In 2005, S.B. 185 was introduced. It was passed in 2006 and the relevant portion here became effective on January 1, 2007. Among other things, the new law requires independent abstractors to carry E&O insurance.
ORC § 3953.23(D) states:
The superintendent shall require every title insurance agent or agency and any subcontractors to maintain an errors and omissions policy, in any amount exceeding minimum limits established by the superintendent, that includes but is not limited to coverage for the agent’s or agency’s delegation of any agent or agency function. The superintendent shall adopt rules under Chapter 119. of the Revised Code setting forth the minimum requirements for that coverage, including but not limited to the minimum amounts, terms, and conditions of the coverage.
The problem this created was that the superintendent does not license abstractors - it doesn't even have any record of who these "subcontractors" may be. That makes it awfully difficult for the superintendent to require them to do anything. So the superintendent issued a rule doing the best it could - it placed the burden on the agents (whom it does license) to make sure that their subcontractors were covered by an E&O Policy.
OAC § 3901-7-02 states, in part:
(1) All title insurance agents or agencies shall maintain an errors and omissions insurance policy that includes but is not limited to coverage for the agent’s or agency’s delegation of any agent or agency function to a third party. The policy must provide a minimum coverage amount of two hundred fifty thousand dollars.
(2) It is the title agent’s or agency’s responsibility to ensure that all subcontractors are covered under the agent’s or agency’s errors and omissions insurance policy or that any subcontractor not so covered maintains an errors and omissions policy with minimum coverage of fifty thousand dollars.
Although the Ohio law clearly requires that the "superintendent shall require... any subcontractors to maintain an errors and omissions policy," the rule adopted only requires that independent abstractors be covered by a policy, either the agent's or their own.
While this may seem to be a distinction without a difference, I believe it is problematic for the industry and the abstractors. While it is tempting to think that "so long as the abstractor is covered, it doesn't really matter whether they have their own policy or they are covered by the agent's insurance," it does in fact matter.
Premiums for E&O insurance are constantly rising and the cost of doing business for professional abstractors who maintain their own coverage, even those who have never had a claim, is getting out of control. One of the reasons for this is that the rates are affected by inexperienced, unqualified abstractors - even if they do not have their own E&O policy.
Consider this scenario.
ABC Title Agency routinely hires the least expensive abstractors it can find. They do not require their abstractors to carry E&O insurance, instead purchasing their own policy that covers their subcontractors. One of their "cheap" abstractors negligently searches the title, missing a very large mortgage. ABC Title Agency now has a claim on its policy, and rates go up for all of us.
The "cheap" abstractor, due to his claims experience and general lack of qualifications, may not be able to get insured on his own. However, if the "subcontractors" are not required to maintain their own policy, he can continue to work in the industry (so long as his clients are willing to cover him on their policy) and cause more claims that will cause rates to rise.
Essentially, this abstractor is making all of the professional abstractors pay more for their E&O insurance, despite the fact that he never paid any premiums of his own. We would all be better served if he were forced out of the industry, so he can do no more harm, as would be the case if he were actually required to maintain his own insurance. Or, if he chose to remain in the business, he would at least be forced to pay a premium based on his claims experience, rather than spreading that cost over the entire industry.
If I had my choice, I would opt for licensing abstractors and requiring them to carry their own policies. I believe the professional abstractors already have their own coverage anyway. Unfortunately, they are competing against cheaper competitors who do not have this expense. It creates an uneven playing field where professional abstractors are forced to work for less and pay more for their E&O insurance. Ultimately, this will force the good, responsible abstractors out of business.