Why do title agents need E&O insurance?
Being in business involves some level of risk. Many errors made by yourself, or your employees can trigger legal action. Title agents are especially susceptible to errors and omission lawsuits because they deal with expensive property transactions.
With limitless ways a real estate transaction can go wrong, there are also limitless possibilities for a dissatisfied client to bring a lawsuit against your business. You don’t have to make a mistake for a client to bring a lawsuit against you. If the client believes that your services led to financial loss, they could sue you for professional liability.
Having the right-fit errors and omissions (E&O) insurance coverage can help keep your business protected from the high costs of legal defense. E&O insurance is a type of professional liability insurance that protects you, your business, and your employees from claims if a client sues for errors, omissions, or negligent acts committed during a transaction that results in financial loss. Title E&O insurance covers court costs, defense costs, and any settlements up to the amount specified in the policy.
Why Title Agents Need Errors and Omissions (E&O) Insurance
One of the most common E&O claims against title agents transpires because of an agent acting in a negligent manner toward the client during the title search and transaction. Negligence occurs when the title agent has a list of tasks that they need to do for a client. but either did something wrong or omitted something altogether, breaching the duty and producing financial loss to the client.
You don’t have to act with intent to cause a loss in order to be held liable. Acts of negligence run a broad gamut of actions. During your search, for instance, you might miss or ignore judgment liens, second mortgages, easements, unpaid taxes, and others. This is common when a title agent wants to move transactions quickly through to close, especially when mortgage rates are low and there are few properties on the market.
A prudent title agent knows to conduct a thorough investigation before insuring clear title. If a client feels you acted in a negligent manner toward them, they could take legal action. Having errors and omissions insurance can help make sure a client’s dissatisfaction isn’t the downfall of your small title business.
Breach of Contract
A breach of contract claim occurs when a title agent fails to perform any responsibilities outlined in a written contract. Simply put, a breach of contract occurs when a client perceives that you failed to deliver on promises that were made by way of a business agreement.
Breach of contract is probably the most common E&O claim that arises against title agents, and could even be as minor as missing a deadline. Your client could sue for any mental disturbance or financial loss that results from the breach of contract, no matter how minor the situation may seem to you.
Because of the ease with which this can happen, it’s essential for yourself and your employees to understand the terms and regulations of a contract, and follow the instructions outlined within. However, mistakes and misunderstandings do happen. And when they do, you can turn to your title E&O insurance policy to avoid all fees associated with defense costs and settlements.
Failure to Disclose All Pertinent Information
Clients rely on your agency’s representation of the property in a title. They need to know that it is reliable in order to make wise purchase decisions. This is paramount because the impact of a hidden problem, such as an easement or other right of use, can negatively impact a person’s enjoyment of their property ownership. For instance, losing a small portion of land because you failed to reveal that the boundaries were not correctly established can affect visibility and accessibility, which are important factors in valuing a piece of property.
Failing to disclose is a vexing risk because the number of things you’re supposed to research, and information you’re supposed to disclose is without limit. When it comes to preventing lawsuits, it’s important to keep your eyes open for problems and provide written disclosure of all defects to the client.
And if an unhappy client claims that you did not disclose relevant information about the property, an E&O insurance policy will help cover the fees for the legal case. E&O insurance coverage will act as a fail-safe when your prevention efforts aren’t enough.
If failing to disclose all relevant information is an act of omission, misrepresenting a title feature is also an act of omission. In this case, you might give a false report about a title, which influences the client to buy the property. Misrepresentation usually involves the condition and size of the property, as well as easements and boundaries.
Misstating any material fact can get you in hot water. From a legal perspective, there are several levels of misrepresentation:
- Innocent misrepresentation – this occurs when a title agent makes an error or gives the wrong information without the intent to mislead.
- Negligent misrepresentation – happens when you fail to disclose material when you should have.
- Fraudulent misrepresentation – this is the most serious form and occurs when you deliberately hide something or cover up a defect that would affect a buyer’s decision to purchase.
Regardless, misrepresentation is a serious matter with potentially devastating consequences for your business. When a client tries to recoup their loss by filing a lawsuit against your title company, an errors and omissions policy provides coverage for defense and settlement costs, rescuing your business from potential bankruptcy.
Breach of Fiduciary Duty
Similar to investment advisors and attorneys, title agents must uphold a fiduciary standard when providing their professional services. A fiduciary duty imposes a higher level of honesty, transparency, and expertise upon title agents. This means that you must always act in your client’s best interests. At no time can you place your own needs and interests ahead of the client’s.
If you do, you may open your title company to lawsuits alleging breach of fiduciary duty. For example, if you neglect to mention a legal fight over a property boundary line, you might get sued by your client. For this reason, you need title E&O insurance coverage to protect your title company from the potentially devastating consequences of litigation.
Protect Your Business Today
Running your business by the book and being at the top of your game at every stage in the transaction are the best ways to avoid legal problems. In some cases, however, clients will just sue you if they’re unhappy with the results and perceive that your services led to financial loss. Having E&O insurance is highly advisable, especially in today’s economically stressed environment.
Attorney’s First Insurance helps protect your title company by providing comprehensive title E&O insurance coverage. Our errors and omissions insurance for title agents covers court costs, defense costs, and settlement costs. We’re committed to making the process of receiving exceptional coverage as stress-free as possible. Contact us today for a quick quote!