The American Land Title Association (ALTA) creates policy forms used by title insurance companies throughout most of the United States. These forms include the homeowner’s policy of title insurance, which is the focus of this article.1
ALTA introduced the homeowner’s policy in 1998 and has revised it several times since with the most current version released in 2021.2 Like the ALTA owner’s policy of title insurance, which is often referred to as a standard policy, the homeowner’s policy is a contract of indemnity that contains a number of coverages, identified in the policy as covered risks. Covered risks are subject to exclusions, conditions, and Schedule B exceptions found in the policy. The homeowner’s policy differs from the standard owner’s policy in that it is a comprehensive policy providing additional coverage and benefits to meet the needs of most homeowners.
To qualify for the homeowner’s policy, the real property it covers must be improved with an existing one-to-four family residence, and the party insured under the policy must be a natural person or an estate planning entity as defined in the conditions.3 The homeowner’s policy defines “natural person” as “[a] human being, not a commercial or legal organization or entity,”4 and an “estate planning entity” as “[a] legal entity, a trust, or a trustee of a trust, if the entity or trust is established by a natural person for the purpose of planning the disposition of that person’s estate.”5 In my experience, title insurers have varying guidelines on when a homeowner’s policy can be issued; guidelines may include prohibiting issuance of a homeowner’s policy for parcels on lakes, parcels over a certain acreage, or newly constructed residences. The premium charged policy also varies between title insurers, however, the premium is typically 110% of the applicable cost of a standard owner’s policy.6 Both the homeowner’s7 and standard owner’s8 policies contain covered risks insuring against loss or damage for matters arising from liens, encumbrances, and defects in or unmarketability of title as of date of policy. A standard owner’s policy may be issued with standard exceptions for off-record matters such as facts, rights, interests, or claims that could be ascertained by an inspection of the land or making inquiry of persons in possession of the land; easements, liens or encumbrances, or claims; matters affecting title that could be disclosed by an accurate and complete land survey; and construction liens.9 A standard owner’s policy issued without these exceptions is often called an extended policy and should not be confused with a homeowner’s policy often referred to as an enhanced policy, which contains expanded coverages not found in the standard owner’s policy. These expanded coverages are highlighted in this article.
POST-POLICY PROTECTION
The homeowner’s policy includes post-policy coverage for forgery or impersonation, adverse possession, and easement by prescription.10 Post-policy coverage is also provided if a “neighbor builds any structures after the date of policy — other than boundary walls or fences — that encroach onto the land.”11
EXPANDED RIGHT OF ACCESS
A standard owner’s policy insures a right of access to and from the land.12 The homeowner’s policy expands access coverage by insuring “actual vehicular and pedestrian access to and from the Land, based on a legal right.”13
DISCRIMINATORY COVENANTS
The homeowner’s policy provides coverage for enforcement of a discriminatory covenant claimed to affect the title to the property.14 The policy defines “discriminatory covenant” as “[a]ny covenant, condition, restriction, or limitation that is unenforceable under applicable law because it illegally discriminates against a class of individuals based on personal characteristics such as race, color, religion, sex, sexual orientation, gender identity, familial status, disability, national origin, or other legally protected class.”15
RESTRICTIVE COVENANT VIOLATIONS
The homeowner’s policy provides coverage for restrictive covenant violations in the following covered risks:
12. You are forced to remove or remedy a violation, existing at the Date of Policy, of any Covenant, even if the Covenant is excepted in Schedule B. You are not covered for any violation of an obligation contained in a Covenant:
a. to perform maintenance or repair on the Land, or
b. relating to environmental protection of any kind, including hazardous or toxic conditions or substances, unless there is a notice of either of these violations recorded in the Public Records at the Date of Policy, and then, Our Liability for Covered Risk 12 is limited to the extent of the violation described in that notice.
13. Your Title is lost or taken because of a violation, existing at the Date of Policy, of any Covenant, even if the Covenant is excepted in Schedule B.16
SUBDIVISION LAW VIOLATIONS
Under covered risk 16, the homeowner’s policy provides coverage for subdivision law violations existing at date of policy.17 Coverage under this risk is limited to the inability to obtain a building permit from a municipal authority; the insured being ordered by a state or municipal authority to remove or remedy the violation; or someone else refusing to perform a contract to purchase, lease, or make a mortgage based on the violation.18 The risk is subject to a cap and deductible. Coverage for violations of subdivision law is only available with a standard owner’s policy via issuance of an ALTA 26 endorsement.19
BUILDING PERMIT VIOLATIONS
Covered risk 18 provides coverage for building permit violations that result in the insured being ordered to remove or remedy any portion of its existing structures — other than boundary walls or fences — built without obtaining a building permit from the proper municipal authority.20 The risk is subject to a cap and deductible.
ZONING VIOLATIONS
Covered risk 19 provides coverage relating to zoning violations that result in the insured being “ordered by a State or Municipal authority to remove or remedy any portion of [the insured’s] existing structures, because they violate an existing State or Municipal zoning law or ... regulation.”21 This risk is subject to cap and deductible set by the title insurer. The policy also provides coverage under covered risk 20 if use of land as a single-family residence violated existing zoning law or regulation.22
ENCROACHMENT COVERAGE
The homeowner’s policy contains several covered risks that provide encroachment coverage. The first of these risks is covered risk 21 providing force removal coverage if any portion of an existing structure encroaches onto adjoining land.23 If the encroaching structure is a boundary wall or fence, the risk is subject to a cap and deductible. Covered risk 22 provides coverage if “[s]omeone else exercises a legal right refusing to perform a contract to purchase, lease, or make a mortgage loan on the Land because Your neighbor’s existing structures encroach onto the Land.”24 Covered risk 23 provides forced removal coverage for any portion of an existing structure that encroaches onto an easement or over a building setback line even if the easement or setback is excepted in Schedule B.25 The last of these risks falls under covered risk 28, which provides post-policy encroachment coverage if a “neighbor builds any structures after the Date of Policy — other than boundary walls or fences — that encroach onto the Land.”26
STRUCTURAL DAMAGE FOR EASEMENT USE
Covered risk 24 provides coverage if existing structures are damaged because of the exercise of the right to maintain or use any easement affecting your title, even if the easement is excepted in Schedule B.27
STRUCTURAL DAMAGE FOR MINERAL ABSTRACTION
Covered risk 25 provides coverage if existing improvements or a replacement or modification made to them after the date of policy — including lawns, shrubbery, or trees — are damaged because of the future exercise of the right to use the land for extraction or development of oil, gas, minerals, groundwater, or any other subsurface substance even if those rights are excepted or reserved from the description of the land or excepted in Schedule B.28
LOCATION
Covered risk 31 provides coverage if “[t]he residence with the Property Address shown in Schedule A is not located on the Land at the Date of Policy.”29 Covered risk 33 provides coverage if a map attached to the policy does not show the correction location of the land according to public records.30
EXCLUSIONS
Like the standard owner’s policy, the homeowner’s policy contains exclusions from coverage. Most of the exclusions indicate they do not modify or limit the coverage provided under certain covered risks. For example, exclusion 4 provides:
Lack of a right:
a. to any land outside the area specifically described and referred to in item 3 of Schedule A; and
b. in any street, road, avenue, alley, lane, right-of-way, body of water, or waterway that abut the Land.31
Exclusion 4 does not modify or limit coverage provided under covered risks 11 or 21.32
An example of exclusions that modify or limit coverage provided by covered risks are exclusions 7 and 8, which remove coverage for “[c]ontamination, explosion, fire, flooding, vibration, fracturing, earthquake, or subsidence”33 and “[n]egligence by a person or an entity exercising a right to extract or develop oil, gas, minerals, groundwater, or any other subsurface substance.”34 These exclusions align with exclusions in the ALTA 35 series and 41 series endorsements35 and effectively limit the coverage provided in covered risk 25.
CAPS AND DEDUCTIBLES
As mentioned in the discussion of covered risks, the homeowner’s policy contains caps and deductibles for covered risks 16, 18, 19, and 21. Each title insurer sets its own caps and deductibles which are reflected in Schedule A of policy.36
Here’s an example of what the caps and deductibles might be:
| |
Your Deductible Amount |
Our Maximum Dollar Limit of Liability |
| Covered Risk 16 |
1% of amount of insurance shown in schedule A or $2,500 (whichever is less) |
$10,000 |
| Covered Risk 18 |
1% of amount of insurance shown in schedule A or $5,000 (whichever is less) |
$25,000 |
| Covered Risk 19 |
1% of amount of insurance shown in schedule A or $5,000 (whichever is less) |
$25,000 |
| Covered Risk 21 |
1% of amount of insurance shown in schedule A or $2,500 (whichever is less) |
$5,000 |
The standard owner’s policy does not contain caps and deductibles for covered risks.
ADDITIONAL BENEFITS
The homeowner’s policy has two added benefits not found in the standard owner’s policy. One is an additional liability provision within conditions 6(e):
ii. if You are unable to use the Land because of a claim covered by this policy:
(a). You may rent a reasonably equivalent substitute residence and We will repay You for the actual rent You pay, until the earlier of:
(1). the cause of the claim is removed; or
(2). we pay you the amount required by this policy. If Your claim is covered only under covered risk 16, 18, 19, or 21, that payment is the Amount of Insurance then in force for the particular Covered Risk.
(b). We will pay reasonable costs You pay to relocate any personal property You have the right to remove from the Land, including transportation of that personal property for up to 50 miles from the Land, and repair of any damage to that personal property because of the relocation. The amount We will pay You under Condition 6.e.ii.(b). is limited to the value of the personal property before You relocate it.37 The second is a provision increasing the amount of insurance. This provision is found in condition 10 of the policy:
The Amount of Insurance then in force will increase by 10% of the Amount of Insurance shown in Schedule A each year for the first five years following the Date of Policy shown in Schedule A, up to 150% of the Amount of Insurance shown in Schedule A. The increase each year will happen on the anniversary of the Date of Policy shown in Schedule A.38
This provision is beneficial because real property typically increases in value due to market conditions or inflation and the increase is automatically included in the policy at no additional cost. A post-policy increase to the amount of insurance is available through a standard owner’s policy but requires a fee or additional premium.
CONCLUSION
This article highlights additional coverage and benefits provided in the homeowner’s policy. However, it is not an exhaustive list of covered risks, exclusions, or conditions. Readers are encouraged to review the complete homeowner’s policy on ALTA’s website at www.alta.org.