Need E&O Insurance: What Is It Really?

by Jennie Stormes, Owner, AcadamyforNotaries.com

Some recent situations have forced me to think about this question and really look at what the answer is. Is there an answer? I think that your answer will depend on:

• What you were told a long time ago when you purchased your errors and omissions (E&O) policy,
• What you think the E&O policy should be and what it should cover,
• Or even better yet, what other’s want your notary E&O insurance to be and what they want it to cover.

Most reputable title and escrow companies or lenders are now requiring notaries to have an errors and omissions policy to be an approved independent contractor. Recently, they are requiring at least $100,000 limits. Why? Well, this insulates their liability by at least $100,000 before their policy will kick in and take effect. Wouldn’t you like to have a $100,000 cushion on someone else’s (the notary) dollar? Of course you would; this is a great business decision. Another advantage of the higher limit is reputable companies can weed out those notaries who are not serious about being a prudent notary/independent contractor. If you are not willing to invest in yourself, why should they? These are good reasons to require independent-contractor notaries to have a large E&O insurance policy.

Example: The notary E&O insurance only covers notary errors. Lets say you made an honest error on the notary certificate. This would be covered under the notary E&O insurance policy up to the $ limit paid for during the covered period. Typically, the legal defense costs are added to this and the hope is that the two amounts are not higher than the limit of the policy issued.

What if the notary made a mistake on the Truth In Lending (TIL) document? Or refused to date the Right to Cancel (RTC) form with the correct dates? Or any other document in the package not requiring a notarization? These errors caused troubles for lender, title and escrow. Now they are filing a claim for the damages with the insurance carrier. Is this a covered claim up to the limits of the policy?

Not so surprisingly, the answer is “No!” Why? Because the mistake is not a notarial mistake, but a signing agent mistake. The duties of the signing agent are to ensure that all of the documents present were signed and executed properly, in addition to notarizing the appropriate documents as instructed. The notary duties only apply to the documents requiring the notarization. The two issues do not cross and become one.

Here is the first issue. These title companies, escrow companies and lenders are using the notary E&O insurance policy as a signing agent E&O insurance policy. The two are not the same and you do not have coverage under the notary E&O insurance for your signing agent actions.

Then why do we need to have such a high E&O insurance then?

Great question. It is still highly recommended for the notary as protection from the public. In the great era of litigation and no-fault suits, anyone can sue for any reason: Good or Bad, Right or Wrong. The E&O insurance will cover your legal defense costs and fines/penalties or other expenses up to the limit of the policy. This is a safety net for the notary, just in case. I recommend an E&O policy to anyone working as a notary, either for themselves or for an employer.

Your next thought will be, well, how much should I have? This is a personal question you will have to ask yourself and determine for yourself. Are you dealing with real estate or immigration issues or a huge variety of documents? What skills and practices do you utilize to prevent fraud and steps to adhere to the letter of the law in your state? What is your potential for errors? Do you commonly use personal knowledge? Do you completely identify the person in front of you or just glance and then notarize without much thought? Some of these actions can be considered negligence and the individual notary will be responsible for the damages in a court of law. You decide how much you think it would cost to defend your case in legal fees and then add this amount to the damages that you can cause. The dollar amount is your decision as a business owner/notary public.

Solution: There really is no good solution for now if you are not already a prudent notary. This means…

• following the laws in your state to the letter,
• taking steps to ensure the identity of the individuals you are notarizing signatures for,
• and more as the situation dictates.

Insurance companies will not assume the signing agent liability and are not offering a signing agent E&O insurance policy. There are too many notaries who decide to take on loan document signings without the proper training. These untrained notaries make way too many mistakes and cause huge problems with large financial liabilities. You will be on your own for your signing agent actions. Maybe you can find a business liability insurance, but there is currently nothing offered and marketed on the open insurance market at this time specifically for signing agents.

In speaking with Western Surety/CNA’s underwriting manager, Denise, at the call center, I learned this insurance company has created two of their own solutions as listed below. It will only be a matter of time before other insurance companies begin following their actions, especially where they have the legal opportunity to limit their liability and save a buck.

1. Dollar Limitations: There may be a notary questionnaire asking about your intentions as a notary. The document will ask about your training and your abilities, who trained you and the extent of the training.

• If you have the appropriate resume and credentials as a notary, they will issue the $50,000 or $100,000 notary E&O insurance policy. If you do not have what they are looking for, you will be denied.
• Any notary can purchase a lower limit without the questionnaire and no problems, but you are now limited to the lower limits. Additionally, many signing companies, title/escrow companies, and lenders will not hire you without the higher dollar amount. So, they are insulating themselves from the liability again.

2. “Defense within Limits” Clause: When issuing a new E&O policy, insurance companies are submitting new wording to the state insurance officials allowing the defense to only defend within the limits of the policy purchased. Not all states are allowing this clause which limits the insurance company’s liability to the amount of the policy, especially if the signing agent’s actions are in question, not the notary duties. This gives all parties incentive to avoid lengthy and drawn out legal battles. But, some argue that this limitation is a violation of basic rights of the un-savvy insurance purchaser’s understanding of the policy being purchased.

• Problem: In the states that are not allowing the new wording to include “Defense within Limits”, the insurance companies are refusing to issue notary E&O insurance in the larger dollar amounts of $50,000 and $100,000. Currently, there are 6 states (New York, New Jersey, Arkansas, Wyoming, Louisiana and Vermont) that are refusing the clause for various reasons. This means that any notary signing agent in these states will or can have a tough time getting an E&O insurance policy above the $35,000 amount. This is not sufficient to meet the minimum standards for many companies. If you are not a signing agent, just a regular notary, you will not have any problem getting a large E&O insurance policy.
• Notary Solution: Do not lie on the E&O insurance questionnaire. This may void your policy and you will not be eligible for a refund, defense or compensation in the event of a claim. Fraud is not appropriate behavior of a notary public official. There are still some companies who have not initiated the solutions listed above. But once one insurance company does, the others are soon to follow. The other option is to talk to your insurance regulators in your state and other elected officials and explain the situation. The state’s refusal to allow this clause is making the notary signing agent risk too great. The insurance companies are declaring this risk as uninsurable and walking away.
• There are arguments for and against the Defense within Limits clause. I am not wanting to debate what is right or wrong. I know that if I do my job correctly as a notary, that I will not have to use the E&O insurance. I know that by having this insurance, I can get more independent notary assignments and be paid what I am worth for having the insurance. This is similar to medical insurance. How many of us plan on having a car accident in their life? Well, the insurance is there if we need it.

Escrow companies, title companies and lenders are just not realizing that these errors and omissions policies only cover unintentional notary errors, not all errors. I still recommend that any notary, signing agent or not, will obtain a policy of an appropriate dollar amount for them. Always remember that what you do as a notary are the only actions covered by this policy. You are personally liable (unlimited financial responsibility) for your actions as a signing agent.

©Copyright Jennie Stormes. All rights reserved. Jennie Stormes, Owner of AcadamyforNotaries.com, is a Notary Public and Certified Signing Agent. She has been a notary public since 1996 and is an inspiration to everyone who knows her. Jennie is also a member of the GoGetNotary Advisory Council. You can learn more about her at GoGetNotary.com/get/jennie rel=”nofollow” /, or visit the AcademyforNotaries.com website.