Title insurance is a form of indemnity insurance. Prior to the late 1800’s there were little assurances that a buyer could rely upon to guarantee their real estate purchase. If title to property was found to be fraudulent or invalid, the buyer’s interest or “title” could be worthless; and their investment lost. Until the nation was nearly a century old, the conveyance of real property did not include any form of guarantee or assurance. Many of the transactions were handled by conveyancers (in some cases these were lawyers and in many commonwealths around the globe this title is still used), who either personally searched titles or obtained some type of abstract of title (a summary of all the public records associated with a parcel of real estate) to determine who the owner of the land was and if the land was encumbered. Prior to taking title to property, the buyer would require of the seller that the title be free of any rights (mineral, water), interests, liens or encumbrances of others for which he or she would be responsible. Based on the title search or abstract, the title could be examined, and an opinion rendered by the conveyancer that the title was clear, and thus marketable.
There existed significant limitations on the protection that conveyancers could provide the parties involved. These limitations were at the center of the historic 1868 case of Watson v. Muirhead which inevitably lead to the creation of title insurance as we now understand it. The invention of title insurance created a new dimension to the concept of land purchases by adding security and stability to the real estate market.
In 1876, a group of conveyancers from Philadelphia founded the first title insurance company; the Real Estate Title Insurance Company of Philadelphia. In an initial advertisement, the company said it was beginning operations to insure “the purchasers of real estate and mortgages against losses from defective title, liens and encumbrances,” and added, “through these facilities, transfer of real estate and real estate securities can be made more speedily and with greater security than heretofore.” Shortly thereafter, title insurance companies were opening across the country.
As the industry grew, title insurance companies and their agents began providing additional settlement services to real estate buyers, sellers, lenders, brokers, attorneys, developers, builders and others. After World War II, veterans returning home began to buy homes in large numbers; the title insurance industry began to evolve from essentially a local enterprise to operational businesses on a national level. Even though title insurance has become a global industry, title insurance work continues to follow local law and customs.