What to Do When Your Title Insurance Company Denies a Claim in Delaware
If a title insurer denies your claim, you can file an administrative complaint with the Delaware Department of Insurance, Dover under 18 Del. C. § 2304 or sue for bad faith under Delaware common law for breach of the implied covenant of good faith and fair dealing.
When you purchase a home or commercial property in Delaware, title insurance is supposed to be your ultimate safety net. You pay a substantial premium at closing so that if a hidden lien, missing heir, or boundary dispute emerges later, the insurance company will cover your legal fees and financial losses. Unfortunately, title companies are profit-driven businesses. They frequently deny claims by citing obscure policy exclusions. If your title insurer abandons you when a property dispute arises, you do not have to accept their denial. Use our directory to find a Delaware real estate litigator who can hold the insurance company accountable.
Common Reasons for Claim Denials in Delaware
Title insurance policies are dense contracts filled with "exceptions." When you file a claim, the adjuster will scour Schedule B of your policy to find a reason to deny coverage. Understanding these common exclusions is the first step to fighting back.
Undiscovered Mechanic's Liens
If the previous owner remodeled the kitchen but failed to pay the contractor, that contractor might place a mechanic's lien on the house. If this lien surfaces after you buy the property, you expect your title policy to pay it. However, insurers often deny these claims by arguing that the lien was not officially recorded at the local courthouse until after your closing date. Your attorney can fight this by proving the title company's abstractor missed obvious red flags during the preliminary title search.
Survey Exceptions and Boundary Disputes
Boundary disputes are incredibly common in places like Newark and Sussex County. If your neighbor claims your fence is on their land, you might file a title claim. Insurers frequently deny these claims using the "Standard Survey Exception." They will argue that because you did not pay for a brand-new, highly detailed boundary survey at closing, they are not responsible for boundary line discrepancies. A skilled lawyer can challenge whether this exception was properly disclosed to you before closing.
Pre-Existing Encumbrances Discovered After Closing
Sometimes, an unrecorded easement (like a neighbor's right to use your driveway) is discovered after you move in. Title companies often deny these claims by stating that the easement was "open and notorious"-meaning you should have noticed it when you walked the property before buying it. Defeating this denial requires your attorney to aggressively argue the legal definitions of what a reasonable buyer could have discovered.
Step-by-Step Guide to Fighting a Denial
If you receive a formal denial letter from your title insurance company, you must act quickly to preserve your rights:
- Avoid Accepting the Initial Denial: Property owners should avoid signing settlement waivers or agreeing to pay the disputed lien out of pocket before evaluating available legal remedies.
- Consult a Litigation Attorney: It is generally advisable to retain a Delaware lawyer who specializes in insurance bad faith and real estate law.
- Demand Reconsideration: Your attorney will draft a detailed legal response, citing Delaware case law, demanding the insurer reconsider the denial and provide a defense.
- File a State Complaint: Your lawyer may submit a formal Form DOI-CC, Delaware, Delaware Department of Insurance, Consumer Complaint Form to the Delaware Department of Insurance, Dover. The state can investigate unfair claims settlement practices under 18 Del. C. § 2304.
- File a Lawsuit: If the company still refuses to pay, your attorney will file a civil lawsuit for breach of contract and common law bad faith for breach of the implied covenant of good faith and fair dealing in the Delaware courts (such as under Tackett v. State Farm Fire & Cas. Co., 653 A.2d 254 (DE Supreme Court 1995)).
Costs of Suing a Title Company
Holding a massive insurance company accountable requires a financial commitment, but the alternative is losing the value of your property.
| Attorney Review and Demand Letter | $1,000 - $3,000 to review the policy and formally demand coverage. |
| Filing with Dept. of Insurance | $0 (The state does not charge consumers to investigate a complaint). |
| Court Action | $5,000 - $20,000+ depending on whether the case goes to a full trial. |
Timelines for Appeals and Litigation
Once your attorney sends a formal demand letter, the title company typically has 30 days to respond. If you escalate the matter to the Delaware Department of Insurance, Dover, their investigation can take 3 to 6 months. If a bad faith lawsuit is filed in a Delaware court, the litigation process-including discovery, depositions, and trial-can take 1 to 2 years to fully resolve.
Frequently Asked Questions (FAQ)
What is "insurance bad faith"?
Bad faith occurs when an insurance company unreasonably or intentionally denies a valid claim, delays payment without cause, or fails to properly investigate your claim to save themselves money.
Can I recover my attorney's fees if I win?
In many cases, yes. Under Delaware law, if you successfully prove that the insurance company breached their contract or acted in bad faith, the judge can order them to reimburse your legal fees.
What is the difference between an owner's policy and a lender's policy?
A lender's policy only protects the bank's mortgage investment. To have standing to file a personal claim and protect your own financial equity, you must have purchased an Owner's Title Insurance policy at closing.
Should I pay the lien off myself to save my property sale?
Generally, property owners are cautioned against paying a disputed lien without consulting an attorney first. Doing so might be considered a "voluntary payment," which can legally void the right to collect reimbursement from a title insurance policy.
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