Background
Prior to the invention of title insurance buyers in real estate transactions bore sole responsibility for ensuring the validity of the land title held by the seller. If the title were later deemed invalid or found to be fraudulent, the buyer lost their investment.
In 1868, the case of Watson v. Muirhead was heard by the Pennsylvania Supreme Court. Plaintiff Muirhead had lost his investment in a real estate transaction as the result of a prior lien on the property. Defendant Watson, the conveyancer, had discovered the lien prior to the sale but told Muirhead the title was clear after his lawyer had (erroneously) determined that the lien was not valid.
The courts ruled that Watson (and others in similar situations) was not liable for mistakes based on professional opinions.
As a result of the case the Pennsylvania legislature included a section allowing for the incorporation of title insurance companies in The General Corporation Act passed an 1874.
Read more about this topic: Commonwealth Land Title Insurance Company
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