Real estate professionals understand the importance of errors and omissions insurance. A professional liability policy may help address claims involving negligence, misrepresentation, disclosure issues and other allegations connected to real estate services.
However, professional liability is only one part of the risk involved in operating a real estate business.
Brokerages, property management companies and independent real estate professionals also maintain offices, own equipment, meet with clients and depend on uninterrupted operations. A fire, theft, visitor injury or temporary office closure could create expenses that may not be covered by a real estate E&O policy.
A Business Owners Policy, commonly called a BOP, may help address many of these operational risks.
What Is a Business Owners Policy?
A Business Owners Policy generally combines several common commercial insurance coverages into one policy.
Commercial Property Insurance
Commercial property insurance may help cover physical assets used to operate the business, such as:
- Computers and monitors
- Office furniture
- Printers and phone systems
- Signs and marketing materials
- Other business equipment
Coverage may be valuable even when a brokerage or property management company leases its office space rather than owning the building.
General Liability Insurance
General liability insurance may help address certain claims involving bodily injury, property damage or personal and advertising injury.
For example, this coverage may apply when a visitor alleges that unsafe conditions at a real estate office caused an injury.
Business Interruption Insurance
Business interruption insurance, also known as business income coverage, may help replace certain lost income and pay eligible continuing expenses when a business cannot operate because of direct physical damage caused by a covered event.
Coverage requirements, limits and exclusions vary by policy.
The National Association of Insurance Commissioners describes a BOP as a package that commonly includes property, liability and business interruption insurance. Combining these protections may make coverage easier for eligible small businesses to purchase and manage.¹
What Is the Difference Between E&O Insurance and a BOP?
E&O insurance and a Business Owners Policy are designed to address different categories of risk.
Real estate E&O insurance generally focuses on claims arising from professional services. These may include allegations that an agent:
- Failed to disclose a known property condition
- Made a material error in a listing
- Misrepresented information about a property
- Failed to properly explain an important transaction document
- Did not perform professional duties as expected
A BOP generally focuses on the risks involved in operating the business itself.
These risks may include:
- Damage to office equipment
- Injuries involving office visitors
- Certain claims of property damage
- Lost income after a covered property loss
- Temporary interruptions to business operations
One type of insurance does not replace the other. A real estate business may need both E&O insurance and a BOP to address professional and operational exposures.
How Can General Liability Insurance Protect a Real Estate Office?
Real estate professionals regularly meet with buyers, sellers, tenants, owners, vendors and contractors. These interactions can create liability risks that are not directly related to professional real estate services.
Claim Example: A Client Is Injured at the Office
A prospective buyer visits a brokerage to review documents. While walking through the reception area, the buyer slips on a wet floor and suffers an injury.
The buyer alleges that the brokerage failed to maintain a safe office and seeks compensation for medical costs and other damages.
Because the allegation involves bodily injury at the business location rather than the agent’s professional services, the claim may fall under the general liability portion of a BOP. Coverage would depend on the policy terms, exclusions and limits.
What Business Property Should Real Estate Professionals Protect?
Real estate businesses often depend on technology and office equipment to communicate with clients, manage documents and complete transactions.
A serious property loss can affect more than the physical office. It can also interrupt access to records, communication systems and essential business tools.
Claim Example: A Fire Damages Office Equipment
An electrical fire starts after business hours and damages a property management company’s computers, furniture and filing equipment.
The company leases the office but owns the damaged equipment. The commercial property portion of its BOP may help pay to repair or replace covered business property, subject to the deductible, limits and policy provisions.
Without appropriate commercial property insurance, the company may have to replace its equipment using business funds.
What Happens When a Real Estate Business Cannot Operate?
Property damage may lead to a second financial problem. Even after damaged equipment is accounted for, the business may be unable to operate at its normal capacity.
Business income coverage may help with certain financial losses when a covered event forces the business to suspend operations.
Claim Example: A Brokerage Temporarily Closes
A severe storm causes covered damage to a brokerage’s office. Repairs take several weeks and employees cannot safely work from the location.
During the closure, the brokerage continues to face expenses such as rent, payroll and technology costs. It may also experience reduced revenue because agents cannot use the office or operate normally.
Business income coverage may help replace certain lost income and pay eligible continuing expenses during the covered restoration period. The exact response would depend on the cause of loss and the applicable policy language.
Business income insurance does not cover every closure. The interruption generally must result from a covered cause of direct physical loss and meet the requirements stated in the policy.²
What Business Risks Should Property Managers Consider?
Property managers frequently interact with tenants, property owners, contractors and vendors. They may also coordinate repairs, collect rent and maintain client records.
These responsibilities can create both professional and operational risks.
Tenant and Visitor Liability
A tenant, client or visitor may allege that unsafe conditions at the management office caused an injury.
Office Equipment and Business Property
Computers, phones, furniture and records may be damaged by fire, theft or another covered event.
Interruptions in Management Operations
A covered property loss could affect rent collection, maintenance coordination, vendor communication and client service.
Client, Contractor and Vendor Interactions
Property managers may face allegations that their operations caused bodily injury or damage to another person’s property.
A standard BOP may address some of these risks. However, property management operations can involve specialized exposures that require separate endorsements or additional insurance.
What Business Risks Should Real Estate Agents and Brokerages Consider?
Independent agents and small brokerages may have fewer employees or smaller offices, but they can still face significant operational losses.
Common risks may include:
- A visitor injury at the office
- Theft or damage involving laptops and equipment
- Damage to rented office space
- A temporary business closure
- Lost business income after a covered property loss
- Damage to business records and communication systems
Real estate professionals who work from home should not assume that a homeowners or renters policy fully covers business equipment or business-related liability.
The U.S. Small Business Administration recommends evaluating insurance based on the actual operations and risks of the business.³
Does a BOP Cover Every Real Estate Business Risk?
A Business Owners Policy can provide an important foundation, but it does not cover every exposure.
Depending on the size and structure of the business, additional insurance may be needed.
Real Estate Errors and Omissions Insurance
E&O insurance may help address claims arising from professional real estate services.
Cyber Liability Insurance
Cyber coverage may help address certain risks involving data breaches, ransomware, phishing and cybercrime.
Workers’ Compensation Insurance
Workers’ compensation may be required when a business has employees, depending on state law.
Employment Practices Liability Insurance
This coverage may help address certain employee allegations involving discrimination, harassment or wrongful termination.
Commercial Auto Insurance
Commercial auto coverage may be needed when vehicles are owned by the business or used for certain business purposes.
Additional Property Coverage
Real estate businesses may also need crime insurance, employee dishonesty coverage, umbrella liability insurance or other specialized protections.
Why Business Continuity Planning Matters
Insurance is one part of preparing for a business interruption. Real estate professionals should also create a plan for continuing critical operations after an emergency.
A business continuity plan may address:
- Remote access to files and systems
- Backup communication methods
- Client and employee notification procedures
- Data backups and cybersecurity
- Alternative office arrangements
- Vendor and contractor contacts
- Recovery responsibilities
Ready.gov recommends identifying essential business functions, evaluating potential disruptions and developing recovery strategies before an emergency occurs.⁴
Insurance and business continuity planning can work together to help a real estate business recover from a serious event.
Review the Full Risk Picture
Real estate professionals protect clients and transactions every day. They should also consider what protects the business behind those services.
A Business Owners Policy may help combine property, general liability and business income coverage into one manageable policy. When paired with appropriate E&O insurance and other specialized coverage, a BOP can help create a more complete insurance strategy for a brokerage, property management company or independent real estate business.
Contact CRES to review your business insurance options and request a quote.
Frequently Asked Questions About BOP Insurance for Real Estate Professionals
Do real estate agents need a Business Owners Policy?
A real estate agent may benefit from a BOP if the agent owns business equipment, leases office space, meets with clients or could lose income after a covered property loss. Coverage needs depend on how the business operates.
Is a BOP the same as real estate E&O insurance?
No. A BOP generally addresses property, general liability and business interruption risks. E&O insurance generally addresses claims involving professional real estate services.
Does a BOP cover lost commissions?
Business income coverage may help replace certain lost income after a covered property loss. Whether lost commissions are included depends on the policy language, documentation, cause of loss and calculation of business income.
Does a BOP cover property management operations?
A BOP may cover certain property, liability and business interruption risks. However, property managers may have specialized exposures that require endorsements or separate policies.
Does a homeowners policy cover a home-based real estate business?
Homeowners insurance may provide limited or no protection for business property and business-related liability. Home-based agents should review their operations and coverage with an insurance professional.
Sources
- National Association of Insurance Commissioners, “Business Interruption and Business Owner Policy.”
- National Association of Insurance Commissioners, “What Business Income Loss Coverages Are Out There?”
- U.S. Small Business Administration, “Get Business Insurance.”
- Ready.gov, “Business Continuity Planning” and “Business Impact Analysis.”
Disclaimer: Claim examples are hypothetical and are provided for general educational purposes. Actual coverage depends on the facts of the claim and the applicable policy terms, conditions, exclusions, limits and endorsements.
The information contained herein is offered as insurance Industry insight and provided as an overview of current market risks and available coverages and is intended for discussion purposes only. This publication is not intended to offer legal advice or client specific risk management advice. Any description of insurance coverages is not meant to interpret specific coverages that your company may already have in place or that may be generally available. General insurance descriptions contained herein do not include complete Insurance policy definitions, terms and/or conditions, and should not be relied on for coverage interpretation. Actual insurance policies must always be consulted for full coverage details and analysis. Insurance brokerage and related services to be provided by Gallagher Affinity Insurance Services, Inc. (License No. 100310679 | CA License No. 0783129).
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