Suing a Title Insurance Company in Rhode Island for Denied Claims and Bad Faith

When you close on a property in Rhode Island, purchasing title insurance provides peace of mind. It is designed to protect your massive financial investment from hidden ownership disputes, secret liens, and old easements. Unfortunately, when a real crisis arises and you file a claim, insurance companies sometimes use complicated policy exclusions to deny your coverage. If an insurer is refusing to defend your property rights in Providence, Cranston, or Warwick, you may need to take legal action. We highly recommend browsing our directory to find a seasoned Rhode Island real estate litigation lawyer who can stand up to powerful insurance corporations.

Owner's vs. Lender's Policies

Before pursuing a claim, it is crucial to understand what kind of insurance you actually have. A Lender's Policy is required by almost all banks when you get a mortgage, but it only protects the bank's financial interest in the property, not yours. If a title defect wipes out the property value, the lender is paid, but you could lose your down payment and your home. To protect yourself, you must have purchased an Owner's Policy at closing. This policy protects your equity and requires the insurance company to pay for your legal defense if someone sues you over a covered title defect.

Why Do Insurers Deny Claims?

Title insurance companies do not like to pay out claims. They employ teams of adjusters who scrutinize the fine print of the American Land Title Association (ALTA) standard policies to find reasons for denial. Here are common scenarios where valid claims face pushback.

Hidden Easements Discovered Post-Closing

Suppose you plan to build a pool in your backyard, but the city suddenly halts construction, claiming a 100-year-old sewer easement runs right through the middle of your land. If this easement was recorded in the municipal land evidence records but the title searcher missed it, your title insurance should cover the lost value of your land. Insurers often attempt to deny these claims by arguing the easement was "open and obvious" or excluded under a standard survey exception.

Undisclosed Heir Claims

If a long-lost relative of a previous owner suddenly appears and claims they inherited a 25% stake in your property, your title is defective. The title insurance company has a duty to defend your title in court or compensate the heir to make them go away. Denials often happen if the insurer incorrectly claims the heir's interest falls under a policy exclusion.

Errors by the Title Agent or Examiner

Sometimes the very agent who sold you the policy makes a critical error, such as failing to record the deed promptly or ignoring an active IRS tax lien. Insurers may attempt to shift the blame to a third party or argue that the mistake was outside the scope of their coverage.

Proving Bad Faith or Breach of Contract in RI

If a title insurer refuses to honor a valid claim, you can sue them in the Rhode Island Superior Court for breach of contract. Furthermore, if the denial was unreasonable, malicious, or reckless, you may be able to sue for "bad faith." Under R.I. Gen. Laws § 9-1-33, insurers who act in bad faith by wrongfully refusing to pay a claim can be held liable for compensatory damages, punitive damages, and your attorney's fees. This principle was solidified in landmark cases like Bibeault v. Hanover Insurance Co., 417 A.2d 313 (RI Supreme Court 1980), which established strong protections for Rhode Island consumers against unfair insurance practices.

Before filing a lawsuit, your lawyer may also suggest filing an official regulatory complaint. You can submit an Form Insurance Division Complaint, Rhode Island, Department of Business Regulation, Insurance Division Complaint Form online or in writing directly to the Rhode Island Department of Business Regulation, Cranston, which investigates unfair claims practices by licensed insurers in the state.

ALTA Standard vs. Enhanced Coverage Limits

Your potential payout largely depends on your policy type. A standard ALTA policy typically caps your maximum compensation at the original purchase price of the home. However, an enhanced ALTA policy often includes an inflation clause, meaning if your property value has increased significantly over the last ten years, your coverage limit may increase up to 150% of the original purchase price, ensuring you are adequately compensated in today's market.

How Much Does it Cost to Sue?

Suing a massive insurance company requires resources. Some real estate litigators charge an hourly rate ranging from $300 to $500. However, if your bad faith claim is exceptionally strong, some attorneys may agree to take the case on a contingency fee basis, meaning they take a percentage (typically 33% to 40%) of the settlement or court award, and you pay little to nothing out of pocket.

How Long Does the Process Take?

Negotiating a denied claim internally with the insurance company's upper management can sometimes resolve the issue in 3 to 6 months. But if you are forced to file a formal lawsuit in Superior Court, the discovery process, depositions, and trial preparation can stretch the timeline from 1 to 3 years before a final verdict is reached.

Frequently Asked Questions (FAQ)