What type of contracts do title insurance policies fall under?

Title insurance policies are classified as contracts of indemnity. This categorization is significant because an indemnity contract is designed to provide compensation for losses or damages that may occur as a result of certain risks associated with property ownership.

In the context of title insurance, this means that if a title defect arises that was not disclosed during the initial property transaction, the title insurance policy will protect the insured party (typically the property owner or lender) against financial loss stemming from that defect. The policy indemnifies the insured by covering legal fees and any valid claims made against the title, ensuring that the insured does not incur financial penalties due to issues that were outside of their control.

This understanding is crucial for anyone involved in real estate transactions and title insurance, as it delineates the purpose of title insurance in safeguarding against potential future claims, rather than merely providing a service or guaranteeing specific outcomes related to the title. It's important for professionals in the field to recognize this distinction as it influences risk assessment and insurance practices.