Hopefully, you’ve never been sued, had to go to trial, or had a real estate E&O claim. It’s not fun. What can make an already stressful situation even more stressful is if you don’t have Errors and Omissions insurance coverage — or enough coverage, or even the right coverage.
You buy insurance thinking it’s going to be there. You hope you never have to use it, but sometimes you do. It’s important to know before that day comes what’s in your policy – and what it will cover.
Are You Covered for Common E&O Claims?
Do you really know what’s in your real estate E&O? It’s important that you look at the specific coverages your policy includes — especially if you’re going to renew your policy. Here are the biggest claim areas we see:
Often referred to as “Pollution/Environmental” coverage, it may be included in your base policy, or it may be an optional coverage in your state.
Make sure there is coverage from mold going forward. When there is water intrusion, there is going to be mold, and it doesn’t take much water for there to be a lot of mold. Attorneys love blowing up those pictures of black mold on drywall and flooring and waving those photos in front of a jury.
You need to make sure you’ve got coverage from mold.
Open House and Showings Coverage
It’s often called “Contingent Liability” coverage and covers you for personal injury to visitors and theft or damage.
We are seeing more and more claims where people get hurt during a showing or going out to look at the property. Who do they blame? They blame you the listing agent or the agent showing them the property.
For example, under Colorado’s Premises Liability Act, a landowner can be held liable for any injury to another person on the property. “Landowner” is defined very, very broadly. A landowner can be anybody with title, anybody with ownership, anybody with possession or anybody responsible for conducting the activities on the property. If you’re the listing agent, there’s an argument that you are the landowner, and you are subject to liability, even though you might not even be there. If you are the showing agent, and you’re bringing your client, you are responsible for the conduct on the property even though it’s not your property. You could be liable even though you’ve never been there before. Most states have a premises liability statute — check your state for specific details.
We frequently see a situation like this: A person comes out to the property and gets access to the property. The person walks to the house, finds a door, opens the door, and walks into the black space looking for the light switch. It turns out it’s the stairwell to the basement, and they fall down and break things —elbows, shoulders, knees, hips —and they sue because these are significant injuries. It doesn’t matter whether the broker is there or not. You absolutely have to make sure you have personal injury coverage.
Open House and Showings Coverage usually includes coverage for theft as well. You need to make sure you’re covered if items are stolen or damaged during an open house.
Often called “Fair Housing/Discrimination” coverage, there are two components: coverage of defense costs and coverage for damages.
Another claim we are seeing more and more of is housing discrimination. This includes race-related claims, but more frequently now it’s ADA (Americans with Disabilities Act) violations. These claims involve accommodating service animals. If you do not accommodate, then the person requesting the accommodation is quick to file a complaint with the civil rights commission (in Colorado or find your state’s division to report to) or the U.S. Department of Housing and Urban Development.
As noted, Fair Housing/Discrimination is often broken down into two components: coverage for defense costs and coverage for damages. If you can obtain indemnification for any damages or losses for housing discrimination, you should. And you should absolutely make sure that you at least have insurance to pay part of the defense or all of the defense costs.
You need coverage against cyber hacks. You absolutely have to. If it can happen to Equifax, it can happen to any of us. Even if you try to stay on top of cybersecurity, make sure you are covered. Read about the latest cybersecurity risks.
Frequently, the E&O policy may cover the brokerage, but in order to cover the agent who is selling the property, the agent has to meet certain requirements or there’s no coverage.
If you are an agent and there’s a policy that covers the entire brokerage, there’ll be exclusions. Most often, if the agent is selling the property that he or she has an interest in (like the agent’s own home or if it’s an investment of the agent), that will be excluded. The common problem is that agents are accused of taking shortcuts and not fully disclosing known problems with the property. There may also be extra supervision requirements in your office policy manuals for agent-owned properties, because sometimes agents forget to put in the MLS or in the contract that they have an interest in the property.
To encourage and ensure compliance, often times insurance companies will exclude Agent-Owned Property coverage unless there are certain measures taken, like full disclosure, home inspections, home warranties, etc.
To ensure you’re covered, it pays to have your own individual real estate E&O policy with Agent-Owned Property coverage. That way, you’ll know exactly what’s covered, and you’ll control whether the policy is renewed or not. Sadly, it does happen where the brokerage doesn’t renew their E&O, and you’re left unprotected. It also happens that the brokerage has exhausted its total coverage for the year paying other claims, and there may not be any coverage left for you. Don’t risk it! Learn more about why you need individual real estate E&O
Property Managers as Additional Insured
For property managers, your contract with the landlord of each property you’re managing says that the landlord will name you as an additional insured under the landlord’s policy. Great idea — except the property manager doesn’t take the next step and make sure that actually gets done. What you need to do is ask the landlord to have his/her insurance company send a declaration page showing you as a property manager named as an additional insured. At the very least, you need a certificate of additional insured to show that you’re covered. Then you need to see exactly what coverage the landlord has in his/her policy for certain things like mold and asbestos. Those are things that policies like to exclude.
With CRES, you can customize your real estate E&O policy to ensure that each of these coverages critical to your business are included.
From a Presentation by Jim Meseck, White and Steele