Should Notaries Use Errors and Omissions Insurance? September 28, 2023 / Notary Association of America
Yes! Here's why:
Even if you already have a notary surety bond, errors and omissions (E&O) insurance is different. While a surety bond protects the public from the notary's mistakes, E&O insurance coverage protects notaries from liability if they commit a negligent act or make an error or omission while performing notarial duties.
If the error or omission causes a loss to the public, the notary is legally obligated to pay for that loss. Errors and omission coverage protects you from financial loss if you are accused of making a mistake.
What Happens if a Claim Is Filed Against a Notary?
One must understand the principle of surety and how it relates to a notary bond. A notary bond is also considered a surety bond. Investopedia says that surety is "a promise by one party to take responsibility for another party's debts if the borrower defaults."
For notary bonds, an insurance company covers the notary's debts related to a claim on their bond. In the case of a claim against the notary bond, the insurance company that has underwritten your notary bond will step in and pay the claim.
But here's the catch! The insurance company has every right to demand repayment of the claim, including any legal fees from the notary. However, if you maintain a notary E&O policy, it will cover any claims and legal fees (up to the policy limit).
Let's say a notary without E&O insurance receives a claim against a $10,000 notary bond (notary bond amounts vary from state to state). If the insurance pays the claim, the insurance company will reach out to the bonded or insured notary and demand repayment of $10,000. However, if the notary has a $25,000 E&O policy, then the $10,000 claim will be paid by the insurance company with no repayment required.
If there are legal fees, the E&O policy will then cover up to $15,000 in legal fees ($10,000 claim payment and $15,000 legal fees).
Notary Association of America recommends at least $25,000 E&O insurance or two to three times the amount of the notary bond limit (which varies from state to state).
|Bond Amount ||Recommended E&O Coverage |
|$7,500 ||$25,000 |
|$10,000 ||$25,000 |
|$15,000 ||$50,000 |
|$25,000 ||$50,000 |
|$50,000 ||$100,000 |
Fortunately, the premiums for these bonds are quite reasonable and coincide with your notary term. For example, a $25,000 E&O policy is only $70 for the entire notary term. A $50,000 policy will cost you $110, and a $100,000 policy is only $170 (prices vary by state).
View our E&O Insurance options here and start protecting yourself today!
The following notary claim scenarios are courtesy of the Travelers Insurance Notary Bond Guide.
Claim Scenario 1:
A notary often kept her notary seal and journal in her car for convenience. However, one day the notary returned to her vehicle to find someone had broken in and stolen, among other things, her notary seal and journal. The person who stole her stamp from her car used it to transfer real estate into his name. He then refinanced the properties to cash out on any equity. The crook forged the signatures of his victims, including the notary's name, and applied her seal. She was exposed to liability because the injured parties alleged that she did not safeguard her seal in a secure place, as required by law.
Claim Scenario 2:
A notary was hired by a mortgage broker to notarize documents for an individual refinancing a mortgage. The notary arrived at the residence of the homeowner and notarized the necessary documents. A year passed, and the notary was served with a lawsuit from the homeowner alleging the notary was part of a predatory lending scheme. Despite the notary's limited role, the lawsuit outlined the fraud perpetrated by the broker who hired the notary. Although the notary did not participate in the scheme, the notary had to hire an attorney to defend himself.
Claim Scenario 3:
A local notary was called urgently to a hospital to notarize a power of attorney (POA) for an elderly woman. The notary spoke with the woman executing the POA and the relative who was receiving the powers that were being granted by the woman. As reported by the notary, both individuals “seemed nice” and nothing appeared out of the ordinary, so she notarized the POA. The notary was later sued by family members of the woman who executed the POA as it was alleged that the man who received the powers ended up abusing his powers and stealing from the elderly woman. The plaintiffs claimed the individual signing the POA was not competent, and the notary was negligent for notarizing the document.
Claim Scenario 4:
An individual notarized documents for his employer even though the documents were not actually signed in front of the notary. He was concerned that if he did not notarize the documents, he could lose his job. He was later sued, along with the employer, over fraudulent transactions involving those documents. It became apparent during the litigation that the notary's fears were justified as his employer admitted forging the signatures of his victims and requesting the employee, the notary, to notarize them.