Title Insurance Exclusions in Quebec: What Your Owner's Policy Won't Cover

Your notary, who in Quebec handles the closing and the title search, is offering you an owner's title insurance policy, and you want to know what it actually covers. The answer is found less in the list of covered risks than in two other parts of the policy: the exclusions, which apply to every policy on the same form, and the exceptions, which are specific to your property. This article reviews the exclusions commonly found in these policies in Canada. Wording varies by insurer, so the only reference that counts is the policy you are handed. If you are not sure the policy is even in your name, start with our article on lender's vs owner's title insurance.

Exclusions and exceptions are two different things

A title insurance policy first describes the covered risks. It then lists exclusions: categories of loss the insurer never pays, whatever the property. Finally, it has schedules. In the sample FCT owner's policy we reviewed, the policy states it is not complete without Schedules A and B, and Schedule B sets out the exceptions.

Exceptions target your file specifically: a known servitude (Quebec's word for an easement), a mortgage you are assuming, an encroachment already identified. What is listed as an exception is known from the start and is not insured. Read that schedule with your notary before signing. It is often where the answer to “am I covered for this?” is found.

What you knew, created or agreed to

The most important exclusion concerns the insured's own conduct. The FCT sample policy excludes risks:

• that are created, allowed or agreed to by you;
• that are actually known to you, but not to the insurer, on the policy date, unless they appeared in the public records;
• that result in no loss to you;
• that first affect your title after the policy date.

In practice, a problem you spotted during the transaction and did not report to the insurer is not covered. Neither is a risk you accepted in your contract with the seller. FCT lists, among common reasons for denied claims, prior disclosure of the issue, work carried out by the owner that creates the risk, and a risk assumed as part of the arrangement agreed with the vendor. If you know about a problem, tell the notary before the policy is issued, so they can ask the insurer whether it will cover it.

Building condition is not a title risk

Title insurance protects your ownership, not the quality of the construction. It is not insurance against latent defects. Among common denials, FCT mentions:

• a leaky basement caused by foundation issues, in and of itself;
• the mere presence of asbestos;
• flooding or storm damage from unusual weather;
• pest damage;
• appliances, heating or air conditioning that stop working after closing;
• damage the seller causes while moving out.

The sample policy also excludes existing structures not built to applicable building codes, unless the violation appeared in the public records or would have been revealed by a search with the local authority on the policy date. For a construction defect, the remedy lies elsewhere: in the seller's legal warranty of quality, explained in our article on hidden defects in Quebec, and in the pre-purchase inspection done before you commit.

Laws, by-laws and environment: excluded, with exceptions

The sample policy broadly excludes losses arising from governmental power or from the existence or violation of any law, by-law, code or regulation, including building, zoning, land use and environmental protection.

That exclusion is not absolute. The same policy expressly covers some situations, such as being forced by a government authority to remove or remedy an existing structure built without a required permit, or one that violates an existing zoning by-law. This is a textbook example of a clause that varies from one policy to another: check which permit and zoning risks your own policy covers, and on what conditions.

On the environment, nothing in the sample policy covers soil contamination. If the property's history worries you, such as an old heating oil tank or an industrial neighbour, the check is an environmental site assessment, not title insurance.

The policy date sets the boundary in time

A title insurance policy looks backward. It covers risks that exist on the policy date, and only some later events that the policy expressly lists. A dispute with a neighbour that starts after you buy, or a new municipal by-law adopted later, is generally not a covered risk.

That is also why the policy does not replace home insurance. One protects your title as it stood on the day you bought. The other protects the building and your belongings against losses that happen while you own it.

Read your policy before signing

Ask the notary for a copy of the policy, or at least the form it is based on, before closing day. Three readings are enough:

• The exceptions schedule, to see what is known and left outside coverage.
• The exclusions section, to spot categories that apply to you: unpermitted work, zoning, land use.
• The covered risks tied to permits and zoning, which carve exceptions out of the exclusions and vary between insurers.

If a particular risk worries you, ask in writing: “Is this specific problem covered by the policy I am receiving?” A written answer is worth more than an assumption.