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Errors & Omissions Insurance: An Expensive Necessity or an Unnecessary Luxury?
Jarrod A. Clabaugh, Source of Title
   

Errors & Omissions insurance is an often overlooked and misunderstood necessity that many abstractors avoid due to the often high cost and the mystery that surrounds it. If an abstractor never misses a lien, he has paid an extremely high price for something he never needed. Yet, if he does miss a lien, he alone can be held responsible for the amount of the entire claim.

Thus, for many abstractors who have felt the pain of paying missed liens, the need for E & O insurance highly outweighs its costs. Yet, if an abstractor is in a small business, the cost of the insurance can often reach unaffordable levels. How can this be avoided? “Often, the quality of the coverage being provided is directly reflected in the premium being charged to the abstractor,” said Pamela Bleich, a professional liability specialist with Title Program Administrators in Phoenix, Arizona.

Premium and coverage will differ from company to company. Abstractors must be willing to speak with different agencies and “shop” around for the offer that best applies to their needs. The best coverage, however, is not always the least expensive. Rates may vary depending upon the state, services offered, limits, and revenues projected. Higher deductibles and lower limits can be applied in an effort to control the costs of E & O insurance. Smaller firms should be aggressive in obtaining quotes from the marketplace, added Bleich. An insurance company may be more competitive in one area of the county than another; there can also be quite a difference in coverage offered. There is a real benefit in working with an agency like ours that works with so many different insurance companies.

One abstractor stated that the cost of her E & O insurance became so ridiculous, she found herself unable to both support her business and pay the cost of the insurance. She was paying one-third of her annual income to support the cost of her E & O insurance. Thus, she quit paying her E & O insurance and now runs the risk of being held at fault should a problem arise in the future.

"I would love nothing more than to have all my ducks in a row for my business; with the prices that are available to me, however, I cannot do that at this point for my company. This makes me even more accurate and especially careful when doing my searches. I have to double-check, even triple-check, my work,” said Deanna Romeo of Title Abstracts & Document Services of Aiken, South Carolina. “They really don't make it easy for the little guy."

There are many aspects of the E & O insurance of which abstractors are unaware. If an abstractor has coverage and then allows for a lapse to occur, they no longer have coverage for their work. Many abstractors who have been in the business for years do not realize this. This does not only pertain to the work they did during the lapse in coverage, but all work done prior to reinstating a policy. None of the work the abstractor completed is protected by the original E & O insurance held when the searches were conducted and the new policy will not likely cover work completed prior to its new effective date. In order for an individual claim to be covered, the claim must occur from work performed during the coverage period and the policy must be in effect at the time the claim is made. Thus, abstractors must be fully aware of all facets of their E & O insurance, particularly how Claims-Made coverage works.

With all of the various differences between policies, finding the right policy can be an extremely difficult and confusing issue for an abstractor. Yet, if they miss a lien and have a claim brought against them without coverage, the issue quits being confusing. The claim can be for an extremely large amount of money and can drive a small abstractor out of business. Most offices could not handle a claim of significant cost being directed at them. “Often an abstractor may operate as a sole proprietor. Should he/she be named in a suit, or found to be responsible for a claim; even if innocent, the cost to respond and prove innocence could be quite a sum,” said Bleich. “In the meantime, his/her personal assets could be at risk.”

Though many abstractors do not carry E & O policies because their clients do not require it, this may not protect them from a loss. For instance, if an independent abstractor completes a search for a client and a loss results from the missed lien, the client’s E & O policy may pay the claim and then subrogate against the abstractor to recover their loss. This right of subrogation cannot be waived by the abstractor’s client. An insured person cannot give up this right, without the insurance company’s approval and they would never do so after a loss already occurred. Most often, in the event of a loss, they will hold the subcontractor responsible for the claim. An abstractor could try to get the title company to provide them with a waiver of subrogation as evidence they would not need insurance, but to be sure it was done properly the abstractor would have to ask the title company to provide them with a certificate and a copy of the actual endorsement issued by the company (if a company would be willing to do so). In addition, there are some policies that do include sub-contractors as insured, but they are very rare.

Another important aspect that abstractors must be aware of upon retirement or the sale or their business, is the length of “tail” coverage they have available through their policy. The tail is the period of additional time an abstractor has to report claims after their coverage ends. Because the coverage is on a Claims-Made basis, unless a tail is purchased, claims made after the policy ends will not be covered. The range each policy provides varies, but many only offer a one year tail. Additional years may be available, but this also affects the price of the premium one pays. Tails can cost anywhere from 100 to 200% of the annual premium. Therefore, abstractors must consider what kind of protection they think they will need. Premiums are often higher from companies that offer extensive tail options.



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Is there a list of title insurance companies from whom we can get quotes for E&O insurance?

I am looking for some recommendations of companies to call this week. Thank you. 

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Three comments:

If said abstractor is an LLC or a corporation, it is likely personal assets could not be touched, and really, what assets does an abstractor (as an LLC or corp) have?

Since all title companies have tinsurance, and since all the vendor managers that send us work have to have E&O, why do we as individuals have to have E&O?  It is a way for insurance companies to double or triple dip and this just chaps my hide....

Last, I don't know of any client who will work with me if I didn't have that insurance.   I have spoken to abstractors who don't have E&O and seem to do just fine, but one of the first things I've asked is for a copy of my E&O.

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i am a little confused by your statement concerning E&O insurance. I cannot imagine any Abstractor working without it. I am not sure what you definition of expensive is but we pay 1500.00 a year and the security we get from the is worth every penny Fifteen years ago we had a searcher working for us that missed a 60,000.00 judgment, case was being appealed and the searcher made a wrong decision to ignore it. Regardless, we had a claim filed against us for 60,000.00. Our insurance co negotiated the claim down to 17,000.00 and after we paid our deductible of 2,500.00 our insurance co paid the remaining amount. You would not drive you car without insurance or leave your home uninsured.If you never miss a lien Great, but if you do (and being human we all make mistakes), it could be the end of you business and your reputation.

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I've been doing title work for 19 years now in North Carolina.  I've never had E&O insurance.  North Carolina is an attorney state, so having E&O would be redundant.  Now I always have access to an attorney, so that any work that I perform can be "attorney certified".

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Massachusetts is an attorney state as well and I have E&O. I've had E&O since the early 1990s when it was first made available to abstractors.   I am not an employee, so I'm not covered by any of my clients.  E&O is a real necessity - none of my clients will work with an abstractor who doesn't have it.  If I miss something on a title it's not their responsibility- it's mine because I provide them with the abstract of title.  

I use American Insurance Professionals in Arizona.  They do a great job, year after year.   

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In NC, if you work direct for an attorney, you are covered under their E&O. If you are a free lancer, but work directly for the attorney, you are covered under their E&O as your work must be supervised by an attorney. So if you are in NC, you are usually not required to have personal E&O as the attorney coverage suffices. But if you are not doing work directly for an attorney, then you should have your own E&O as you are at risk. 

Also, as an aside, if you are not working directly at  the request of an attorney, then you could also be performing unauthorized practice of law if your search is used to obtain title insurance. So be very careful in this case for both issues.  If you are working directly for a national title company and not through a law firm, you could be at risk.The national attorney may review your work, but you are not covered under their E&O.

 

Toni Shepherd 

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Interesting concept - thanks Toni for the info on NC.  About 30 years ago an abstractor's work was covered by the atty's malpractice but not anymore.  

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Exactly. And we have had to delve deep to meet all manner of insurance and vetting information. We must provide a back ground check, copy of E&O copy of any licensing at minimum and much more. And this is for national. Not just NC. 

 

We can't use a notary or a searcher if they don't have E&O and a back ground check done. 

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Certain law firms and companies have started to require background checks at the abstractor's expense, which I refuse to do.  Why is this necessary all of a sudden, and not 20 years ago?  Also most abstractors in NC that I have come across DON'T have E&O. E&O simply makes someone more "sue-able"-it doesn't fix mistakes.  The important point (of course) is to never make mistakes of any consequence to begin with! (Is that too hard to ask of anyone??) This comes from extensive training and experience in the field.  In terms of "practicing law without a license" via doing abstracting work without the supervision/guidance of an attorney-this has always been the case in NC (so nothing new there).

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It is required now due to all the fraud and dishonesty now. A sad fact. A handshake is no longer valid. In order to get many of the certifications that lenders require, because TRID requires them is making it mandatory to do an extremely in depth due diligence on every step of the closing process, from dirt to floor, so to speak.

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