Insurance & real estate: Panel moots cover for allottees & successors

The panel has suggested synchronised efforts to popularise the new insurance products so there is demand for the title insurance product from individual buyers, banks and lending institutions.

In order to protect owners of real estate from challenges to their property titles, a working group of Insurance Regulatory and Development Authority of India (Irdai) has recommended a comprehensive insurance cover for all promoters, allottees and successors. It also recommended legal expenses policy for land title owners and developers/promoters and retail policy for allottees, individual customers and financiers who purchase units in Real Estate (Regulation and Development) Act (RERA) projects.

The Real Estate (Regulation and Development) Act, 2016, gave statutory recognition to the concept of title insurance. Title insurance is an indemnity cover which insures against financial loss from defects in title of a real property. Title insurance helps to defend against a lawsuit attaching the title or reimburse the insured for the actual monetary loss incurred up to the limit prescribed in the policy. At present, title insurance products are offered by a few general insurance companies and they cover the developer, the society and all shareholders in the society for a term of up to 12 years. However, none of the insurers at present has filed a retail product.

How title insurance helps
A title insurance covers against losses caused by the title problems that have their source in past events. Insurers underwrite the covers by searching public records to develop and document the chain of the title and to detect known claims against or defects in the title. Moreover, institutional lenders require title insurance to protect their interest in the collateral of loans secured by real estate.

Proposed title insurance coverage
The panel in its report has recommended that promoters can buy the policy at the beginning of the financial appraisal and due diligence of the project/ application for RERA approval. The state governments will decide the minimum mandatory cover as per their local situations. Retail individuals can buy the cover at the time of the possession. It has suggested the sum insured of the policy for promoters be a certain percentage of the project value and for retail buyers should be the purchase value of the property.

The panel has suggested synchronised efforts to popularise the new insurance products so there is demand for the title insurance product from individual buyers, banks and lending institutions. It suggested promoters can opt for the full comprehensive product available with insurance companies. They may also opt for a minimum legal defence cost liability policy while in process for registration and approval with RERA authorities.

Allottee/ individual buyer retail policy
The retail policy will cover any defect in or lien on the title at the date of cover caused by forgery, fraud, undue influence, duress, incompetency, incapacity or impersonation; failure of any person or entity to have authorised a transfer or conveyance; a document affecting title not properly created, executed, witnessed, sealed, stamped, acknowledged, notarised or delivered, etc. In addition, the insurer will pay the costs, legal fees and expenses incurred in the defense of any matter covered by the policy. Exclusions from the coverage of the policy would be laws restricting, regulating, prohibiting, or relating to contaminated land, pollution or other environmental protection; any governmental, police or emergency power; or any compulsory acquisition by a government authority, nationalisation, etc.

The insured will have to notify the insurer in writing within 10 days if he is named a party, or is called to give evidence. In case of a claim, insurer will pay the limit of indemnity or settle with the insured or with a party other than the insured.