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Why You Need E&O Insurance (by Industry, and Individual)
Are you covered under your firm’s real estate E&O policy? If you’re not, your family’s personal assets and your livelihood could be at risk should you be named in a real estate lawsuit, even a frivolous one. The average E&O lawsuit costs more than $40,000 — are you prepared to pay that out of your own pocket?
Even if you are covered under your firm’s policy, there can still be gaps, limitations, and exclusions — based on exactly what your firm’s particular E&O policy covers and doesn’t cover. Your firm’s policy was likely designed to benefit the firm, and you may find it doesn’t really adequately protect you.
Especially if you’ve changed real estate companies, your firm has been sold, or may have been remiss in making its E&O payments regularly, you may find yourself at risk.
Learn more about why you should have an individual real estate E&O policy
What are the risks in transacting Real Estate sales that a business or individual needs coverage for?
Lawsuits are filed every day in every part of the country. With the complexities involved in real estate transactions, there are no guarantees that you will never receive a demand letter or be named in a lawsuit concerning your professional services as a real estate agent or broker.
The ten most common claims made for real estate:
- Breach of Duty
- Breach of Contract
- Bodily Injury / Property Damage
- Misrepresentation regarding the Condition of the Property
- Consumer Protection Act
- Earnest / Escrow Money Dispute;
- Misrepresentation regarding Flooding or Leaks
- Misrepresentation regarding the Value of the Property
Appraisers run the risk of incorrectly appraising the value of certain properties. Typical Appraising claims filed in court seek damages in connection with an alleged error in an appraisal.
Any financial duty placed on an insured, specifically Mortgage Brokers, can lead to a few specific types of claims. Most typical for mortgage brokers involve:
- Failure to properly qualify applicant who subsequently was delinquent
- Failure to properly advise client of risks
- Failure to properly review loan documents
Typical claims issues that we see with property management are:
- Complaints of substantial property damage which involve diminished value of the residence.
- Failure to inspect property conditions and comply with safety regulations.
- Complaints of discrimination against potential tenants for not getting placed in a particular residence.
E&O Policy Details
Policies on a “claims made” basis cover claims reported during the policy term, regardless of the date of occurrence of the original transaction. CRES E&O insurance, for example, is a “claims made” policy; coverage is triggered by the date of the claim, rather than date of the original transaction.
In contrast, “occurrence” policies cover claims which occur as a result of actions during the policy term (like auto insurance), regardless of when reported.
E&O stands for Errors & Omissions, and is often referred to as professional liability. Any mistake made in the process of conducting your business activity carries liability. If someone finds that you breached your duty or failed to disclose aspects of a real estate transaction, Errors & Omissions insurance is designed to cover the costs of defending yourself against any legal action, and paying any settlements or judgments that may be issued against you.
Many agents choose to purchase their own policy to cover activities not covered by their Firm’s policy, to reduce their retention (out-of-pocket claims expense), or to offer CRES warranties, Seller’s Protection Plan, and other benefits to their clients. An agent policy also covers past sales, as long as the Agent can show they have had continuous coverage through their Firm or their own policy. This is important when moving offices, since the E&O coverage does not normally follow you when you move, and your new Firm will not cover your previous transactions.
Prior Acts coverage describes a simple concept — how far back in time does my professional liability insurance policy cover me for services I have rendered to my clients? The Prior Acts date is the inception date of coverage. As long as a policyholder has maintained continuous coverage from that date, the policy at the time the incident is reported would be responsible for paying any covered claims.
If a policy is not renewed on the annual date of coverage, it is considered lapsed. As stated under Prior Acts coverage, coverage must remain constant for claims to be reported and covered. If the effective date is missed on purpose or by accident, it is considered a lapsed policy. On rare occasions with underwriting approval, lapsed policies can be reinstated to retain Prior Acts coverage.
If a policy is lapsed because of accounting issues, our accounting department does have the discretion to reinstate policies by charging an amount to make the policy current with a late fee.
Contingent liability is an additional endorsement that broadens coverage, to include any claim or suit that is brought against the insured for damages because of bodily injury or property damage. If a client gets hurt at a showing or something is stolen at an open house, the agent may be liable. This coverage is usually excluded from a general liability policy for real estate professionals. This endorsement, offered by CRES, is also known as Open Houses and Showings coverage.
There are specific rules which must be met in order for the carrier to insure the sale of AOP:
- A written home inspection report is issued by an ASHI, CREIA, NACHI, or NAHI member inspector
- An approved home warranty is in place
- All state required property transfer disclosure statements are properly completed, signed and delivered
- The property in which the insured holds an interest consists of 1-4 residential units.
The coverage is a broadened coverage to the standard E&O policy coverage. Coverage is intended for selling your own properties. Unlike other E&O companies that only offer coverage for your primary residence, CRES will cover other residential property where you hold an ownership interest.
CRES Innovations with E&O
Seller’s Protection Plan (SPP), also known as Seller’s E&O, provides your clients with their own E&O policy for 180 days (it can be extended an additional 180 days). This is available on most CRES E&O policies, CRES home warranties, etc. and will cover homes where you are the listing agent. The standard protection is $25,000, but the benefits can be combined, so in many states, coverage can reach $100,000. There is a $2,500 retention (out-of-pocket claims expense limit) and coverage is restricted to primary residences. More about Seller’s E&O.
If you use a CRES home warranty and there is a claim on that property while you are insured with CRES, your retention (out-of-pocket claims expense) will be reduced $2,500-$5,000, depending on the warranty used. CRES Qualified warranties that have a 12-month term qualify for a $2,500 reduction, while CRES Qualified warranties for a 13-month term receive a $5,000 reduction. So if you have a $2,500 retention, your out-of-pocket claims expense will be $0.*
* The E&O Retention (out-of-pocket claims expense) Reduction applies to any real estate licensed Real Estate Agents Alliance Purchasing Group (REAAPG) member who personally pays for the Home Warranty Plan. Seller’s E&O coverage and other benefits are feature based and warranty specific. These benefits are offered by, and intended for, the members of REAAPG. Not available in all states. Certain restrictions apply.
As a CRES E&O policyholder, your E&O works for you DAILY. When you have a question, need a letter or contract reviewed, need a letter written, or have a situation in which you need guidance, the CRES Legal Hotline is available 7 days a week to help. Our nationwide team of local real estate expert litigators brings a wealth of experience to help you prevent claims before they happen.
Apply to CRES: We are the Underwriter
The application requests information regarding the number of agents, license numbers, previous coverage, professional services offered, and physical location of the office.
All application questions provide necessary underwriting information needed to cover each insured to their specific location and business structure.
CRES offers three payment options:
Fixed-Annual: One-time payment in full at the inception of the policy period. This is the most convenient option for insureds who would like the “one-and-done” option. Once payment is made, the policy is presented and there are no further requirements for coverage.
Per Transactions: Payment option for insureds who transact 80% or more Residential Real Estate or Mortgage Brokering. This a monthly reporting payment plan. Ledgers are included with the policy and available online for reporting. A minimum of ONE transaction is due per month. This is an effective tool at keeping a secondary record of inventory and closed transactions. Smaller offices like using the Per Transaction to keep track of their monthly activity.
Premium Financing: We offer financing through GoToPremiumFinancing.com with 10-installment plans. This is effective for insureds who are looking to extend their payment plan. This payment plan is offered for insureds whose premium is greater than $1300.
A policy’s rating can be affected by Average Sales Price, Number of Agents, Location of office, Gross Commissions reported, Claims reported, Years insured, Professional Services rendered. There are additional rating factors that can cause an increase or decrease in premium, that are only privy to the underwriter.
The Real Estate Agents Alliance Purchasing Group (REAAPG) was framed under the Risk Retention Act of 1996, creating a protocol for what is needed for comprehensive and legal coverage. Under the REAAPG, CRES looks to offer a one-stop shop to allow you to attain coverage through Admitted insurance carriers at wholesale pricing. Because we only work with Admitted carriers, CRES does not charge any additional taxes for coverage. Under the REAAPG, coverage is required to include Risk Management (legal advisory services), which we offer to all firms on all of our quotes. REAAPG Membership is required by our carriers.
Your CRES E&O Policy
For your convenience there are several methods for submitting your monthly ledger. These options include:
- Entering your monthly transaction information to the online ledger provided once logged in to your account on CRESinsurance.com. Once the ledger is completed and saved, payment can be submitted online.
- Emailing your completed ledger to Ledgers@CRESinsurance.com. Please be sure to specify the payment method you would like to use to process your payment. If it is not a payment method that we already have on file, we will need to receive a completed payment authorization form in order to process your payment.
- Faxing your completed ledger to 1-858-618-1655. Please be sure to specify the payment method you would like to use to process your payment. If it is not a payment method that we already have on file, we will need to receive a completed payment authorization form in order to process your payment.
- Mailing a printed copy of your completed ledger with payment to:
CRES insurance service
P.O. Box 500810
San Diego, CA. 92150
Our renewal process differs depending on the payment plan of the insured.
Fixed Policies: A renewal notice will be sent out 60-days and 45-days prior to the renewal. The notice will include a short-form application. Once the application is sent in to the assigned Account Executive team, the underwriting portion will begin.
Per Transaction Policies: A renewal notice will be sent out 60-days and 45-days prior to the renewal. The notice will include a short-form application. Indication terms (quotes with certain “subject to” conditions) are quoted and presented based on the ledger information reported 30-days out. The insured is able to bind the indication terms if they confirm that their activity is valid and current.
Coverage can be added at any time during the policy period. If you have a pending deal that involves a service not covered under the policy, a request can be emailed in to add the coverage to the policy immediately. We strive to make sure that we are able to cover your professional service needs as best as possible.
To request a coverage modification, a simple email request to your Account Executive or Account Specialist will suffice to begin the process of modifying coverage as needed.
Our Account Executives focus on helping you obtain CRES insurance customized to your needs. We then assign you an Account Specialist who is an expert in handling existing policy services, including your renewal process. (Your Account Specialist will continue to work with your AE and keep him or her updated on your account.)
CRES was founded in 1996 with one goal: to protect real estate professionals with real risk management, quality insurance solutions and outstanding customer service.
Our founder, real estate attorney, Jim Allison, had a vision: a pre-paid legal program that would help to minimize risk for agents and brokers. The program would provide industry professionals with the education, resources, and legal representation to prevent small issues from becoming big problems.
His vision was brought to life with Comprehensive Real Estate Services (CRES).
The program’s quick success caught the attention of entrepreneur Doug Campbell, who was running a real estate E&O insurance program at the time. He and Jim joined forces to provide better value E&O to real estate agents and brokers throughout the country. Together, they developed the industry’s first per-transaction payment plan and raised the bar by including risk management (legal services) with every policy. Their joint efforts created the customized real estate E&O + ClaimPrevent® policies that continue to lead the industry.
When the Division of Insurance rejected their name application because it didn’t include a reference to selling insurance, Doug and Jim shortened it to the acronym, CRES.
Read more about CRES in our About section.
An MGA is a Managing General Agent, meaning a specialized type of insurance agent/broker that, unlike traditional agents/brokers, is vested with underwriting authority from an insurer. Accordingly, MGAs perform certain functions ordinarily handled only by insurers, such as binding coverage, underwriting and pricing, appointing retail agents.
CRES is a specialist in the risks that real estate firms, brokers, and agents face daily. When you insure with CRES, you work directly with a company that has more than 2 decades of protecting professionals like you from the very specific potential risks you face daily. We review and approve your application, and we are here to help you prevent claims DAILY with our Legal Hotline.
Insurance companies operate in two general modes: Admitted and non-admitted. Admitted companies must file their rates, rules, and forms with each state insurance commissioner and either receive express or implied approval. Many states are very particular in the approval process, to make sure you receive adequate protection and are not subject to excessive or unfairly discriminatory rules. With Admitted insurance, you are also protected from insolvency by a guarantee fund.
Non-admitted companies do not file their rates, rules and forms with each state. Beware of non-admitted companies trying to sell E&O in your state — you are at the mercy of the insurance company and their broker. They can change rates or coverage whenever they want. Even though most states (including California) have laws that establish a preference for Admitted insurance, some unscrupulous insurance brokers will ignore these laws.
if you have to pay a “State Tax” or “Stamp Fee”, the company is probably non-Admitted.
Claim and Pre-Claim Services
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