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June 26--House-buyers should be on the lookout for "blanket exceptions" in title insurance policies, and insurers should avoid using them or face discipline, the state's top insurance regulator warned Wednesday.
In an unusual bulletin, Insurance Commissioner Theodore Nickel said a complaint had been received that title insurance companies are selling policies that exclude coverage of even the most common problems.
The companies "have begun to use broad 'blanket exceptions' in their title insurance policy form for owners and (consumers), which exclude from coverage the most common encumbrances ... that could generally be discovered during a public records search," Nickel said.
Most title insurance policies exclude coverage of the type of information that cannot be found in public records, but there have been some that exempt even public record search results, Nickel said.
This "leaves little to no coverage for the consumer and does not warn the consumer that the title they are purchasing may have defects," he said, adding the obvious: "This conflicts with the essential purpose of providing title insurance coverage."
The reason for the warning, said department spokesman J.P. Wieske, is "we received a complaint, not from the standpoint of a claim denied, but from the standpoint of someone seeing this in the marketplace and having concerns about it."
Title insurance complaints are rare, he said, and all insurance companies must submit the policies they sell to state regulators, but this or these policies are out there.
"You have to watch out for blanket exceptions," he said. "If it says something like 'we don't cover anything in the public records,' you might look at it differently," he said. "The important thing is to read your policy. If you have to purchase title insurance, make arrangements before closing to read it so you are not under pressure or stuck in a situation where if you reject the policy" the closing is jeopardized.
The commissioner's office said title insurance policies typically exclude coverage of "encumbrances" that can't be discovered via a public records search. But state law says that a policy can be rejected that is "misleading because its benefits are too restricted to achieve the purposes for which the policy is sold."
A lawyer for the Wisconsin Realtors Association, Debbi Conrad, warned against these types of exceptions in 2010, writing that: "to reduce costs, the title company apparently is not conducting a full search of the records. The company searches far enough back to find the current deed, mortgages and liens but does not attempt to look for easements, restrictions, etc., farther back in the record."
Conrad said Wednesday that "most consumers don't know what all this language means in the first place, and they may not understand what (a blanket exception) is doing. For people buying homes, they are getting less than what they assume. They are getting less protection."
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