There are varying schools of thought within the real estate community about the usefulness of personal Errors and Omissons (E&O) insurance. Many professionals still believe that if the firm they are working for has insurance, then they are covered for all acts. They also believe that should they move firms, the policy of their old firm will cover them for the transactions they performed while at the firm. So, are they correct?
The simple answer is like all insurance, the devil is in the details. It depends on the policy. Some may cover you, some may not. Also, the coverage is only good if the firm continues their real estate E&O without interruption. If they sell, go out of business, or allow their policy to lapse, you will likely not be covered in the event of a claim. However, if you have personal E&O insurance and maintain it on a continuous basis, you will be covered even if the firm’s E&O insurance will not cover you.
Of course not all real estate E&O insurance covers the same acts. Whichever prior act you are being sued for will not be covered unless your E&O policy specifically states that the act is covered (and your E&O coverage has been continuous).
It’s vital to know what your E&O insurance will cover. With CRES E&O Insurance, you can be covered for the following:
Agent-Owned Property: Do you plan on selling property that you own? Some policies exclude this type of transaction or only cover owner-occupied property, not rental properties. Many also require inspections, home warranties, etc.
Retention: How much do you need to pay in the case of a claim before the policy pays? Retentions (out-of-pocket claims expense) usually range from $2,500-$100,000.
Discipline Hearing Expense: This is usually optional. Some companies include it as part of the policy; some may include it with Risk Management.
Discrimination/FAIR Housing: Although not as prevalent, these claims still occur, especially if doing leasing. This coverage is usually optional.
First Dollar Defense: This eliminates the retention for claims that involve only attorney’s fees. However, if damages are paid, you will likely have to pay the retention.
Lock Box: Make sure you have this if you are doing listings. Some policies cover just Property Damage, not Bodily Injury. You want a policy that covers both.
Claims Expense Outside: This means that attorney’s fees are covered separately from the limit of liability. In essence, it can double your available coverage.
Open House/Showings Coverage: Liability coverage usually only covers injuries at the office. This coverage extends injury and property damage coverage to your professional activities outside of the office, including items such as dog bites, falls, and broken property.
Pollution Coverage: Hidden dangers can occur, especially on older properties. This coverage is usually optional.
Prior Acts: Generally, E&O policies provide coverage for claims made against the named insured and its Agents, for transactions that occurred while the insured and its Agents have had continuous E&O coverage. So moving firms will likely cause you to lose coverage because the policy is in the Firm’s name, not yours. Also, coverage must be continuous to cover prior sales. So be sure to get your own E&O policy before changing firms.
REOs and Short Sales: Some policies restrict or exclude these sales. If you list REOs, you may want to also have Property Management coverage.
Risk Management: Having proper legal counseling can be the difference between an easy problem resolution and a claim. Policies should include access to an attorney before a claim is filed (to help you actually prevent claims), not just after.
Residential Leasing/Property Management: These activities may not be covered automatically. Make sure the policy covers licensed and unlicensed activities.
Commercial Sales/Leasing/Property Management: If you do Commercial activity, make sure it is included in the policy. Many policies exclude or limit commercial sales, leasing, etc.
Appraisals: Appraisals are not normally covered. If you do appraisals, you will need your own policy to work with mortgage companies and government entities.
Now you know what to look for in your E&O coverage for Prior Acts, and how to get covered for prior acts where you lost coverage or didn’t have protection at the time. Learn more here.
For more information about business risks and what you can do to protect yourself, go to https://www.cresinsurance.com/faqs/.
