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ond also may be purchased by an underwriter for its own benefit for protection againstfraud or the dishonest acts of title insurance producers in its employ. The fidelity bondcommonly used in the insurance industry is the Standard Form No. 25. Underwriters thatutilize independent producers in the sale of title insurance may purchase a rider to theStandard Form No. 25 to protect the underwriter against losses resulting directly from thefraudulent or dishonest acts of its appointed agents.A surety bond is a contract by which one party agrees to make good the default ordebt of another. An underwriter may, and according to the Insurer Survey, in eight of thepast 16 defalcations in Maryland did, file a claim against a title insurance producer’ssurety bond for reimbursement of stolen escrow funds. The surety bond protects thirdparties, including an underwriter or consumer, against fraud or the dishonest acts of thebonded title insurance producer.Four underwriters of surety and fidelity bonds in Maryland – Liberty Mutual,NGM, Travelers, and Western Surety – provided the MIA with estimates of the cost ofsurety and fidelity bonds required by law. According to those underwriters, the annualcost of a $150,000 bond ranges from approximately $500 to approximately $1,500.2. Errors and Omissions InsuranceErrors and omissions (“E&O”) insurance is a specialized liability protectionagainst losses not covered by traditional business liability insurance. An E&O policyprotects the policyholder from claims if a client, customer, or other party sues fornegligent acts, errors, or omissions committed during business activities that result in afinancial loss. The owner of a title insurance agency may purchase an E&O policy tocover the owner, employees, and contractors working on behalf of the owner, including16
abstractors, notary publics, and TIPICs. If an error affecting clear title to the realproperty is made by a person covered by an E&O policy and a title insurance policy hasbeen issued, the title insurance policyholder who has suffered a financial loss likely willfile a claim against the title insurance policy. If the underwriter is required to pay theclaim, the underwriter may take legal action against the person who made the error. Theinsurer of the E&O policy will pay defense costs related to the legal action and isresponsible for any damages, up to the limits of the E&O policy, for which the person isheld liable. An E&O policy will not pay for a claim resulting from fraud or the dishonestacts of the covered person.3. ReinsuranceReinsurance is another risk management tool available to underwriters.Typically, an underwriter (a ceding company) and a reinsurer enter into a reinsuranceagreement which details the conditions upon which the reinsurer may pay a portion of theclaims incurred by the ceding company. Passing some risk to a reinsurer will reduce theceding company’s exposure to risk. The reinsurer is paid a reinsurance premium by theceding company. Of the 17 underwriters that responded to the Insurer Survey, 15indicated that they purchased reinsurance. Of these 15, four indicated that theirreinsurance agreements would cover theft of escrow funds. Three of these fourunderwriters indicated that the cap for a loss due to theft of escrow funds was$100,000,000, with the first $10,000,000 paid by the underwriter. One underwriterindicated a cap for a loss due to the theft of escrow funds at $10,000,000.17
Page 2 and 3: Report of the Study ofClosing or Se
Page 4 and 5: TABLE OF CONTENTSI. EXECUTIVE SUMMA
Page 6 and 7: Although in a minority of states an
Page 8 and 9: or misuse of closing or settlement
Page 10 and 11: (4) Division of Consumer Protection
Page 12 and 13: title insurance producer or agency
Page 14 and 15: As part of its Insurer Survey, the
Page 16 and 17: or dishonest practices, the underwr
Page 18 and 19: eported having a least one escrow a
Page 22 and 23: 4. Other Protection Available to Un
Page 24 and 25: 1. Preventive MeasuresProducer Lice
Page 26 and 27: lender’s funds or documents. The
Page 28 and 29: In the event of the insolvency of a
Page 30 and 31: insurance task force. The informati
Page 32 and 33: in excess of 20 cents in claims on
Page 34 and 35: create an environment vulnerable to
Page 36 and 37: Appendix 1MARTIN O'MALLEY, Governor
Page 44 and 45: AppendixAppendix22MARTIN O’MALLEY
Page 46 and 47: Appendix 2c. If you answered “No
Page 48 and 49: Appendix 2Certification of Informat
Page 50 and 51: Appendix 2QUESTION #3Schedule BStat
Page 52 and 53: Appendix 3
Page 54 and 55: Appendix 3SURVEYTitle Insurance - C
Page 56 and 57: Appendix 3a. Does your title insura
Page 58 and 59: Appendix 3QUESTION # 2Schedule ADor
Page 60: Appendix 3QUESTION # 10Schedule CMi

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