Escrow Agent Memorandum 00-03
DATE: March 31, 2000
TO: All Escrow Agent Licensees, and Interested Parties
FROM: Whittier Johnson, Program Manager
SUBJECT: Insurance Cancellation Notices
It has recently come to our attention that many of you are failing to meet the full requirements of the Escrow Agent Registration Act (Chapter 18.44 RCW, the "Act") as it applies to bonding and insurance. This is because your insurance verification certificates typically contain an unacceptable disclaimer.
This disclaimer usually reads something like this:
"Should any of the above described policies be canceled before the expiration date thereof, this issuing company will endeavor to mail 30 days written notice to the certificate holder named herein, but failure to mail such notice shall impose no obligation or liability of any kind upon the company, its agents or representatives."
The Department of Financial Institutions ("DFI") is the certificate holder on the insurance policy, and finds this disclaimer unacceptable in that it is not consistent with notification requirements set forth in the Act.
The Act addresses the need for specific insurance and bonding requirements. Relevant citations include:
Surety Bond, RCW 18.44.201(1)(c): "The bond shall be continuous and may be canceled by the surety upon the surety giving written notice to the director of its intent to cancel the bond. The cancellation shall be effective thirty days after
the notice is received by the director."
Fidelity Bond, RCW 18.44.201(2): "The bond may be canceled by the insurer upon delivery of thirty days’ written notice to the director and to the escrow agent."
- E&O Insurance, RCW 18.44.201(3): "Such policy shall provide coverage for unintentional errors and omissions of the escrow agent and its employees, and may be canceled by the insurer upon delivery of thirty days’ written notice to the director and to the escrow agent."
It is the view of the Department that such disclaimers provided by the insurer violate the requirement that we receive thirty days written notice of a policy cancellation.
"RCW 18.44.211 Cancellation of fidelity bond or surety bond, or both – New bond required. In the event of cancellation of either the fidelity bond, the surety bond, or both, the director shall require the filing of a new bond or bonds. Failure to provide the director with satisfactory evidence of a new bond after receipt by the director of notification that one is required or by the effective date of the cancellation notice, whichever is later, shall be sufficient grounds for the suspension or revocation of the escrow agent’s license."
As you renew your license or insurance policies, even if you have just renewed, you should look at your policy to see if it includes such a disclaimer. If it does, have your insurer issue a new policy without the disclaimer or find an insurer who will. Then provide DFI with an updated insurance verification certificate.
This is a matter of concern to the Department because it leaves consumers, as well as the escrow agents, at risk. Recently, we found an escrow company had ceased operation and canceled its coverage. We were not notified of the cancellation. It appears funds had been taken from the trust account. There was not enough in the trust account to cover checks written on behalf of consumers. The designated escrow officer was unable to account for the shortages and admitted that the accounts had not been reconciled for many months. Who was to make good on the loss? The designated escrow officer lacked personal funds to cover the shortages. The company was closed. The insurance was in force during the time the funds were likely taken from the trust account. Should the aggrieved consumers have to sue the insurer, the escrow agent company, and the designated escrow officer to be made whole again? We think not. This is the very situation the 30-day written notice requirement is designed to avoid.
Thank you in advance for your prompt attention to this matter. We look forward to smooth renewal processing in your future.