-7) has four schedules: Schedule A (proposed insured, property, amount, effective date); Schedule B (exceptions to coverage); Schedule C (requirements that must be met before issuance); and Schedule D (disclosures, including the premium and its division). The owner's policy itself has Schedule A and Schedule B. The printed Schedule B exceptions in the Texas owner's policy cover itemized restrictive covenants, discrepancies or shortages in area or boundary lines and encroachments, spousal homestead or community property rights, tidelands and similar claims, and current and later taxes, followed by matters specific to the property. The area and boundary exception can be amended to read "shortages in area" if an acceptable survey is provided and the additional premium is paid.
Coverage and exclusions
The Texas owner's policy insures against, among other covered risks, (1) title vested other than as stated; (2) defects in or liens or encumbrances on title; (3) lack of good and indefeasible title; and (4) no right of access to and from the land. Texas law prohibits insuring against unmarketability of title, and the policy excludes loss from a refusal to buy, lease, or lend because of unmarketable title. Other exclusions include: (1) governmental laws and regulations on use, improvements, subdivision, and environmental protection, except as covered by recorded notices; (2) eminent domain, except as covered; (3) matters created or agreed to by the insured, or known to the insured and not disclosed to the insurer; (4) creditors' rights claims that the vesting transaction was a fraudulent or preferential transfer; and (5) certain tax liens arising between the date of policy and recording.
Endorsements
Texas title insurers offer numerous endorsements that expand or modify standard coverage, including: T-19 (restrictions, encroachments, minerals); T-19.1 (restrictions, encroachments, minerals, owner's policy); T-19.2 through T-19.4 (minerals and surface damage); T-23 (access); T-36 and T-36.1 (environmental protection lien). Each endorsement carries an additional premium. Sophisticated commercial buyers typically negotiate a slate of endorsements addressing specific transaction risks.
For Texas commercial real estate buyers, title insurance is a primary protection against pre-closing title defects, alongside the warranty in the deed. The commitment matters because exceptions listed in Schedules B and C of the commitment become exceptions in the policy unless they are disposed of before closing.