When a title insurer pays a referral fee to a lawyer for arranging a policy on a client’s property purchase, who should get the benefit of the fee — the lawyer or the client?

For more than 20 years, some Ontario title insurance companies have been paying lawyers a fee for the legal work involved in placing title insurance policies for their clients.

TitlePLUS, owned by the Law Society of Ontario, has now joined Stewart Title, First Canadian Title, and Chicago Title in paying these fees to lawyers.

Known as a legal counsel fee or examining counsel fee, the amounts are typically $150 for freehold purchases and $25 for condominiums.

Here’s how it works: a typical title insurance policy for a $1 million freehold (non-condominium) purchase and institutional mortgage will be invoiced by the insurer to the purchaser at $918, including 8 per cent provincial sales tax.

But when the lawyer is billed by the insurer, there is a $150 credit for the legal services involved in ordering the policy.

On closing, buyers typically sign a statement disclosing the existence and payment of the counsel fee to their lawyers.

But the Law Society’s Rules of Professional Conduct prohibit lawyers from directly or indirectly receiving any compensation from a title insurer. Lawyers are also required to disclose to their clients that no commission or fee is being paid to them by a title insurer.

Despite this, the payment of these counsel fees is now industry-wide and places lawyers who accept the fees without informed disclosure at risk of breaching the rules and in a conflict of interest with their clients.

So while the Law Society prohibits lawyers from receiving the fee, it also requires lawyers to disclose that they receive it. To me, the position is both confusing and inconsistent.