Using Captive Insurance to Cover Title Risk and Legal Claims

Title insurance is an indemnity coverage that protects lenders and property owners from financial losses resulting from defects or disputes related to the title or legal ownership of a property.

Specifically, it guards against potential problems that may arise during the purchase, sale, or financing of a property—such as errors in public records, lost title deeds, or ownership disputes.

The most common claims filed against a title include back taxes, liens, and conflicting wills.

"I like to think of title insurance as essentially insurance in reverse," said Mary O'Donnell, CEO of Westcor Land Title Insurance. "It's an insurance policy that insures either a real estate purchaser or a financial institution or entity that is providing a mortgage loan.

"It ensures that when they make that investment, the ownership of the property is secure. It examines the historical ownership of the property. After reviewing the record and eliminating defects that exist on the property through the work of the title industry, a policy of title insurance is issued, insuring the owner and lender and making sure that the title is clear."

Types of Title Insurance Coverage

Essentially, there are two types of title insurance: lender's and owner's. Lender's title insurance protects the financial institution's interest in the property as collateral for the loan and is usually paid for by the borrower. Owner's title insurance protects the buyer's equity in the property. Title insurance also covers legal costs if title disputes arise or if a third party challenges the insured's ownership, ensuring the policyholder doesn't bear the financial burden of defending their rights—provided the claim falls within the policy's coverage.

A lender's title insurance policy is required to be obtained by the borrower by almost all lenders to protect against the risk that the seller is not legally able to transfer ownership rights. A lender's policy helps ensure the financial institution is protected from loss.

Since title searches are not free of errors and the buyer remains at risk of financial loss, an owner's title insurance policy is recommended for added protection. This coverage is often, though not always, paid for by the seller to protect the buyer from defects in the title. In many transactions, both types of coverage are required for adequate protection of all parties. The buyer and lender are protected by title insurance; the seller is generally protected through the title search process and the legal terms in the sales agreement.

Purchasing a Title Insurance Policy

Title insurance policies are purchased with a one-time premium at the time of closing and remain in effect for as long as the insured owns the property. Rates for owner's title insurance on residential properties are generally filed with state regulators in most states. Once the property purchase agreement is finalized, a title insurance agent initiates the coverage.

"The two policies and their forms are standard across the board," said Ms. O'Donnell. "The owner's policy is a long-tail coverage: it's paid for by a premium at acquisition and insures the real estate purchaser, staying with them throughout the lifetime of their ownership."

Risks Covered by Title Insurance

Title insurance covers a range of risks. Chief among them are the following.

• Errors in public records: inaccurate or incomplete information.
• Lost or forged documents: missing or fraudulent title deeds.
• Unknown claims: unasserted claims on the property's title.
• Unenforceability of liens: issues with the validity or priority of mortgage liens.
• Defects in the title: any issues that affect the property's validity or ownership.
• Defense costs: legal expenses associated with defending a title.

Key Benefits of Title Insurance

Title insurance provides several important benefits, as follows.

• Protection for lenders and buyers: Lenders are protected against financial loss should a title issue arise. Buyers are protected from potential legal costs and financial losses.
• Simplified legal process: Streamlines real estate transactions by reducing the need for extensive legal reviews.
• Mitigation of risks: Reduces exposure to title-related risks and provides peace of mind to all parties involved.
• Pricing efficiency and cost control: When written through a captive insurance company, title insurance can offer improved pricing efficiency and greater control over costs compared to traditional coverage.

"There are essentially two main factors that make title insurance an attractive prospect for captives," said Jason Flaxbeard, executive managing director—alternative risk at Brown & Brown. "The first is the long-tail nature of the risk, meaning it sits on your books for as long as you own the asset and that you are protected even if there is any recourse after you have sold it. The second is that you carry loss reserves and may deduct those for tax purposes if the captive is treated as an insurance company."

Ms. O'Donnell said that title insurance also provides a strong diversification of risk for captive insurers. Added to that, she said, it is a relatively straightforward risk for captives to get into and exit.

"Title insurance is a low-frequency, often low-intensity claims risk, because so much work is done up front to eliminate risk by the title agent," said Ms. O'Donnell. "It provides a nice balance to their overall risk profile."

Aside from the insurance aspect—which typically results in average loss expense ratios of 3 to 10 percent—another key benefit of title insurance is the escrow and closing coordination services provided by title agents or attorneys before the policy is issued, according to Clint Casabella, senior vice president of business development at Grid151, a technology-enabled services firm focused on supporting the title insurance industry.

"The title agent or attorney is responsible for completing all of the closing settlement work, which means they must coordinate with all relevant parties involved in the transaction—including the buyer, the seller, the lender, their respective counsels, and applicable government entities," said Mr. Casabella. "They ensure that everything proceeds as required, and in an efficient and timely manner. That role is arguably as important to the captive's parent company as the insurance itself, as it reduces the risk of losing their investment or disrupting their core business."

Captive Insurance Structures for Title Insurance

In terms of captives, currently title insurance is only provided through single-parent structures. However, Mr. Casabella said that the nature of the risk makes it well suited to group captives too.

"Group captives are perfect candidates for title insurance," said Mr. Casabella. "For example, a member-owned group captive in the real estate space could be comprised of multifamily, office, and single-family home investment companies. The differences in loss ratios across these asset classes are de minimis, meaning that they could all participate in the same captive that writes title insurance because they share a similar risk profile, even though their specific investment approaches are very different."

The Future of Title Insurance in Captives

According to Mr. Casabella, the biggest stumbling block to rolling out title insurance in captives is a lack of education about the program offering. In response, he noted that his company has been actively presenting on panels at events such as the Captive Insurance Companies Association 2025 International Conference.

"It's all about raising awareness about the availability of this program in the captive insurance space," said Mr. Casabella. "That means amplifying our voice and reach. Initially, we started with no inbound interest, but now our hard work is paying off, and the tide has turned—with people coming to us, wanting to learn more."

Mr. Flaxbeard added, "Title insurance in captives is still a relatively new concept, but we have already secured some significant deals and it's starting to gather momentum now. Hopefully, we are at the start of a large growth curve that is really going to take off in the next couple of years."