The title industry is trained to focus on the details. But when it comes to E&O and cybersecurity insurance policies, many title company owners neglect to study the fine print, and that can end up costing them big in the long run, according to Frank Laisch, Avanze Group’s director of national sales. He recently spoke about title insurance coverage as part of the Florida Land Title Association’s (FLTA) cybersecurity webinar series.
Too often, businesses consider only the bottom line when shopping for insurance, Laisch said.
“Unfortunately, over the last 10 to 15 years, we’ve all seen the cheesy insurance commercials that have really commoditized insurance, the ‘pay for what you use’ and ‘click here and in 10 seconds you get a quote,’” he said.
That mindset has rolled over into the title industry, where business owners often look only at prices and opt for the cheapest insurance they can get by with. Worse, he said, they gloss over the important details.
“Most title agency owners spend about an hour or less per year reviewing their E&O policies,” Laisch said.
Not all E&O polices are created equally. It’s imperative agents know exactly what is in the policy, he said; not only what is covered, but what is excluded.
“Believe it or not, I had a title agent a few years back who did his own abstract work, yet his E&O policy excluded abstract coverage, which is his biggest liability,” Laisch said.
Make sure to ask how long the insurance company has been writing title agent E&O, he said.
“There are a lot of insurance companies that come and go in the market,” he said. “Are they truly in the title agency space, or are they in just a broad spectrum of professional liability?”
Another important thing to consider is if the E&O policy is written on a claims-made or claims-made-and-reported basis. Laisch said he’s seen a lot of claims denied over that verbiage difference.
E&O policies are typically claims-made, he said, which means coverage is provided for claims that are made during the policy period and reported “promptly” or “as soon as possible,” but not necessarily during the policy period.
A claims-made-and-reported policy provision requires that not only the claim be made during the policy period, but also that it’s reported to the carrier during the same policy period. It’s an important distinction, Laisch said.
Another provision to consider is if the policy’s deductible options include first-dollar defense (also called loss-only deductible) or loss and expense. Laisch encourages title agents to choose a first-dollar defense policy, where they pay deductibles only if there is a claim loss payment. Under a loss-and-expense deductible, businesses pay their deductible when they incur the first dollar of defense expense.
“So, when you are comparing E&O premium quotes, please note that paying your deductible can easily exceed the premiums savings on a policy that offers a loss-and-expense deductible,” he said.
Laisch also suggests agents choose a policy with defense outside the limits as opposed to inside the limits.
“This is a big piece we try to educate people on,” he said. “When they’re looking at the claims defense limits inside, that means if they have $1 million in E&O coverage, their total coverage is $1 million. Defense costs can far outweigh the actual claim, so, for example, if you have a $1 million claim and the settlement is $900,000, you could have $300,000 in claims defense costs. If your defense limits are inside that $1 million, you only have $100,000 in claims defense, so anything above that $1 million limit comes back to the title agent to pay.”
Ideally, title agents should shop for insurance every year, Laisch said.
“Unfortunately, carriers make it easy to stay with their existing company,” he said. “They’ll send them a one-page renewal sheet … versus submitting a full six- or seven-page application.”
Renewals may include exclusions or other changes that the insured may not notice. Some of the most important exclusions for title agents to look for include abstract work, affiliated businesses, and Consumer Financial Protection Bureau (CFPB) and The Real Estate Settlement Procedures Act (RESPA) violations.
“There are some companies that if you have a RESPA violation, you have no coverage,” he said. That can cost a title agency hundreds of thousands of dollars in defense claims.
Although most E&O policies include some cyber liability, Laisch recommends title agents purchase a separate cybersecurity policy. The “cyber endorsement” that most E&O policies include is very limited, he said, and can give some title companies a false sense of security.
“With social engineering language, security and technology coverages and costs, it is best to have a standalone policy for [E&O and cyber],” he said. “There is no E&O policy that will cover both E&O and cyber all in one.”
Just like with E&O policies, there are specific provisions title companies should look for when shopping for cyber insurance, Laisch said. Those include network security and privacy liability, system failure coverage, cyber extortion and ransomware coverage, fraud-induced wire transfer coverage, reputational loss coverage, digital asset destruction, data retrieval and system restoration coverage, bricking coverage, and invoice manipulation loss coverage.
Social engineering and cybercrime coverage are also vital. Make sure both are included in the policy, he said.
“We’ve seen policies where it read there is cybercrime coverage, but 32 pages down, it says, ‘excluding social engineering coverage,’” he said.
Social engineering includes scammers misleading employees or customers to divert funds by sending them fraudulent information, through things like wire transfer instructions, and other phishing scams. That’s one of the biggest fraudulent activities in the title industry.
“There are billions of dollars being lost in social engineering through phishing and fraud, so it’s important to have those covered,” he said.
Take plenty of time every year to review your entire E&O and cybersecurity policies, Laisch said. “There was a study that said 86 percent of people do not understand what is on their insurance policy,” he said.
That’s just asking for trouble.
“The E&O insurance that you purchase becomes real when you face a claim,” Laisch said. “Between responding to the subpoena, producing documents, depositions, and negotiations, and preparing for trial, an E&O claim is stressful, time-consuming and disruptive for any business. Your business cannot afford to have mediocre claims personnel or inexperienced counsel handling your E&O insurance.”
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