With the current state of the housing market, it’s no surprise that claims are overwhelming the title insurance industry. Some claims never amount to much, are denied or avoided, but the cost to defend these can cost our industry millions of dollars a year and someone is always held responsible. Title Insurance Agents are required to carry E&O coverage to protect an underwriter in the event that a claim is justified and they find the agent was negligent. When no title insurance is issued, the agent can be left holding the bag and must take on the costs on their own or with the assistance of their E&O carrier. But it’s not as simple as paying a deductible and walking away as the number of claims filed can result in rising E&O premiums for the agent or in a worse case scenario coverage can be denied altogether.
Look at the liability like a food chain with the insured being at the top and the individual abstractor at the bottom. In a standard mortgage transaction it would look something like this (top to bottom): The insured on the title insurance policy looks to the underwriter (insurance company), the underwriter looks to the title insurance agent, the agent looks to the abstract company or individual who did the work. If a potential claim exists, the insured will file a claim against the underwriter who is obligated under the terms of the policy to defend their position as insured. If the claim is just, the underwriter then decides if the agent was liable for the claim and if so, they attempt to recover their loss in accordance with their agency contract. The agent then determines if the loss was the result of an error on the part of the abstract company or independent abstractor and if so attempt to recover their loss from them. If the underwriter holds the agent liable, they can involve their E&O carrier to limit their exposure, usually limiting their loss to only that of their policy deductible. The agent can then continue the course of recovery by attempting to collect from the abstract company and/or abstractor and if they have E&O coverage, their carrier. If they don’t have coverage it is possible that a company could go after the assets of the responsible party.
Doing business at any level without some form of E&O coverage is taking a huge risk whereby the outcome could be devastating. The title abstract industry remains fairly unregulated so anyone with a general knowledge of how to search the public records can start a career in this field. Unlike the appraisal industry whereby you must be licensed and show your competence in your field before you can do any work, abstractors have no such method yet their work is arguably more important in the real estate process than that of the appraisal and certainly the result of more claims.
As a title insurance agent, we can only do so much to review the abstractor’s work in an attempt to find a mistake before it goes to the client, but if the abstractor misses something they should have reported it is almost always undetectable by our staff.
We believe in accuracy supported by accountability and are obligated to do everything we can to protect the interest of our underwriters and clients. So, effective January 1, 2012 we will begin the process of requiring any abstractor that we contract work to, carry some form of E&O coverage for their work or risk being inactive in our system. We understand that it may be difficult for individuals in certain areas to obtain such coverage for whatever reason and we will work with you and assist you in any way we can, but this is just something that needs to be done and something we believe will continue throughout the industry in the coming years, and it should.
The ability to update your account on the Partner Portal will be complete in the coming weeks. We will use this to track all contarctors that are compliant the same way we do with appraisers. More details will follow soon.
Many of you do stand behind your work and already have coverage and we are greatly appreciative of that. But we need to be better tomorrow than we are today and through change we will be. We thank you for your continued support and understanding.
