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REAL ESTATE "Stewart has honoured its obligations. We had a disagreement over the extent of those obligations and the court has given some guidance." — SANDRA THWAITES, STEWART TITLE GUARANTEE CO. costs contribute to the total amount. What this means is if the total judgment amount plus costs exceed $1 million, the lawyer may end up digging deep into his or her own pockets. And, says Tighe, "In a real estate transaction these days, $1 million doesn't go very far." But the case also has wider significance and affects every law- yer in Ontario, according to Tim Clarke, a claims manager and counsel at LawPRO, who handles title insurance-related claims. He points out that all practising lawyers contribute to the law society's indemnity fund and, if there was ever a shortfall in the fund, "everybody's premium would go up whether they practise real estate or not." In western Canada, law society representatives note that title insurance is less routinely used in real estate transactions because lawyers and their clients can rely on the Western Law Societies Conveyancing Protocol to resolve most defects in title, with the exception of defective surveys, a risk that may covered with title insurance. Peter Michalyshyn, president of the Law Society of Alberta says he is aware of the Zeppieri decision, which could possibly have some relevance in the event of a similar suit against an Alberta lawyer. He notes the Law Society of Alberta does not have any formal agreements stipulating that title insurance com- panies will not go after lawyers found negligent in title matters. But, he adds, "that's not to say that title insurers would subrogate back against lawyers in this province. My understanding is they wouldn't." The question at issue in Zeppieri has been the subject of a wrangle between LawPRO and Stewart Title for many years. It began with a $50 levy the law society indemnity program began imposing in the mid-1990s on all real estate transac- tions to match the risk posed by real estate matters. At the time, they accounted for close to half the cost of all claims paid out by the E&O insurance plan. In 1998, the law society, acting on a recommendation from LawPRO, introduced an exemption from the levy surcharge stating that it need not be paid on title- insured matters, providing the title insurer has waived its right to maintain a negligence claim against the lawyer (except for the lawyer's gross negligence or willful misconduct) and "has agreed to indemnify and save harmless the lawyer from any claims that arise under the title insurance policy." Since different title insurers took different approaches to providing lawyers with this indemnification, LawPRO and the law society subsequently sought and eventually obtained a release and indemnity agreement with each title insurance firm. The 2005 agreement with Stewart Title reiterated the terms of the law society's 1998 exemption, promising to "indemnify and save harmless" lawyers in connection with claims concern- ing risks covered under the title insurance policy. It was this 18 M AY 2009 www. C ANADIAN Law ye rmag.com agreement that was at issue in Zeppieri. While Tighe and LawPRO see the court ruling in Zeppieri as an important milestone, Sandra Thwaites, vice president of claims and compliance at Stewart Title, maintains its significance is more modest and specific to one case. "The reason why we brought the application was that we had a difference of opinion with LawPRO over the interpretation of the indemnity. That occurs in contracts on a regular basis and that's why we have a court system," she says. "Stewart has honoured its obligations. We had a disagreement over the extent of those obligations and the court has given some guidance. We're not appealing that decision, so we'll govern ourselves accordingly." As Thwaites points out, the circumstances of the case were unique, though you could say the same thing about any lawsuit. Zeppieri's clients Shlomo and Zvia Ziv had bought a house in the Toronto suburb of Thornhill with a view to knocking it down, subdividing, and building two new houses. When they discovered they could not do so because of a city easement for an underground drainpipe that ran through the property, they launched a suit against the vendors, the vendors' real estate agent, their own real estate agent, and their lawyer. At the time they launched the suit, they did not make a claim under their Stewart Title insurance policy and the title insurance company was never named in the suit. Subsequent to launching the suit, the Zivs added an amendment relating to an alleged planning issue that would normally be covered under title insurance. Tighe maintains Zeppieri did catch the planning defect in question and corrected it before the property was transferred to the Zivs. But, he adds, that is a matter for the lawsuit that is still before the courts. "Our position is there is no problem with the title. But that's not the point. We still have to defend the lawsuit to prove that. And why should the conveyancing lawyer bear that risk when the title insurer has taken the client's premium for that policy of insurance and put it in their pocket?" Stewart's position was that there was no valid title-related issue involved in the case and, even if there was, the Zivs suffered no harm as a result of the planning issue, therefore there was no duty on the part of the title insurance company to pay for ongo- ing defence costs unless or until a court found that there were indeed damages arising from a title-related claim. This argument was rejected by the court, which ruled that the title insurance company must pay an appropriate share of the ongoing defence costs, subject to retroactive adjustment upon the settlement or final disposition of the claim. Read the full text of Stewart Title Guarantee Co. v. Zeppieri at www.canlii. org/en/on/onsc/doc/2009/2009 canlii2329/2009canlii2329.html