14 Hoosier Banker February 2015 DIRECTORS / SENIOR MANAGEMENT When the Real Estate Title Insurance Company of Philadelphia issued the first title insurance policy in Pennsylvania in 1876, there was a need to protect a consumer’s investment in real estate because, simply, “stuff happens.” At times it seems that bad things happen to good people for no particular reason, a la Murphy’s Law: “If anything can go wrong, it will.” So how do we guard against stuff happening, to us or our clients? We buy insurance. The recommendation to real estate clients is that they purchase title insurance. Title insurance protects against a number of risks that are symptomatic of the recording system in the United States, such as unknown legitimate claims to title that were not discoverable in the public record. In many instances, the lender does more than request title insurance – it makes lender’s coverage mandatory. Lenders want protection in the event “stuff happens” to their security, because they generally wind up holding the bag when it does. Furthermore we may choose to, or be required to, purchase multiple forms of insurance. The title insurance underwriter or state law may require additional forms of insurance, such as errors and omissions professional liability insurance, fidelity coverage, surety coverage, or cybertheft and fraud coverage. In the case of ALTA Best Practice No. 6, the standard is simple: Agents must carry whatever the title underwriter or state law requires. ALTA Best Practice No. 6: Maintain appropriate professional liability insurance and fidelity coverage. Purpose: Appropriate levels of professional liability insurance or errors and omissions insurance help ensure that title agencies and settlement companies maintain the financial capacity to stand behind their professional services. In addition state law and title insurance underwriting agreements may require a company to maintain professional liability insurance or errors and omissions insurance, fidelity coverage or surety bonds. Errors and Omissions Insurance Errors and omissions insurance is for professionals who provide advice or service to clients. It protects the client in the event of a negligent act of the professional who has caused financial harm to the client. While the client would have a claim against the professional, the errors and omissions insurance would step in and protect the client from the financial loss. The professional could be pursued by the errors and omissions insurance company but, ultimately, the errors and omissions insurance makes the client whole and does not rely upon the professional for the compensation to the client. In the case of a real estate transaction, title insurance covers many incidents that might ultimately be the error of the professional performing the title examination. ALTA Best Practice No. 6: Just Because ‘Stuff Happens’ The American Land Title Association (ALTA), a title insurance and settlement company, gives guidance to help ensure the protection of consumers during real estate transactions. ALTA offers seven standards — known as ALTA Best Practices — by which each bank should measure its service providers. In recent months, Hoosier Banker has been featuring a series of articles by Investors Title Insurance Company outlining the seven best practices. Topics covered to date are: Licensing; Escrow Accounts: Follow the Money; Information Security – Keeping Secrets From the Backyard to the Boardroom; Do It on Time, and Do It Right; and “It Ain’t Over, ’Til It’s Over.” About the Author Jonathan Biggs is vice president, director of risk management and education for Investors Title Insurance Company. He oversees risk management functions related to the company’s approved provider system. Prior to joining Investors Title in 2012, Biggs was partner at a firm in Durham, North Carolina, where he practiced residential and commercial real estate law for more than 20 years. He earned a bachelor’s degree from Duke University and a JD from Wake Forest University School of Law. Investors Title Insurance Company is an associate member of the Indiana Bankers Association and an IBA Preferred Service Provider.
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