Posted by Louis/AZ on 12/30/09 12:44pm
Msg #316105

Large E&O amounts – Uninformed Title Companies?

This is very lengthy, but I thought people here might be interested in this: Last week I was hired by a broker who was affiliated with a local title office here in town to meet with him and his clients to notarize a deed and some other affidavits. Yesterday I got a call from a lady from the title office asking me how much E&O insurance I had. When I inquired as to why she was asking, she said it was because according the company’s standards, any outside notaries they use must have $100,000 in coverage. If I did not have this level of coverage, they’d have to re-sign the docs. She went on to say, “…because of problems with illegal notarizations, we need that level of E&O to insure against fraudulent notarizations…normally we use signing companies who carry E&O and who we know are financially sound.” She also made many references about how sometimes someone who notarizes is not a licensed notary and they needed a notary to have E&O to cover THE COMPANY in that situation. She also said some title companies are starting to require $500,000 to have “extra protection against this.” Her office works with only two local signing companies and she was willing to give me their contact information.

I’m sure many of you are already noticing the same things I am. First of all, Notary E&O Insurance only covers “negligent” errors and omissions – not acts of fraud. I’m looking at my E&O right now from Merchants Bonding Company (purchased here through Notary Rotary). In the very first paragraph it says “…liability for breach of duty while acting as a DULY COMMISSIONED and sworn Notary Public….by reason of any negligent act, error or omission…committed by the insured.” At the bottom of the page under the “EXCLUSIONS” section, it specifically states “…policy does not apply to dishonest, fraudulent, criminal…willful or intentional disregard of the law…”

There are many contradictions in what this lady told me. Obviously someone posing as a notary would not be covered by an E&O policy. Also, it seems odd that such a policy would exist that covers damage done by an illegal, fraudulent notarization. In addition, why would a fraudster bother to take out an insurance policy to cover the title company?

Secondly, I called these two signing companies and asked them about their E&O. The only thing both of them told me was that they require all their signing agents to carry $100,000 in E&O – they told me this was the only insurance requirement they ever had “within their company.”
I remember seeing a few posts every now and then about companies requiring ridiculous amounts of E&O. I also get e-mail inquiries from signing companies and title alike who say they require $100K or $500K. I’m wondering if companies are jumping on this high-dollar Notary E&O Insurance bandwagon thinking it’ll protect THEIR company when it doesn’t. I told the lady at the title company that I had $100K in E&O, but Notary E&O Insurance only covers mistakes made in the notary section of notarized documents. A borrower who is harmed by the SA failing to get a signature on the HUD, for example, would not be covered. I don’t have any insurance experience, but it seems strange that an insurance company would even write a policy covering fraudulent, illegal acts.

I have two questions: (1) Can any signing companies out there comment about whether or not you’re maintaining some type of general E&O policy that covers mistakes on any document in addition to notarizations? Does it cover acts of fraud? (2) If there’s anyone here with insurance experience, are policies ever written that cover intentional acts of fraud committed by an outside, independent contractor hired by the insured company? Any input would be appreciated.

Reply by mwm143 on 12/30/09 1:18pm
Msg #316108

This is a true situation:

Notary failed to properly notarize the DOT/Mortgage. Attorney representing borrowers filed suit that the loan was invalid. (Back in the subprime days). Total claim was $100,000. Notary's E&O covered $25,000, title E&O had to cover $75,000.

So while the E&O insurance does not protect the title company, the higher amount carried by the notary will reduce the overall exposure to the title company and their own insurance costs.

But you are right that no one's E&O covers willfully negligent and fraudulent acts.

Reply by Lee/AR on 12/30/09 1:40pm
Msg #316113

Oh, sure... go right ahead and paint this big target on your back so their share of 'whatever' is decreased. You can be right as rain, but if the E&O carrier decideds it's cheaper to pay than fight... they pay. You have nothing to say about it.

Reply by PAW on 12/30/09 1:57pm
Msg #316115

>>> Notary failed to properly notarize the DOT/Mortgage. Attorney representing borrowers filed suit that the loan was invalid. <<<

In many states, an invalid notarial act or notarization would not invalidate the execution or validity of a document, just as a valid notarization doesn't make a document 'legal'. Even though the attorney filed suit, what was the outcome? Did a judge say the loan was invalid?

Reply by mwm143 on 12/30/09 2:20pm
Msg #316117

A friend who works for the title company shared the story with me a few years ago. I don't recall the details except what I posted other than the borrower's property was being foreclosed and the attorney was looking for something to invalidate the transaction.

To Lee: Am I missing something in you post? What target? What's so wrong with a TC asking the notary to bear responsibility for their own work? I don't have a problem with it. It's just good business. It's your choice to carry whatever amount you deem fit and it's their choice whether or not to hire you. It's exactly the same with you Auto insurance company. You have not no say so in the end if they decide it's cheaper to pay a claim than to fight it.

Reply by desktopfull on 12/30/09 2:49pm
Msg #316122

What your describing falls more under liability insurance

not E & O. Why in the world would a TC hire a notary that they haven't verified with the state that they have been commissioned? I for one am not going to allieviate the TC's responsibility & damages due to their poor business practices, they are the ones making the big bucks and they are the ones that need to carry the million dollar liability policies. What's next, the banks required all depositors to carry liability insurance for when they get robbed or ripped off and divide the losses equally?

Reply by BrendaTx on 12/30/09 9:27pm
Msg #316172

Def agree with the Pawmeister...

In Texas I just don't believe that a notary's incorrect notarization could have collapsed a loan unless there is more to this story that we are not privileged to hear.

Reply by Hart - Marilyn on 12/30/09 2:49pm
Msg #316123

Here is one for all of you!!! MARYLAND REQUIRES US TO HAVE A $150k SURETY BOND, plus 150K of E&O.
I need to move to another state. Been doing this for 10 years, and it just keeps getting worse.
Marilyn

Reply by Virginia/PA on 12/30/09 5:54pm
Msg #316154

It is my understanding that in MD you need a title producers license in order to be a notary signing agent. Hence more insurance is needed.

Also, correct me if I am wrong. I thought a notary's bond covered outside parties, but the E&O covers the notary against loss. If the notary is sued, then if the notary carried the required $100,000 E&O but the loss was $500,000, and the notary was the exclusive negligent party, then the notary could say good bye to their personal residence, etc. in order to pay the $400,000 difference. The organization which obtained E&O for me only offers $50,000 coverage. That was 2 years ago, and maybe things have changed since then.

Like it was stated earlier, it is like auto insurance. Do you carry your state's minimum or do you carry very high amounts to protect yourself.

I can't tell you how many notarized documents I have seen in packages without a venue. I have a stamp to insert missing venues. If I were to miss the venue that the title company failed to include, who is the negligent party? In my state the venue is considered a part of the notorial act. That usually happens on title docs, not mortgage or deed of trust with pre-printed wording. Would a missing venue be considered an error or omission?