Title insurance is a contract of indemnity between the insured and a title insurance company. The form of this contract is set by the Texas Department of Insurance and is commonly called a title insurance policy. Should title, as insured, to the land or affecting the lien of the mortgage be challenged, the title insurance company has several options to fulfill its obligations to the insured under the title insurance policy. These options include paying claim, initiating all necessary legal proceedings to clear the title to the property, indemnify the insured, re-insure at current value without making exception to the covered title risk, indemnify another title insurer that re-insures the title without making exception to the covered title risk, secure a release of the covered title risk, or take a combination of these actions. The maximum liability under the policy is limited to the amount of insurance shown in the policy.
A policy of title insurance is based upon an examination of the public records that affect title to real property and represents the judgment of the company as to the insurability of the title. It is not an abstract of title or a representation or warranty as to title.
Two basic types of title insurance
There are two major types of title insurance policies. The Owner Policy of Title Insurance insures the owner against certain listed title risks, and the Mortgagee Policy of Title Insurance insures the lender that the mortgage is a valid lien against the property. The coverage amount for the Owner Title Policy is the sales price amount or the value of the land and improvements. The coverage amount for the Mortgagee Policy of Title Insurance is the loan amount.