Using E&O Insurance in Foreclosure Litigation

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Foreclosure practices ranging from robosigning to the mishandling of loan modifications and foreclosures have garnered intense media attention and sparked regulatory investigations and litigation. In managing this fallout, banks and other financial services companies will incur substantial costs. Affected companies may overlook insurance coverage as a significant means of defraying these costs. This article, co-authored with John McGuinness, first published in Law 360 on December 22, 2010, analyzes the potential for coverage under Errors & Omissions (E&O) insurance and provides guidance for maximizing it. E&O policies provide broad rights to reimbursement of a policyholder's defense costs, as well as costs for settlements and judgments, arising from the provision of "professional services." Mortgage servicing and related activities often are encompassed within the definition of "professional services." Determining the existence and extent of coverage can be complicated and may depend on the wording of the policy and the law of the applicable jurisdiction. However, if there is potential for coverage, companies at risk in the mortgage foreclosure controversy must take immediate steps to preserve their insurance rights.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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