A Risk Management Tip for Attorneys Who Act as Title Agents

Sometimes the teacher becomes the student, which is exactly what happened to me during a post CLE conversation between a panel member and an attendee that I was fortunate enough to be privy to.  In short, the conversation centered around the issue of title insurers bringing claims against their attorney title agents for title search errors such as failing to find a mortgage assignment; a land subdivision; a deed entry or deed fraud; a will and probate entry; or liens, encumbrances, easements or encroachments just for starters.  Defective title examinations happen and when they do, an attorney title agent will often find him or herself standing in the crosshairs of potential liability, regardless of whether a separate title examiner was involved.

Of course, when malpractice insurers are called upon to defend an attorney title agent in a defective title examination claim, they will look to any involved title examiner for contribution, if not full indemnity, if he or she really was the one responsible for the defective examination.  Unfortunately, and I suspect this comes as no surprise, title examiners don’t always maintain their own errors and omissions (E & O) coverage.  This is why legal malpractice insurers always advise their insureds to only work with title examiners who can document that they do indeed have an E & O policy in place.

Here’s where the conversation got interesting, however, at least from a risk manager’s perspective.  The attendee asked if we ever look to see if there is a provision in our insured’s contract with the title insurer that, in the event of a title search error, would require the title insurer to look to the title examiner for indemnification and not the attorney title agent.  The presence of such a provision might enable the legal malpractice insurers to resolve these claims early on without incurring much in the way of defense costs and any loss payout. This is when I learned that finding provisions like these seems to be an uncommon occurrence; but they needn’t be.

If you are an attorney title agent and don’t already have such a provision in your contract with the title insurer, perhaps it’s worth trying to change that.  And as a matter of course going forward, I would encourage you to insist that such a provision be included in all new contracts with title insurers.  The basics of this kind of provision are straightforward.  The title insurer would agree to hold the attorney title agent harmless from any loss or damage based upon errors in any title examination done by any approved title examiner.  An approved title examiner would be someone who not only certifies titles or bring-downs in writing but maintains enough E & O coverage to cover the associated risks.

At this point, the conversation ended, and I was left wondering why I hadn’t come across this idea sooner.  Things could have played out quite differently on past claims had such a provision been included in our insureds’ contracts with their title insurers.  Thankfully, now there’s an opportunity for that to change.