15 Hoosier Banker February 2015 For example if the professional does not discover an uncancelled lien or judgment that takes priority over the purchaser’s deed or lender’s new security instrument, title insurance would potentially be called upon to make the purchaser or lender whole. In such an instance, the title insurance company, having paid the claim, by virtue of subrogation would stand in the shoes of the purchaser or the lender to make a claim against the professional. In this case, if there is a responsible party, the resulting liability would come back to that professional who made the negligent error. At this point, the professional would refer the title insurance company to the errors and omissions carrier to make it whole. In short, professional errors and omissions insurance protects the professional, as well as the client. Other Relevant Forms of Insurance While professional errors and omissions insurance is required by nearly every underwriter, there are other types of insurance that may be required by the title underwriter, or that the professional may wish to have. Fidelity bond. A fidelity bond is an insurance policy that protects the professional from the fraudulent acts of specified individuals. In particular the professional might purchase this insurance and/or bond to protect from the malfeasance or dishonesty of employees. These acts could include many instances, including theft, fraud or forgery. A review of the terms of the policy would reveal the exact coverage limitations. A fidelity bond is significantly different from a professional errors and omissions policy, because it protects the professional for wrongful acts, not mere negligence. Some might refer to a fidelity bond as a type of “crime insurance” policy. A fidelity bond will certainly protect the professional but, in this instance, it is not a case of bad things happening to good people. It is, rather, a case of bad things happening because of bad people. At present ALTA Best Practice No. 6 only requires a fidelity bond if it is required by the title underwriter or by the prevailing laws of the jurisdiction. Consult the title underwriter and licensing authority for the requirements in this regard. Surety bond. There are many types of surety bonds, but they all are generally three-party agreements. The surety bond protects a second party in the event that the first party fails to meet a certain obligation. The type of surety bond that is applicable in the context of a professional providing real estate settlement services would be a fiduciary obligation to monitor the funds held in trust. In other words, a surety bond is in place to make sure that a professional or principal does not steal the money. If it sounds odd to buy an insurance policy to make sure that the professional does not steal, it is; however, in some instances, there may be a level of assurance required by a client that cannot be achieved another way. • $2.7 billion of equity investments & permanent loans • 550 developments supported, serving 75,000 people • 20 years of stellar execution • No foreclosures • 100% on time reporting to investors • 100% success in delivering target IRR to investors A full service community development finance institution supporting healthy, vibrant and sustainable communities. www.capfund.net | 877.FOR.GLCF Continued on page 16.
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