The History Of Title Insurance In California

By Matt Unangst, 23 Jan 15:58

• Primitive system under Mexican government
• First legislature in 1850 created new title record system
• A new title industry followed this legislation
• Abstractors hired to do work delegated by attorneys, mirroring system already in place in other states
• Abstract system fell out of use because it was too ponderous – replaced by title certificate system beginning in 1870s
• Real estate boom in 1886-1887 in Los Angeles
• Impetus from legal decision allowing corporations to insure titles
• Insurance commissioner given oversight over title insurers in 1887
• Pioneering companies: California Pacific Title Insurance Company of San Francisco and Title Insurance Trust Company of Los Angeles
• Escrow began in the 1890s

Under Mexican governance, California’s land title system was primitive, consisting of only 700 valid titles in the entire state. After becoming part of the United States, one of the first acts of the California state legislature was to establish a land title system that is still the foundation of the system we use today. The new title system had already been established in much of the country and shown its usefulness prior to being implemented in California.

This system, created in San Jose in 1850, was far simpler than the system that had come before it, but it was still too complex for most people. California’s population was booming with the Gold Rush and booming right alongside was a new land title industry. The components of this industry – conveyancers, abstractors, attorneys who would write “certificates of title,” and companies to insure these titles quickly established themselves in California real estate practice.

As the size and detail of public records multiplied, conveyancers and title lawyers found themselves unable to handle their workloads alone. They wound up hiring other people to do the work of researching title information, many of whom became quite skilled at their job of “abstractor.” Some abstractors went into work for themselves, established abstractor offices and hiring attorneys to look over their work before talking to customers, the beginning of the “abstract of title” in California. An abstract of title, a written documentation of all historical transactions of a piece of land, had been used since the early part of the century in other states and quickly became an integral part of the real estate industry in California.

Abstracts of title were used until quite recently in the Midwest, but were replaced in California by “certificates of title.” The advantage of a certificate of title over an abstract was one of efficiency. Many abstracts came to be incredibly ponderous documents, which took far too much time to deal with for normal transactions. Some reached sizes of over 30 volumes, containing pretty much all the information anyone would ever want to know about the property. But no one looked at most of the abstract; the focus was almost entirely on the attorney’s opinion amended to the document. Eventually, the attorney’s opinion was all that was used.

Certificates of title were far simpler documents than abstracts had been. They laid out merely the bare bones facts about a property – its boundaries, who owned it, and information about any liens or encumbrances. While in use earlier back east, certificates of title can trace their origins in California back to the 1870s.

Title insurance has its roots in an 1870s decision by a Pennsylvania Court. In the case Watson v. Muirhead, the court decreed that a conveyancer and an abstractor were not liable for having failed to include information on liens in an abstract. This decision threw the real estate industry in Philadelphia into chaos. Real estate professionals in the city eventually got the state legislature to pass a bill allowing corporations to issue title insurance. The Real Estate Title Insurance Company, the first ever title insurance company, was created in Philadelphia in 1876.

Title insurance had its key moment in California in the mid-1880s. There was a real estate boom in Los Angeles beginning in 1886, creating a huge demand for title insurance. This demand led to the creation of the California Title Insurance & Trust Company of San Francisco (later renamed the California Pacific Title Insurance Company) and of the Abstract and Title Insurance Company of Los Angeles. The first title insurance policy in California was issued by the former company on St. Patrick’s Day, 1887. These two companies merged just six years later to create the Title Insurance and Trust Company, which was later bought by the Chicago Title Insurance Company, and eventually acquired by Fidelity.

Title insurance companies received legal recognition soon after their founding, as the California Civil Code was amended in the same year to allow the issuance of title insurance, giving the state’s Insurance Commissioner oversight. The amendment required title insurance firms to keep a part of the premiums they received as a surplus fund. Title insurance regulations were modified in 1907 and again in 1935, when the state legislature combined all of the state’s insurance laws into one unified Insurance Code.

Escrow sprung up soon after the beginnings of title insurance. It began as a means of assisting a man with the details of selling a property when he had to leave town and quickly became a service of its own

KEYWORDS: title insurance, real estate, title company, escrow, insurance commissioner, insurance history, insurance law

SEE ALSO: Title Insurance, Title Insurance: Where Does Your Dollar Go?, Insuring Home Ownership

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