Suing a Title Insurance Company in Massachusetts for Denied Claims

When you close on a house in Boston, Cambridge, or Newton, purchasing an owner's title insurance policy is supposed to provide absolute peace of mind. You pay a substantial one-time premium to ensure that if a hidden defect, unrecorded lien, or missing heir threatens your ownership, the title company will pay to defend your property rights in court.

However, insurance companies are businesses designed to protect their profits. When a massive problem arises-like a neighbor claiming an easement through your living room or a $50,000 missed tax lien-the title company may send you a formal denial letter. This guide explains how title insurers justify denying claims under Massachusetts law, how to fight back, and why finding a specialized real estate litigator in our US Lawyer Directory is crucial for forcing them to honor their contract.

Why Title Companies Deny Claims (Schedule B Exceptions)

The relationship between you and your title insurer is governed by a contract, subject to the regulations of Mass. Gen. Laws ch. 175. The most important part of this contract is 'Schedule B.' This section lists the specific exceptions-items that the title company explicitly refuses to cover. When a claim is denied, the adjuster almost always points to Schedule B or claims the defect was a 'known defect' that you failed to disclose before closing.

Undisclosed Easements

An easement gives someone else the legal right to use a portion of your land, such as a utility company or a neighbor who shares a driveway. If an old, recorded easement was missed by the title examiner during your closing, the insurance company should cover it. However, if the neighbor's right was unrecorded and merely visible to the naked eye (like a clearly paved path cutting across your lawn), the title company will deny the claim, stating you should have noticed it during your final walkthrough.

Missed Tax Liens

If the previous owner failed to pay property taxes or water bills to the city of Worcester or Springfield, the municipality holds a lien that stays with the property. If the title company missed this during closing, they are generally on the hook. However, they might deny the claim if the tax assessment was finalized after your exact closing date, arguing the lien did not technically exist when the policy was issued.

Survey Exceptions and Boundary Disputes

Standard title insurance policies in Massachusetts do not automatically cover boundary disputes unless you pay for extended coverage and provide a professional land survey at closing. If your neighbor builds a fence three feet onto your property and you only have standard coverage, the title company will deny your claim under the standard 'survey exception,' leaving you to fight the neighbor at your own expense.

Unrecorded Mechanic's Liens

If the previous owner remodeled the kitchen but failed to pay the contractor, the contractor can file a mechanic's lien against your house. Title companies often deny these claims if the lien was filed in the 'gap period'-the few days between your closing and when the deed was officially recorded at the registry. Your attorney must heavily scrutinize the exact dates of the policy issuance to force coverage.

Suing the Closing Attorney vs. the Title Company

When a claim is denied, homeowners often wonder who to blame. Should you sue the closing attorney for malpractice, or the title company for breach of contract?

In Massachusetts, the closing attorney usually acts as the agent for the title insurance company. If the attorney was negligent (e.g., they read the title search incorrectly and failed to pay off a mortgage), the most direct route is to sue the title company for breach of contract, because the title policy guarantees the accuracy of the title. If you sue the title company, the insurance company will likely absorb the loss and then independently pursue the negligent attorney's malpractice insurance to recoup their money.

Step-by-Step Process to Fight a Denial

Do not accept a denial letter as the final answer. Follow these steps to escalate the matter.

Step 1: Draft a Demand Letter

Your attorney will send a formal demand letter to the title insurance underwriter (e.g., First American, Fidelity, or Stewart Title). This letter will cite specific Massachusetts insurance laws and case precedents, such as Clegg v. Butler, 424 Mass. 413 (MA Supreme Judicial Court 1997), which establishes that insurers face liability for failing to effectuate prompt, fair settlements once liability is reasonably clear.

Step 2: File a Breach of Contract Lawsuit

If the insurer refuses to reconsider, your lawyer will file a lawsuit for breach of contract and bad faith insurance practices. This is typically filed in Superior Court. For example, if you live in Boston, you will file at the Suffolk County Superior Court, Boston, attaching Form SC0001, Massachusetts, Superior Court, Civil Action Cover Sheet to your formal complaint.

Step 3: Discovery and Settlement

During the discovery phase, your attorney will depose the claims adjusters to prove they acted unreasonably. Fearing a bad-faith verdict, which can result in triple damages under Massachusetts consumer protection laws, title companies will frequently settle at this stage and agree to cover your original claim.

Costs of Litigating a Title Insurance Claim

Taking on a major insurance corporation requires financial resources.

How Long Does the Process Take?

A well-drafted legal demand letter can sometimes reverse a denial in 30 to 60 days if the adjuster realizes they made a clear error. However, if the title company digs in and forces litigation, a breach of contract lawsuit in Superior Court can easily take 18 to 24 months to reach a trial date.

Frequently Asked Questions (FAQ)