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E&O Retroactive Date: why it’s so important and how does it work?

Most real estate Errors and Omissions insurance policies are “Claims Made” policies. They provide coverage for claims made and reported during the policy year.

Claims Made policies cover your past activities from your “Retroactive Date” to the present — and will not cover any activities before the Retroactive Date.

So, when you sign up for a new real estate errors and omissions policy, the Retroactive Date you specify is critical. 

Your Retroactive Date is the first date from which your real estate E&O coverage was continuous, either in your name or your company name.

“Continuous” means absolutely no gaps in coverage whatsoever. And “continuous” also means continuously in your name if you have an individual policy. If you’re covered by a company policy, it means continuously in the same company’s name.

Any gaps in your E&O coverage mean two things:

  1. Activities occurring during the gaps in coverage aren’t covered at all.
  2. Any gap “resets” your Retroactive Date to the last date for which your E&O coverage was continuous, either in your name or your company’s name. That means you lose coverage for all activities that happened before the new Retroactive Date.

So, you can see why maintaining continuous E&O coverage is so critical to protecting you and your business from claims and lawsuits.

Individual E&O Insurance

The easiest way to ensure continuous Errors and Omissions coverage is with your own portable individual E&O insurance policy, which moves with you should you change real estate companies.

As long as you renew your Errors and Omissions insurance each year before your current policy lapses, you’ll maintain your continuous coverage – and your Retroactive Date won’t change.

If you’re not a CRES member, you can switch to CRES E&O during your renewal period, and you will maintain your continuous coverage in your name.

Should You Ever Switch from Individual E&O to Company E&O Coverage?

If you have individual E&O now and are moving into a role with company E&O, if you give up your individual E&O, your E&O will no longer be in your name. You will lose your coverage for activities from your Retroactive Date unless you purchase “Tail coverage” (from the insurance company that has your individual E&O policy) before you move (within 30 days before your policy renews)

Tail coverage (or Extended Reporting Period) is available for up to four years. This coverage gives you up to a four-year period during which any Claims Made from past activities may be covered (if they happened before both the Tail coverage and your new Company E&O coverage were in place).

Tail coverage costs are based on the individual E&O premium you were previously paying:

125% (of the original premium) for a one-year tail

150% for two years

175% for three years

200% for four years

Many individuals in this situation choose to maintain their individual E&O policies to ensure coverage for past transactions beyond the period a Tail policy would cover. Claims and lawsuits can arise many years after transactions have occurred.  The CRES risk management team recommends keeping E&O coverage up to 5 years from your last transaction. (To cover the fifth year, you can purchase the CRES Base E&O Package if available in your state. The Base Package is for licensed individuals who closed no transactions in the last 12 months.)

Another option if you’re moving to a real estate brokerage that has CRES company E&O: CRES can convert individuals into a firm-plus-agent policy by providing coverage to everyone back to their license activation date while they are with the Named Insured.

What if Your Company Changes?

Continuous E&O coverage needs to remain in the name of the same real estate company. 

  • If you change companies, your new company will not cover your past activities, because now your E&O is in the name of a new company — so it’s not continuous. Your Retroactive Date will change. And an individual leaving firm coverage cannot get Tail coverage to cover your past activities because the current policy isn’t in your name.
  • If your company is sold or goes out of business, they may purchase Tail coverage for you, but if they don’t, you will lose coverage to protect you from claims and lawsuits related to your past activities.

What if You Leave Real Estate – Even Temporarily

If you retire, move out of real estate, or stop working in real estate temporarily: if you have individual Errors and Omissions insurance, you can purchase a Tail policy (from the same insurance company that has your individual E&O policy) to protect you from claims and lawsuits from past transactions. Be sure to do this BEFORE you leave to ensure continuous coverage.

If you were covered under a company E&O policy and you leave the company or stop working temporarily, as an individual, you will not have coverage for prior transactions. However, typically, both your company and you as an individual will be named in any claim, so your company would have coverage for those claims.

CRES can help you choose an Individual or Company E&O Policy

As part of one of the largest insurance brokers in the world, we have access to more E&O options than just about anyone. Let us do the shopping for you and find you the best coverage for the best price.

Get started online now by choosing either an individual or company E&O policy and your state.

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