Question: We received a title insurance policy when we purchased our home in Sun City six months ago. Last week we were served with a lawsuit by the seller of our home that alleges that he never knew of the sale of our home, and that the deed to our home was a forgery. This lawsuit also alleges that we conspired with the real estate agent and the escrow officer to forge this deed. We thought that we would have coverage under our title insurance policy. When my husband contacted our title insurance company, however, our title insurance company said that we had coverage for forged deeds, but not if we conspired with a third party to forge the deed. We thought title insurance policies covered forged deeds. Do we now have to pay for our own lawyer to defend us when we did nothing wrong?
Answer: If the seller eventually proves in court that you conspired with the real estate agent and the escrow officer to forge the deed, you obviously do not have coverage under the title insurance policy. At the present time, however, the title company should defend you under reservation of rights and appoint a lawyer now to represent you. A defense under reservation of rights means that your title insurance company will pay for a lawyer to defend you, but that your title insurance company reserves the right to determine whether or not to make any payment of the claim against you until the lawsuit is resolved. If the title insurance company does not appoint a lawyer to represent you, and you successfully defend against the claim that you conspired to forge the seller’s deed, you should be entitled to reimbursement for your legal expenses from the title insurance company.