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.

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.