Here’s What You Need to Know About E&O Claims (and How to Prevent Them)

According to the American Land Title Association, over 70% of title professionals experience an errors and omissions claim during their careers. These claims can arise from various situations, including title search errors, misrepresentations of legal documents, or missed deadlines. We’ll guide you through everything you need to know about E&O claims, from understanding common types and key risk factors to implementing strategies for mitigation and choosing the right insurance coverage.

Common Types of E&O Claims

Errors and Omissions (E&O) claims can pose significant challenges for title professionals. Understanding the most common types of claims can help mitigate risks and ensure a smooth real estate transaction for all parties involved. These errors can significantly impact the property’s value and overall transaction.

Search errors

1. Clerical errors: Typos, filing errors, or spelling mistakes in crucial documents can have significant consequences
2. Missed obligations: Overlooking legal claims against the property, such as second mortgages, unpaid taxes, third-party easements, or judgment liens
3. Incomplete owner information: Failing to identify all rightful owners of the property can lead to complications and potential legal disputes 

Negligence/Misrepresentation

While unintentional, misrepresenting the property’s details can also lead to claims. This can occur due to:

1. Negligence: Failing to exercise due diligence during the title search process can lead to missed crucial information
2. Innocent misrepresentation: In some cases, the title professional, seller, or both parties might be unaware of an error in the information provided 

Key Factors Contributing to E&O Claims

Abstracting Errors

Inaccurate or incomplete information during the title abstracting process can lead to claims arising from missed details about the property’s ownership or potential obligations. To minimize this risk, consider:

• Gathering property documents promptly: Collect all necessary documents as soon as possible before closing to ensure comprehensive review
• Verifying past information: Cross-check information obtained during the abstracting process with past records and the property deed
• Communicating effectively: If the property owner cannot be directly reached, or any concerns arise, consider additional verification and communication with relevant parties such as the real estate agents, closing agents, bank representatives, and buyers. Document all contact details independently of email signatures to avoid potential fraud

Fast-Paced Environment

The demanding nature of the title industry, with tight deadlines and numerous details to manage, can increase the risk of human error during information gathering and closing processes. To address this, consider:

• Implementing thorough review processes: Establish clear internal procedures for meticulous review and confirmation of all information at each stage of the process
• Prioritizing meticulous attention to detail: Encourage a culture of accuracy and double-checking in your company

Mitigating the Risk of E&O Claims

One key step is to follow ALTA Best Practices, established guidelines developed by the American Land Title Association (ALTA). These best practices provide a comprehensive framework for title companies to effectively manage information, fulfill client responsibilities, and uphold data privacy. Following these guidelines can significantly reduce the risk of errors and omissions leading to claims.

Another crucial strategy involved developing written procedures for core functions. This includes establishing clear protocols for handling escrow or security funds, issuing wiring instructions, and interacting with clients. Standardized procedures ensure consistency across the team, establish clear expectations regarding information collection at each stage of the process, and empower professionals to identify potential issues early on.

Finally, maintaining clear and effective communication is important. Timely updates and transparent communication with clients, third-party vendors, and insurance providers foster trust and collaboration. Open communication can help prevent misunderstandings, identify potential issues early, and facilitate quick resolution should any concerns arise.

Choosing the Right Coverage

Claims expenses and indemnity payouts can add up quickly. Selecting the right coverage for your company’s risk is crucial. Some key factors to consider include:

Limits of Liability and Sublimits

• Limits of liability: This is the maximum amount your insurance provider will cover for legal defense costs and settlements arising from claims
• Sublimits: These are lower limits placed on specific types of claims within the overall policy limit

Deductible

• Loss and expense deductibles: This deductible is paid by you regardless of fault in a claim
• First dollar defense deductibles: This deductible is paid by you only when there is a loss payment or settlement 

Coverage Scope and Exclusions

Carefully review your policy and its wording to understand what is and is not covered. This includes:

• Types of claims covered: Ensure the policy covers the specific types of claims relevant to your business operations
• Exclusions: Be aware of any exclusions that might leave you exposed in certain situations

Selecting the appropriate E&O insurance coverage tailored to your specific needs and risk profile is crucial for comprehensive protection. By taking a proactive approach to E&O risk management, you can protect your professional reputation and financial security.

As a leading provider of E&O insurance solutions for title professionals, TIAC understands the unique challenges you face and can offer E&O solutions to meet your specific needs. Contact TIAC to learn how we can help reduce and mitigate risks for your title company.