Most insurance lines are based on unknown individual event liabilities – that is, it is not known where a claim will occur or when. No one can predict with certainty, where a hurricane will hit or when or how destructive it might be; no one can predict who will get what disease and what it might cost to treat it. Insurance is based on average claims in the past, projected into the future.
Title insurance is different – the liability for every insured home is known in advance of the insurance policy being written. The base of the American land recording system is that all “events” that affect a piece of property are publicly disclosed by means of the recordation of a document at the County Recorder’s office. The County Recorders are required to give “constructive notice” of all actions related to all properties in their counties. Every change in property ownership is recorded; all liens are recorded; every mortgage is recorded; notices are recorded; judgments are recorded; easements are recorded; anything that affects a property is recorded in the public record system, which is maintained by the County Recorders Office and made available to the “public”—generally, at no cost.
If all risks are known in advance, why does the title insurance industry have claims ratios ranging between 4% and 12% of premiums?
Claims usually occur due to errors in the title plants or errors in searching and examination of the documents. Claims also occur due to fraud and other reasons.
This article explores some of the reasons that claims occur and how they are dealt with by the industry.
Title Errors and Title Plant Error:
Title indexing errors, quality control slippage, fraud and lack of transparency all affect the reliability of property records and can result in title claims.
While title plant problems such as unnoticed recording mistakes and indexing errors can result in claims, the majority of claims stem from title examination errors. Forged and falsified documents, invalid deeds, unpaid liens, undisclosed easements, claims by missing heirs or ex-spouses all pose risks. Careful examination, common sense and quality review through the entire process are some of the keys to minimizing claims – though it is almost impossible to eliminate all claims in the title insurance process.
The extent of a title error will determine if a claim will be filed with the underwriter or handled in-house by the title company. When a title claim is made to the underwriter, it is usually significant and almost always far more than the deductible on the title company’s errors and omissions policy.
Underwriters are considering changes in assigned responsibility for certain claims, with the result that more claims may become the responsibility of the title company. Eventually title agency e&o premiums could increase.
HDEP International has deep experience in indexing for title plants, as well as title production (search/exam, commitment preparation, etc.). Knowledge of both aspects where errors can enter the process assists us in reducing the number and types of errors. Please contact us if we can be of assistance in providing a quality product and service for your business.