INCREASED POLICY AMOUNT PROVISION

(September 2023)

Condition Nine of the Title Insurance Policy is the Increased Policy Amount Provision. It states that the policy amount shown in the schedule will be increased by 10% each year for the first five years following the policy date, up to 150% of the policy amount. It also states that the increase takes effect each year on the anniversary date of the policy.

Since a Title Insurance Policy is just issued once and only the initial, original policy amount appears in the schedule, the intent of this provision appears to provide a maximum of an additional 50% of coverage over the course of the policy’s first five years. Consider the following:

Example: Scenario1: The Turner family home is protected by a title insurance policy. The policy took effect on June 1, 2022, and was originally written for $170,000. The Increased policy provision should have the following impact:
Policy Period	Policy Amount Increase	Total Policy Amount
June 1, 2023	$17,000 ($170,000 X .10)	$187,000
June 1, 2024	$17,000 ($170,000 X .10)	$204,000
June 1, 2025	$17,000 ($170,000 X .10)	$221,000
June 1, 2026	$17,000 ($170,000 X .10)	$238,000
June 1, 2027	$17,000 ($170,000 X .10)	$255,000

At the beginning of the fifth year, the Title Insurance Policy’s effective limit is 150% of the original amount that appears on the policy. The policy provision includes a specific reference to this capped percentage. The provision’s operation should be clear, but its wording may create ambiguity. Consider the wording from another angle. Why is there a need to refer to a capped percentage in the manner used if the increase is only effective for five anniversaries? Per the above illustration, there is no way that the application of the increase could exceed 150% of the original policy amount. However, the way the provision is written, someone may interpret that it operates differently.

Example: Scenario 2: The Turner family home is protected by a title insurance policy. Again, the policy took effect on June 1, 2022, and was originally written for $170,000. The Increased policy provision could be interpreted as having the following, different impact:
Policy Period	Policy Amount Increase	Total Policy Amount
June 1, 2023	$17,000 ($170,000 X .10)	$187,000
June 1, 2024	$18,700 ($187,000 X .10)	$205,700
June 1, 2025	$20,570($205,700 X .10)	$226,270
June 1, 2026	$22,627 ($226,270 X .10)	$248,897
June 1, 2027	$24,889 ($248,897 X .10)	* $255,000
* Total policy amount capped at 150% of original policy amount.

When losses occur, reasonable persons can make assumptions about coverage that can be very different. It may make more sense to have a provision that is worded differently in order to make the provision’s operation clearer, especially since the Title Insurance policy includes different references to policy amounts. Another alternative would be to have a schedule that listed each year’s limit for the initial year and the five anniversaries.

$187,000

$204,000

$221,000

$238,000

$255,000