The History of Title Insurance
The need for title insurance arose historically from the fact that traditional methods of conveying real character did not provide adequate safety to the parties involved. Until a century ago, transferring title to real character was handled chiefly by conveyancers, who were responsible for all aspects of the transaction. The conveyancer conducted a title search to determine the ownership rights of the seller and any other rights, interests, liens or encumbrances that might exist with respect to the character, and, based on its search, provide a signed recondite (or description) of the position of the title. Although the conveyancer was generally not a lawyer, that individual was recognized as an authority on real estate law. The origin of title insurance is directly traceable to the limited protection that the work of such a conveyancer provided to the purchaser of real character.
In 1868, the famous case of Watson v. Muirhead (57 Pa. 161) was filed in Pennsylvania. In that case, Muirhead, a conveyancer, had searched and abstracted a title for Watson, the purchaser of a parcel of real character. In good faith and after consulting an attorney, Muirhead chose to ignore certain recorded judgments and to report the title as good and unencumbered. On the basis of Muirhead’s recondite, Watson went ahead with the buy, but was afterward presented with, and require to satisfy, the liens that Muirhead had concluded were not impairments to title. Watson sued Muirhead to retrieve his losses, but the Pennsylvania Supreme Court ruled that there was no negligence on the conveyancer’s part and dismissed the case. Watson, an innocent purchaser who had suffered financial damages because of the encumbrances on his title, had no recourse.
The decision of Watson v. Muirhead demonstrated clearly that the existing conveyancing system could not provide total assurance to purchasers of real character that they would be safe and obtain in their ownership. As a consequence of that decision, the Pennsylvania legislature shortly thereafter passed an act “to provide for the incorporation and regulation of title insurance companies.” The first title company was established in Philadelphia in 1876.
This new kind of insurance (called “title insurance”), addressed the concerns raised in Watson v. Muirhead by providing:
1. Responsibility without proof of negligence;
2. Financial protection by a reduction of the risk of insolvency; and
3. The assumption of risks beyond those disclosed in the public records (for which the abstractor was not liable).
Since the late 1800s, the title insurance industry has grown to where it now is an basic part in an overwhelming majority of real estate transactions in this country. The sets provided by the title insurers may vary slightly from one area of the country to the other, reflecting the different laws, customs and procedures of the various states and counties throughout the nation. But the basic purpose of these sets is the same – to assist all of the parties in real estate transactions by ensuring that the acquisition or move of an interest in real estate can be effected with a maximum degree of efficiency, security and safety.