Even if your firm carries amazing real estate E&O insurance, there can still be gaps, limitations and exclusions. These potential gaps vary from firm to firm based on their most common business activities and overall coverage needs. This is why having an individual real estate E&O Policy tailored to your exact activities and history is important. Here’s how to select the right real estate E&O insurance for you:
What is Real Estate E&O Insurance?
Real Estate E&O Insurance reduces financial risk and protects brokers and agents should a consumer become dissatisfied after a transaction has occurred. Real estate E&O insurance covers claims resulting from the following:
Breach of duty
Breach of contract
Open house and showings coverage
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
Gaps in Firm Policies That Could Leave You Hanging
Gaps in real estate E&O insurance can occur in multiple ways — leaving your claim only partially covered or not covered at all. Here are just a few potential coverage gaps:
If the firm you work for has E&O Insurance, but doesn’t renew on their renewal date, any transaction you conduct during that uninsured period of time would be uncovered. And you probably would never know if they didn’t renew, until after a claim hits.
Your firm’s policy might not include coverage for certain actions like appraisals, open house and showings, or claims resulting from the unpermitted work done on a property. This could leave you unprotected and responsible for covering claims resulting from these areas.
Your firm’s real estate E&O insurance might not have enough coverage for your claim. A firm policy has limits to what their policy will payout during the policy term. If they have had to cover other claims prior to yours there may not be enough coverage for your claim, leaving you to cover the balance.
What If You Move Firms or Start Your Own?
If you move firms, you may not have coverage for transactions that occurred at your prior firm once you leave. Real estate E&O insurance options often offer Prior Acts coverage (also called Retroactive coverage) if you secure policies back to back. Prior Acts coverage covers all transactions as long as you have maintained continuous insurance and is usually included in a real estate E&O insurance policy. However, if your firm had gaps in coverage, didn’t renew on time, or you had a gap in personal coverage, then you would need special Full Prior Acts coverage to not be vulnerable for claims on those past transactions.
Full Prior Acts coverage covers all prior transactions EVEN IF you didn’t have insurance at the time of the transaction. So if you had a transaction that occurred during a time when you didn’t have real estate E&O insurance, Full Prior Acts coverage would cover that transaction no matter how much time has passed. CRES exclusively offers this coverage. Learn more about Full Prior Acts and Prior Acts coverage.
In terms of risk management and personal business protection, only going with the real estate E&O insurance provided by your firm is relinquishing your control over the protection of your business. Remember, ultimately a firm’s E&O policy is in place to first and foremost protect the firm, not you. This is why having an individual real estate E&O insurance policy is an important step in protecting YOUR business’s future.
Have you been in a situation where your firm’s E&O policy didn’t fully cover you? Tell us in the comments below!
This blog/website is made available by CRES Insurance Services for educational purposes to give you general information and understanding of legal risks and insurance options, not to provide specific legal advice. This blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. Claims examples are for illustrative purposes only. Read your policy for a complete description of what is covered and excluded.
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