The Ultimate Guide to Understanding Real Estate Errors and Omissions Insurance

As a real estate professional, you need to be aware of the risks within your business – and take advantage of the vital tools to mitigate those risks – to protect yourself against potential lawsuits. Real Estate Errors and Omissions (E&O) insurance is the first line of defense in managing your risks. Having E&O insurance gives you protection against damages and legal fees should a claim – valid or frivolous – be made against you.

The cost of E&O insurance is significantly lower than the expenses you could be facing in a lawsuit situation if you’re not adequately insured. (The average real estate lawsuit now exceeds $80,000, and some run into the millions.)  Errors and Omissions insurance can provide you with a safety net and peace of mind that your business and livelihood are protected.

It’s important to note that real estate has its own specific risks, and it’s important to have an E&O plan that is made for real estate (rather than a generic policy trying to apply to many industries.)

(See: Why You Shouldn’t Buy Real Estate E&O Insurance from a General E&O Company)

Even among Real Estate E&O plans, every policy will have its own terms and conditions. We’ll explain common coverages below that you’ll find in Real Estate Errors and Omissions policies so you can compare.

In this Ultimate Guide to understanding E&O insurance for real estate, you’ll learn how E&O works, what it covers, how to compare policies, and more.  Learn everything you need to know to keep you and your business safe . . .

How Does Real Estate E&O Insurance Work?

Errors and Omissions is a form of professional liability insurance for real estate professionals. It may cover real estate companies, employees, and licensees in instances where they have made actual or alleged professional mistakes or oversights in broad categories like:

• Misrepresentation
• Failure to disclose
• Breach of duty
• Breach of contract
• Negligence

Even errors in paperwork that cause delays to transactions and financial losses to others could result in a lawsuit.

Sometimes inadvertent mistakes happen, and qualified and experienced real estate professionals find themselves facing a lawsuit. Other times, a disgruntled client may make a claim against you that you need to defend, whether you failed to carry out your responsibilities as a licensee or not. 

E&O insurance can help to defend claims and lawsuits by assisting with defense costs and settlements within the limits of your policy. There will be exceptions to what is covered, including criminal acts, fraud, and personal injuries. But to protect yourself and your business, every real estate professional should have Real Estate Errors and Omissions insurance.

What Timeframe of Transactions Does an E&O Policy Cover?

Unlike some other types of insurance that operate on an “occurrence basis,” E&O policies operate on a claims-made basis. That means they cover only claims that are made and notified during the period of an active policy; claims that occur after your policy lapses are typically not covered.

Further, claims that occur during your current policy, but that involve past transactions, are covered in a current policy under these circumstances:

1. Transactions must occur while you’ve had continuous E&O coverage, with no gaps, in either your name or the name of the same real estate company.
2. If you have coverage in your current policy for that type of activity (real estate sales, property management, etc.) or type of claim (mold, open house and showings, Fair Housing, etc.)

The first date from which you’ve had continuous E&O coverage is your “retroactive date.” Learn more about real estate E&O retroactive date for past transactions.

How Do Limits Work in Real Estate E&O Policies?

Real Estate E&O policies have a limit per claim and an aggregate limit (policy limit); your policy limit is the total amount that can be paid for all claims within the period of the policy. Coverage limits usually appear like this: $500,000/$500,000, where the first number is your maximum limit per claim and the second is the maximum total for all claims during your policy term.

The dollar limits you and your business require will depend on your yearly sales volume and level of risk within your business. Lawsuit costs can escalate quickly, so don’t skimp on this coverage.

Your errors and omissions policy will also have a “retention” amount, the amount you will pay before your policy begins paying.

I’ve worked with CRES for more than 10 years to protect my business and wouldn’t work with anyone else…

– Doug M., Owner, Real Estate Firm

What Coverage Does a Typical Real Estate E&O Policy Include?

Your real estate Errors and Omissions policy will include individual “endorsements” or coverage areas, each with sub-limits.

For example, most CRES real estate E&O plans include a minimum of $100,000 coverage for Environmental/Pollution (including Mold) claims. That means if a claim involves environmental issues, you’re covered up to $100,000 in coverage for that claim.

Each policy is different, and these sub-limits in individual coverage areas are the most critical difference between Errors and Omissions policies. They determine exactly what your policy covers, and how much coverage you really have for various types of claims.

Common E&O endorsements can include:

• Pollution/Environmental (including mold) – many E&O policies do not include mold in their environmental endorsement, but all CRES plans do
• Open House and Showings Coverage (also called Contingent Liability) – protects you for third-party injury or property damage from your open house, showings, or real estate signage.
• Fair Housing Discrimination – protects you from discrimination claims from the way you advertise, present a property, discuss neighborhoods, and screen rental applicants.
• Lockbox Property Damage
• Escrow Disputes (in states that use escrow)
• Agent-Owned Property Sales – most E&O plans only cover a primary residence you may own. CRES policies may also include your rental properties up to a 4-plex.
• Subpoena Assistance
• Disciplinary Proceedings – covers your defense and related costs
• Cyber Liability/Data Breach – to cover your notification costs due to a data breach.

Learn more about the “Broad Form” bundle of coverages, including subpoena, disciplinary proceedings, cyber liability, and more.

For a step-by-step look at a policy, walk-through a CRES real estate E&O insurance policy.

Where is Real Estate E&O Required?

In 14 states, E&O insurance is mandatory for real estate licensees. Most real estate departments in states that require real estate E&O insurance will contract with an insurance company to guarantee that all real estate licensees, regardless of risk, can be covered with errors and omissions insurance. That usually means the state-contracted insurance company’s rates will be higher than a company like CRES who can choose to insure lower-risk licensees.

Each mandatory state establishes minimum requirements for real estate E&O coverage.

• Links to state pages for individual CRES real estate E&O policies appear below.
• Learn more about CRES Real Estate E&O policies for companies in mandatory states.

Colorado Real Estate Errors and Omissions Insurance

For individual brokers, the Colorado Division of Real Estate requires $100,000/$300,000 coverage, a separate limit for defense costs, a maximum $1,000 retention for damages, and no retention for defense costs. Your Colorado individual real estate E&O policy must include $25,000 lockbox coverage and conformity to meet the requirements of other states in which you hold a license.  For real estate firm Errors and Omissions coverage, $1 million/$1 million coverage with a maximum of $10,000 retention is required.  (Reference: page 15 of Colorado Real Estate Broker Rules & Regulations for E&O Requirements.)

Idaho Real Estate E&O Insurance

IREC requires $100,000/$300,000 for individual Idaho real estate E&O not including defense costs. Real Estate Company Errors and Omissions insurance of $500,000/$1 million not including defense costs is required. (Reference: IREC E&O Requirements.)

Iowa Real Estate Errors and Omissions

Iowa Department of Inspections, Appeals, & Licensing requires $100,000/$100,000 coverage with a 12-month minimum policy for individual Iowa real estate E&O. For Company Errors and Omissions insurance, the per-claim limit must be at least $100,000. The overall aggregate coverage must be a minimum of: $250,000 for 2-10 licensees, $500,000 for 11-40 licensees, and $1 million for 41+ licensees. (Reference: Iowa Administrative Rules, Chapter 19.)

Kentucky Real Estate E&O Insurance

Kentucky Real Estate Commission requires $100,000/$1 million coverage with retention not to exceed $2500 for individual Kentucky real estate E&O. For firms with more than 40 licensees, total Company Errors and Omissions insurance coverage must be at least $2 million. (Reference: KREC requirements.)

Louisiana Real Estate Errors and Omissions

Individual Louisiana real estate E&O must include coverage of $100,000/$300,000 with a $1,000 maximum deductible, and a separate limit for defense costs. Louisiana Company Errors and Omissions Insurance limits depend on number of licensees. For firms with 1-5 licensees, required limits are $500,000/$1 million. For 6 or more licensees, $1 million/$1 million coverage is required. Maximum retention is 1% of per-claim policy limits for damages, with no deductible for defense costs. (Reference: Louisiana Real Estate Commission E&O Requirements.)

Mississippi Real Estate E&O Insurance

The state requires $100,000 of coverage per claim, a maximum of $2,500 retention for damages and $1,000 maximum for defense costs for individual Mississippi real estate E&O.  (Reference: page 61 of MREC Rules and Regulations.)

Montana Real Estate Errors and Omissions Insurance

$100,000/$300,000 for individual Montana real estate E&O with a maximum deductible of $2,500. For Company real estate Errors and Omissions, $100,000/$1 million with a maximum retention of $10,000. (Reference: Montana Board of Realty Regulations.)

Nebraska Real Estate E&O

The Nebraska Real Estate Commission requires $100,000/$300,000 individual Nebraska real estate E&O coverage with a maximum 1% retention (of the per-claim limit) for all licensees.  (Reference:  NREC E&O Requirements)

New Mexico Real Estate Errors and Omissions

For New Mexico individual real estate E&O policies, the state requires $100,000/$500,000 limits with a $1,000 maximum deductible, no deductible and no out-of-pocket costs for defense costs,  a separate limit to cover defense costs, $5,000 lockbox coverage, and conformity to match the E&O requirements of other states where you’re licensed. (Reference: NMREC Licensing Requirements for Real Estate E&O.)

North Dakota Real Estate E&O Insurance

NDREC requires $100,000/$500,000 coverage not including defense costs for North Dakota individual real estate E&O policies. (Reference: NDREC E&O Requirements.)

Rhode Island Real Estate Errors and Omissions

Rhode Island individual real estate E&O requires a minimum coverage of $50,000/$150,000. Firms need a minimum of $50,000 per-claim coverage per licensee with a $300,000 minimum. For the total aggregate limit, firms need $150,000 per licensee with a $1 million minimum. Many Rhode Island E&O plans are two-year plans.  (Reference: section 2.28 of the Regulation from the Rhode Island Department of State.)

South Dakota Real Estate E&O Insurance

SDREC requires individual South Dakota real estate E&O with $100,000/$500,000 coverage not including defense costs, and requires the retention not to exceed 1% of the per-claim limit. (Reference: SDREC E&O Requirements.)

Tennessee Real Estate E&O

Limits of coverage for Tennessee individual real estate E&O policies are $100,000/$300,000 with a maximum $1,000 damages retention. Most Tennessee real estate E&O plans are for a 2-year period.

Wyoming Real Estate Errors and Omissions Insurance

The Wyoming Real Estate Commission requires $100,000/$500,000 individual Wyoming real estate E&O coverage not including defense costs, with retention not to exceed $1,000. (Reference: WREC E&O Requirements.)

Learn more about Company Real Estate Errors and Omissions insurance in mandatory states.

Navigating Transactions Across States

If you hold a real estate license in more than one state, your Errors and Omissions policy can be written to meet the requirements of all the states in which you are licensed. This is called a Conformity endorsement.

With CRES E&O, your required real estate E&O policy in CO, IA, KY, LA, MT, MS, NE, NM, RI, ND, SD, TN, and WY includes the Conformity endorsement at no extra charge.

Individual versus Company E&O Policies

You may choose an individual real estate E&O policy for yourself, which will move with you no matter what brokerage you work for.

An individual E&O policy gives you control over your E&O coverage, to ensure all your specific activities are covered and to maintain continuous coverage for past transactions.

See: Top 8 E&O Loopholes When Individual Licensees Rely on Their Real Estate Firm’s E&O Coverage

• For example, if you were ever involved in property management, every future E&O policy must have property management coverage to ensure your past transactions in that activity are covered.

To learn more about choosing an individual policy, consider 4 Key Reasons to Have Individual Real Estate E&O Insurance.

 

Real estate companies may have Errors and Omissions coverage for the brokerage, employees, and licensees. With a company E&O policy, you decide how much coverage you need and exactly what you want to include in your policy. Company policy limits tend to be substantially higher than those of individual licensees. For example, CRES offers total policy limits of $500,000 to $3 million for real estate companies.

Without a company E&O policy, you’re relying on the amount of coverage of your licensees to protect your business — and continually following up with them to ensure they renew their own E&O policies on time. (And you may have to purchase a company “Excess” policy to increase the limits for all licensees of your company to give you adequate protection.)

Should an individual licensee be sued, the licensee’s broker will likely be named in the lawsuit. Without a company errors and omissions policy, you and your business may be at the mercy of your individual licensees’ E&O coverage.

Learn more about what to consider: Should Your Company Have an E&O Policy?

Real estate companies should maintain continuous E&O insurance with no gaps in coverage, to stay protected against claims or lawsuits from past transactions.

What happens if you merge with or sell to another real estate brokerage?  Be sure you arrange or negotiate Tail coverage (or extended reporting period coverage) for your company BEFORE you complete the merger or sale, to cover your past transactions for a period of time (from one to four years, typically).

How to Compare Real Estate E&O Policies

It’s important to note that not all E&O insurance, and not every real estate E&O policy, is equal. Every policy will have its own specific per-claim limits, overall policy limits, endorsements in individual coverage areas, and sub-limits in those coverage areas.

There are 6 areas we suggest you review to evaluate an E&O insurance provider, as well as 10 questions to review about an individual E&O policy. Here’s how to compare different real estate E&O policies.

If your state requires real estate errors and omissions insurance, we’ve given you an easy comparison: you’ll find a specific endorsement-by-endorsement comparison on your state’s individual E&O page.

CRES has been insuring real estate professionals for more than 25 years. We include higher sub-limits in many coverage areas than most state-mandated E&O programs because we know how to best protect you and your business. And for real estate company E&O policies, our policy limits tend to be some of the highest available.

Pre-Claim Legal Services for Risk Management

Beyond policy coverage, be sure to look at the other services an E&O plan might give you. For example, every CRES E&O + ClaimPrevent® policy includes pre-claim legal services. Whenever you have a legal question, need a letter written or a contract reviewed, you can talk to an expert real estate attorney at no extra charge. Learn more about Experienced Pre-Claim Legal Advice Included with E&O

Per-Transaction and Payment Plans for Companies

For company real estate E&O policies, you may find these payment options:

• Fixed annual payment
• Series of payments
• Per-Transaction payments, a CRES innovation

Company E&O premiums are based on your sales volume for the prior year. If last year’s sales volume was low, a per-transaction payment plan may save your company money. Payment plans are available in some states; be sure to consider the total cost of the plan, including any interest charged or monthly fees.

Tools to Help Build Business, Reduce Risk and Out-of-Pocket Claims Costs

Real estate specialists like CRES may include other tools to help you build business, like:

• Seller’s Protection Plan: when you include this in your E&O plan, you can give every seller $25,000 in protection for 6 months after closing, to protect them from disgruntled buyers. This Plan helps you win listings and covers damages and defense costs to protect your sellers.
• Qualified Home Warranties: give a Qualified Home Warranty to your seller and reduce your out-of-pocket claims expense up to $5,000.
• CRES Building Permit History Reports: receive 25 free reports each policy year to show buyers the presence of permits on a property and reduce your out-of-pocket claims expense up to $2,500.

How Much Does Real Estate E&O Cost?

If your state requires real estate errors and omissions, you’ll find the cost of your individual E&O plan on your state’s page. For individual plans in non-mandatory states, and for all company E&O policies, you can easily get an online quote from CRES by choosing your state:

Real Estate E&O Insurance Resources

More questions? Check out our real estate errors and omissions FAQs

Looking for a definition of something? visit our E&O insurance glossary

Protect Your Real Estate Business with CRES E&O Insurance

When you want to protect yourself with real estate E&O insurance, choose specialists. CRES has provided real estate Errors and Omissions insurance to over 100,000 licensees for more than 25 years. 

As part of one of the largest insurance brokers in the world, we have access to more and better E&O options than just about anyone else (especially smaller insurance brokers whose access tends to be limited). Let us find you the best coverage for the best price.

Contact the CRES team at 800-880-2747 for a confidential discussion today.