Printed from Source of Title,

Understanding E&O Insurance
Source of Title Blog
January 23 2007

Hosting Source of Title, I get tons of e-mail inquiring about many different subjects; E&O is one of the most frequent. I am often surprised how many abstractors do not really understand some of the basics of their E&O policy. E&O insurance is complicated and it is important to use an experienced agent who will guide you through your purchase of the policy and any claims scenario (but let's hope you never have a claim).

My agent is Nancy Walker with Title Program Administrators. [UPDATE: Nancy is now with American Insurance Professionals.] I would highly recommend her to anyone for their E&O policy.

The thing about E&O insurance that many do not understand is that it is a claims-made type of policy. What does that mean? Well, it means that in order to be covered a claim must be made during the policy period. The opposite would be an occurrence policy, which means that a claim is covered if the policy was in force when the loss-causing event occurred. In the E&O world, occurrence policies do not exist; they are all claims-made policies.

One of the most important dates on your policy is the Retroactive Date. That is when your coverage began, and any loss-causing events from that date, through your current policy period, will be covered. Each time you renew your policy, the retroactive date remains the earliest point at which you have had continuous coverage.

It is VERY important that you do not have a lapse in coverage or your retroactive date will start all over and any work you have done prior to that will no longer be covered.

I learned this the hard way. I had my local insurance agent handling my E&O insurance when I first obtained coverage in 1997. They weren't very knowledgeable on the subject. When my renewal premium tripled, I decided to shop around a bit. It took several weeks to get a few quotes back and by that time, my policy had lapsed and I was informed that I was no longer covered for the previous year. A good agent would have warned me about this hazard. My retroactive date is now 1999, and I am very cautious to make sure that my policy does not lapse and I retain that coverage.

So, what happens when you leave the business and no longer need E&O coverage? You must request tail-coverage. Tail-coverage will extend the reporting date for any claims for up to 5 years. As we all know, in the title business, claims may arise years after the work has been done. Without tail-coverage, you are taking a gamble that you will not have any claims on work you previously completed.

To sum it up: (1) Make sure you have a knowledgeable agent for your E&O policy; (2) Never let your policy lapse; and (3) When you leave the business, purchase tail-coverage.

Robert A. Franco