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P. TILA EXCLUSION The policy excludes coverage for loss directly or indirectly arising out of or resulting from any actual or alleged (1) non-disclosure, concealment, misrepresentation, misstatement or falsification of any terms of a loan, or of any rights or information required to be disclosed or revealed under TILA; or (2) improper, excessive, illegal or unauthorized fees, penalties or costs, including but not limited to prepayment penalties. The term “TILA” means, for the purposes of this Exclusion, the Truth-in-Lending Act of 1968, Title I of the Consumer Credit Protection Act as amended (15 USC § 1601 et seq.) or Regulation Z (12 CFR Part 226). Mortgage borrowers seeking to prevent foreclosure sometimes assert retaliatory Claims alleging predatory lending practices. Such Claims, which were especially prevalent during the subprime mortgage crisis, typically allege fraudulent misrepresentations of loan terms and violations of statutes, such as TILA. TILA claims are advantageous for insureds because they did not require proof of intent to establish liability. The exclusion effectively bars coverage for such Claims. Such Claims are no longer prevalent given substantial changes in the real estate lending market since the sub-prime crisis. Also, portions of TILA which permit the recovery of damages are subject to a one year statute of limitation. (Exclusion BB). Q. REAL PROPERTY OWNERSHIP EXCLUSION The policy excludes coverage for loss “directly or indirectly arising out of or resulting from any transaction (1) involving real property in which any Insured or any affiliate of any Insured has or acquires a direct or indirect ownership or financial interest, or (2) involving a lease or property in which any Insured or affiliate of any Insured has a direct or indirect ownership or financial interest.” The coverage applies to negligent acts or omissions by the insured, not to Claims involving the insured’s investment in or interest in real estate. (Exclusion EE). R. BANKRUPTCY EXCLUSION The policy excludes coverage for loss “directly or indirectly arising out of or resulting from the insolvency or bankruptcy of any Insured or of any other entity including but not limited to the failure, inability, or unwillingness to pay Claims, losses, or benefits due to insolvency, liquidation or bankruptcy of any such individual or entity.” The bankruptcy exclusion in commonly invoked under D&O policies, since shareholder actions are often triggered by bankruptcy. It is not commonly implicated under the MCPL policy. (Exclusion FF). 17 · PROFESSIONAL LIABILITY COVERAGE
COMMON ENDORSEMENTS In addition to the standard exclusions, the MCPL policy often incorporates endorsements that further define the scope of coverage provided. The following are common endorsements that supplement the MCPL policy form. A. YIELD SPREAD ENDORSEMENT This endorsement excludes coverage for loss arising from: (1) yield spread premium; (2) kickback; (3) improper split of charges; and (4) improper payment of compensation for the referral of settlement service business in connection with any mortgage lending transaction. The endorsement bars coverage for losses arising from such actions because they arise not from allegedly negligent acts, but rather are based on deliberate acts that are excluded from coverage throughout the policy. B. DISCOUNTED LOAN LOSS ENDORSEMENT This endorsement modifies the loan repurchase exclusion (Exclusion X). It allows limited coverage for “discounted loan loss,” where: (1) the insured sold and is legally liable to repurchase the loan as a result of a Claim within the policy period and after the retroactive date, and (2) the insured repurchases and the resells the loan. However, the endorsement excludes coverage it the applicable loan is in default or foreclosure, or payments are not current, or any loans where the insured has not “made diligent efforts and taken all reasonable actions to correct any problem with the loan that is the subject of the Claim.” The endorsement defines the “discounted loan loss” as the original loan principal amount less: (a) all payments that have or should have been applied to the principal, and (b) the sale price received by the insured upon reselling the loan, excluding costs incurred to correct loan problems and resell the loan. The endorsement also limits coverage (usually $100,000) for the entire policy period, regardless of the number of Claims. PROFESSIONAL LIABILITY COVERAGE · 18
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- Page 3 and 4: MORTGAGE COMPANY PROFESSIONAL LIABI
- Page 5 and 6: C. WHAT ARE DEFENSE COSTS? The MCPL
- Page 7 and 8: E. WHAT CONSTITUTES A WRONGFUL ACT?
- Page 9 and 10: B. NOTICE OF CLAIMS The MCPL Policy
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- Page 13 and 14: EXCLUSIONS A. IMPROPER BENEFIT EXCL
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COMMON ENDORSEMENTS<br />
In addition to the standard exclusions, the MCPL policy often incorporates endorsements that further define the<br />
scope of coverage provided. The following are common endorsements that supplement the MCPL policy form.<br />
A. YIELD SPREAD ENDORSEMENT<br />
This endorsement excludes coverage for loss arising from: (1) yield spread premium; (2) kickback; (3) improper<br />
split of charges; and (4) improper payment of compensation for the referral of settlement service business in<br />
connection with any mortgage lending transaction. The endorsement bars coverage for losses arising from such<br />
actions because they arise not from allegedly negligent acts, but rather are based on deliberate acts that are<br />
excluded from coverage throughout the policy.<br />
B. DISCOUNTED LOAN LOSS ENDORSEMENT<br />
This endorsement modifies the loan repurchase exclusion (Exclusion X). It allows limited coverage for “discounted<br />
loan loss,” where:<br />
(1) the insured sold and is legally liable to repurchase the loan as a result of a Claim within the policy period<br />
and after the retroactive date, and<br />
(2) the insured repurchases and the resells the loan.<br />
However, the endorsement excludes coverage it the applicable loan is in default or foreclosure, or payments are<br />
not current, or any loans where the insured has not “made diligent efforts and taken all reasonable actions to<br />
correct any problem with the loan that is the subject of the Claim.”<br />
The endorsement defines the “discounted loan loss” as the original loan principal amount less: (a) all payments<br />
that have or should have been applied to the principal, and (b) the sale price received by the insured upon<br />
reselling the loan, excluding costs incurred to correct loan problems and resell the loan. The endorsement also<br />
limits coverage (usually $100,000) for the entire policy period, regardless of the number of Claims.<br />
PROFESSIONAL LIABILITY COVERAGE · 18
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