You bring up some good points.  It does appear that having E&O insurance makes you a "deep pocket" and may make it more likely that a client will go after you for your mistakes.  But, if you have assets (i.e., a home) you could still be sued and, without E&O, you could lose them.  We really haven't seen it happen much in the past, but with the huge losses the underwriters are facing they could start looking to collect from the abstractors who cause their losses.  The fact that the client has E&O insurance does not prevent you from getting sued.  When their E&O carrier pays the claim, they acquire subrogation rights against the abstractor and they could sue to recover their payout.  I'm surprised we haven't seen more of this, but I predict we will see it see it happen soon.

The article I posted (back in November 2004) does give the impression that the abstractor "might" have successfully limited his liability had he NOT had E&O.  (see Searcher Owes Insurer for Missed Lien) But, that is unclear.  His E&O policy was one factor the court looked at to determine whether the parties actually intended to make the disclaimer a part of their contract.  Whether or not the disclaimers are effective is not really known.  I suppose it depends a great deal on state laws.  It may work in some jurisdictions and not others.

There aren't a lot of cases out there.  First, if the abstractor carries E&O insurance the cases are often settled and you don't hear about them.  Second, if the abstractor doesn't carry E&O he may not have sufficient resources to pay a judgment and the suit is not worth pursuing.  I think the fact that many clients now require E&O, and some clients are told by their E&O carriers that they have to require that their abstractors carry E&O, shows that they are considering pursuing recourse against the abstractors.  If they start doing this, I would hate to be caught in a claims situation without coverage.  Maybe the disclaimer will hold up in court... maybe it won't.  That is not a chance I would want to take.

Ultimately, I believe that the abstractors should be liable for the losses they cause.  Perhaps if there were more suits against the abstractors, we would see many of the "fly-by-night" companies disappear.  If they had E&O, they wouldn't be able to afford it after a couple of claims, and if they didn't have it, they would not be able to afford the first claim they are hit with. 

Like I said, I know there is completely different mindset regarding E&O in New York.  I have spoken to several New York abstractors who told me that nobody carries the coverage.  We have never had to file a claim on our policy, but I wouldn't be able to sleep at night if we didn't have it.  Anyone can make a mistake and you never know when a client will decide to make an example of somebody.

Best,
Robert A. Franco
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