What to Look for and Avoid When Obtaining Professional Liability Insurance
|September 26, 2013
Having the appropriate level of professional liability ensures that a title agency or settlement company has the financial capacity to stand behind their professional services. In addition, state law and contractual obligations may require a company to maintain fidelity bond and surety bond policies with prescribed minimum amounts of coverage.
However, shopping for and finding the proper coverage can be frustrating. With insurance providers leaving the market and rates continuing to increase, it’s important for title professionals to understand their policies, maximize coverage and minimize cost.
Underwriting managers from Title Industry Assurance Co., which is celebrating its 25th anniversary this year, provided some guidance on what to look for and avoid In a professional liability insurer.
Experience in Insuring Title Professionals
Claims Handling Expertise
- Due to the unique nature of the title industry and the rapidly evolving exposures title professionals face, the insurer must be knowledgeable of the title industry and experienced in insuring title professionals. Very few insurers in the market today have been insuring title professionals for more than three or four years.
- This is often not considered when selecting an insurer. The insurer must be highly experienced in professional liability/errors and omissions insurance defense, knowledgeable of claims made coverage forms and intricacies, knowledgeable of the title industry and the relationships between title underwriters and their agents, and the ability to provide prompt and responsive claims service and advice.
- The policy must provide coverage for insurable risks faced by title professionals. Title professionals must take the time to review the terms and conditions of coverage including and especially the exclusions.
- Many policies include exclusions which may not be apparent unless the proposed policy is reviewed in detail including:
Based upon or arising out of any opinion of title.
- Subprime loan exclusion
- Any actual or alleged violation of RESPA
- Any oil or gas related title work or to any oil or gas interests or property rights
- Breach or disregard of any oral or written underwriting or binding authority
- Willful or intentional failure on the part of the Insured or their employees to comply with escrow instructions
- Any liability based upon or arising out of the handling or disbursement of funds
Extended Reporting Period (ERP), aka “Tail Coverage”
- If switching insurers, it is vital to assure the replacement insurer is matching the retroactive date of the current policy
Commitment to the Title Industry
- Policy must include provisions for an ERP if the Insurer elects to cancel or non-renew coverage (other than in cases of failure to pay the premium or a deductible obligation)
- Many new insurers of title professionals have never offered coverage to this class previously and may not have the long term commitment of insurers who have written this line of coverage for many years. It is common for insurers to enter this market for a few years only to sustain adverse losses and exit the market. This has been especially prevalent in recent years with escalating claims frequency and severity problems.
- Consider any association or title underwriter endorsements that the insurer may have.
- If using the services of an insurance broker, utilize one with professional liability/E&O experience and expertise.
- Only utilize independent contractors who have and maintain their own E&O insurance coverage and provide an annual certificate of insurance evidencing coverage. Including independent contractors on your policy misaligns costs and risks and subjects your policy to increased premiums, higher deductibles and possibly the inability to obtain E&O coverage if the loss experience is adverse. A significant number of claims, both searching and witness closing errors, arise from independent contractor errors.