Insurance – Title insurance

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U.S. Court of Appeals For the Seventh Circuit

Civil

Insurance – Title insurance

A standard title insurance policy excludes coverage for unfunded work.

“Protecting construction lenders against the risk of cost overruns is the job of other insurance products and financial instruments. Performance bonds, for example, require the bonding company to complete a project if the contractor defaults. See generally 1 MICHAEL T. MADISON, supra, § 6:24 (2001). Or, as BB Syndication did here, construction lenders can insist on a guarantee from a third party (in this case Trilogy’s owner). That’s not to say that title insurance can never be used to guarantee unfunded work; but the standard-form title policy is not meant to cover this type of risk, so lenders need to explicitly contract for this protection. One way to do so is to purchase the so-called ‘Seattle Endorsement—basically, a promise from the title company not to invoke Exclusion 3(a) for liens arising from insufficient funds. See id. § 6:19.

Affirmed.

13-2785 BB Syndication Services, Inc., v. First American Title Ins. Co.

Appeal from the United States District Court for the Western District of Wisconsin, Conley, J., Sykes, J.

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