ARTICLE 29: What to Do When Title Insurance Denies Your Claim: A Legal Perspective for Investors

What to Do When Title Insurance Denies Your Claim: A Legal Perspective for Investors

You purchased a property with title insurance. Months or years later, a title defect surfaces—a previously unknown lien, a forged document, or an undisclosed easement. You file a claim with your title insurance company expecting them to cover the loss or defend your title.

Instead, the title company denies the claim.

This is the nightmare scenario that investors' title insurance is supposed to prevent. But title insurance companies are businesses with financial incentives to deny claims. They'll argue that:

The defect was excluded in the policy
You didn't meet notice requirements
The defect existed at the time of policy issuance (so it's not covered)
Your loss wasn't caused by title defect (it's a different problem)

Before you accept the denial, understand your rights and options for appealing, getting the claim reconsidered, or suing the title company for bad faith denial.

This comprehensive guide reveals the top reasons title insurance claims are denied, how to appeal a denial, when to hire an attorney for bad faith insurance claims, and strategies for getting title companies to pay claims they initially deny.

Decoding the Denial: Top 5 Reasons Your Title Insurance Claim Was Rejected

Reason #1: Policy Exception Exclusion

Your policy lists exceptions (easement, deed restriction, etc.). You claim loss related to that excepted item. Title company denies: "The exception is listed in your policy, so it's not covered."

Reality: Exceptions are excluded from coverage. If you didn't notice or understand the exception when you purchased, tough luck.

Prevention: Review policy exceptions carefully before closing. Ask title company to explain anything you don't understand.

Reason #2: Notice Requirement Not Met

Your policy requires you to notify the title company within a specific timeframe after discovering the defect (typically 1-2 years). If you don't notify them by that deadline, they deny the claim.

Reality: Title companies use short notice periods to limit exposure. If you notify them 3 years after discovering a defect, they may deny.

Prevention: Notify title company immediately upon discovering any title defect.

Reason #3: Pre-Existing Condition

Title company argues the defect existed before the policy was issued, so it's not a "new" defect covered by the policy. Many policies have limitations on pre-existing conditions.

Reality: If the title defect was discoverable by a reasonable title search at the time of policy issuance, it may be considered pre-existing.

Reason #4: Causation Challenge

You file a claim saying a title defect caused you a loss. Title company argues your loss was caused by something else (contractor failure, market downturn, etc.), not the title defect.

Reality: Title insurance covers losses directly caused by title defects. If the defect didn't cause your loss, coverage doesn't apply.

Reason #5: Failure to Mitigate

Title company argues you had opportunity to reduce the loss but didn't. For example, if a lien is placed on your property, you should have paid it immediately to minimize legal costs. If you ignored it for 2 years racking up legal fees, title company may deny coverage for the excess fees.

Reality: Title companies can deny claims if you failed to take reasonable steps to minimize loss.

Your Counter-Offensive: A Step-by-Step Guide to Appealing a Denied Claim

Step 1: Obtain Detailed Denial Explanation

Request written explanation from title company specifying:

Exact reason for denial
Which policy provisions/exceptions justify denial
What evidence supports their denial position

Don't accept vague denials. Demand specifics.

Step 2: Gather Supporting Documentation

Collect all evidence supporting your claim:

Original policy and endorsements
Documents showing you owned property
Proof of loss (appraisals, legal fees, etc.)
Timeline of discovery and notification
Communications with title company
Any evidence that defect was not discoverable by title search

Step 3: Identify Policy Provisions Supporting Your Claim

Review your policy and identify provisions that would cover your loss if the company's denial rationale is wrong.

Example: Your policy says "covers liens created after policy issuance." Company claims the lien is pre-existing. You argue the lien was recorded after you closed, so it's covered.

Step 4: Prepare Written Appeal

Write detailed letter to title company arguing:

Policy language that covers your loss
Why their denial reasoning is flawed
Evidence supporting your position
Specific dollar amount claimed

Cite specific policy provisions and legal citations.

Cost: $500-$2,000 if attorney prepares

Step 5: Submit Appeal with Deadline

Submit appeal letter with request for response within 30 days. State that if they don't respond favorably, you'll pursue legal action.

Step 6: Escalate to Supervisor/Counsel

If initial response is unsatisfactory, request escalation to title company's senior management or in-house counsel.

Escalating the Dispute: When to Hire an Attorney for a Bad Faith Insurance Claim

If the title company continues denying the claim despite valid appeal, consider hiring an attorney. This is especially important if:

Large loss amount: Claim exceeds $10,000 (attorney fees will be justified)
Clear policy violation: Policy clearly covers loss but company denies it
Evidence of bad faith: Company's denial seems unreasonable or contrary to policy language

Bad Faith Insurance Claim Definition

Insurance companies have duty of "good faith and fair dealing." Bad faith occurs when:

Company denies claim that's clearly covered by policy
Company refuses to investigate claim fairly
Company ignores evidence supporting claim
Company misinterprets policy to avoid payment

Attorney's Role

Experienced insurance attorney will:

Review policy and claim denial
Assess strength of bad faith case
Demand recon sideration with legal threat
File lawsuit if necessary
Seek damages for not only the original loss but also attorney fees and penalties

Potential Outcomes

Company reconsiders: Attorney letter and threat of lawsuit motivates company to reconsider and approve claim
Settlement: Company agrees to pay portion of claim to avoid lawsuit
Lawsuit victory: Court rules company wrongfully denied claim and orders full payment plus attorney fees and penalties

Cost of attorney: $2,000-$8,000 for bad faith claim

Benefit: Potential to recover original loss plus attorney fees plus penalties ($50,000+ total if case is large)

The Investor's Endgame: Navigating a Lawsuit & Bulletproofing Your Future Deals

If You File Lawsuit Against Title Company

The lawsuit will proceed through:

Demand letter from your attorney (90 days for response)
Negotiation/settlement discussions
Discovery (exchanging evidence)
Potential mediation
Trial (if no settlement)

Timeline: 1-3 years from lawsuit filing to resolution

Cost: Attorney fees ($5,000-$25,000+ depending on complexity)

Potential recovery: Original loss + attorney fees + court costs + possible penalties

Bulletproofing Your Future Deals

Going forward:

Choose title companies carefully: Select companies with strong ratings and few complaints
Understand your policy: Ask questions about coverage before closing
Get endorsements for special situations: Extended ALTA, boundary coverage, etc.
Document everything: Keep records of all property transactions and communications
Report defects immediately: Don't wait—notify title company upon discovery

The Bottom Line

Title insurance should protect you against title defects. But title companies are businesses with incentives to deny claims. If your claim is wrongfully denied, understand that you have recourse: appeal, escalate, hire attorney, and potentially sue for bad faith denial.

Many investors who initially receive claim denials successfully overturn them through persistence and legal pressure. Don't accept the first "no"—fight for what your policy promises to cover.

Investors who understand title insurance claim processes and bad faith remedies are better protected and more likely to recover losses when title defects surface.