As a real estate licensee, you need to be aware of the risks within your business and mitigate those risks to protect yourself against potential lawsuits. Real Estate Errors and Omissions (E&O) insurance is one way you can do this. Having E&O insurance gives real estate professionals, like you, peace of mind that you have essential coverage in case a claim is made against you.
We’ve prepared the ultimate guide to understanding E&O insurance for real estate in this blog. We delve into the intricacies of E&O insurance, how it works, and why it’s essential. Learn everything you need to know to keep your business safe…
How Does Real Estate E&O Work?
E&O is a form of professional liability insurance for real estate professionals. It protects you against specific real estate risks that you face in your business. Unlike some other types of insurance that operate on an ‘occurrence basis’, E&O policies operate on a claims-made basis. That means they cover only claims that are made and notified during the period of an active policy; claims that occur after your policy lapses are typically not covered.
Further, claims for past transactions are covered in a current policy:
- From the time you have had continuous E&O coverage in either your name or the name of the same company. You should maintain continuous coverage, with no gaps in coverage, to ensure you’re protected for past real estate transactions.
- If you have coverage in your current policy for that type of activity (real estate sales, property management, etc.).
It’s important to note that not all E&O insurance is equal. Every E&O insurance policy will have its own terms and conditions. So, compare policies and make sure you understand the intricacies of your specific insurance policy and what it covers.
What Does E&O Insurance for Real Estate Cover?
E&O insurance covers real estate licensees in instances where they have made professional mistakes and oversights. This includes things like misrepresentation, failure to disclose, breach of duty, breach of contract, and negligence. Even errors in paperwork that cause delays to transactions and financial losses to others could result in a lawsuit.
Even a qualified and experienced real estate professional may find themselves facing a lawsuit. Sometimes inadvertent mistakes can happen. Or, even if they don’t, a disgruntled client may make a claim against you that you need to defend, whether you failed to carry out your responsibilities as a licensee or not.
E&O insurance will cover you in the delivery of your professional real estate services. It can help to defend a lawsuit by assisting with defense costs and settlements within the limits of your policy. There will be exceptions, and licensees must ensure they understand the extent of their coverage. Typical exceptions include criminal acts, fraud, and personal injuries.
When Is Real Estate E&O Needed?
Real estate licensees need to maintain E&O insurance throughout their careers. Ensure you have no gaps in coverage to keep protected against lawsuits. That means continuous coverage either in your name or the name of the same company.
What happens if you change to a different real estate brokerage, and you were previously covered by the old brokerage’s E&O policy? You may no longer have coverage for past transactions, even if your new brokerage offers you a new E&O policy. Your coverage must be continuous either in your name or the name of the same real estate brokerage.
If you do plan to make a change, best to obtain an individual E&O policy in your name. That policy will be portable, and ensure you have coverage for past transactions for as long as you’ve had the policy in your name. Or, if your new company has CRES E&O, your past transactions may be covered until a firm + agent policy. If you’re contemplating a move, call CRES at 800.880.2747 to talk about your options.
Even if you retire, it’s important to obtain tail coverage (or extended reporting period coverage). This will ensure you are covered if a claim is made against you after you retire, for past business when you were insured.
How Do Limits Work in Real Estate E&O Policies?
Real estate licensees must understand the limits of their E&O policies. Most policies have a limit per claim and an aggregate limit (policy limit); your policy limit is the total amount that can be paid for all claims within the period of the policy. So, if your insurance policy limit says $500,000/$500,000, the first number is your maximum limit per individual claim and the second is the maximum total for all claims during your policy term.
It’s important that real estate licensees have sufficient coverage. There are significant costs associated with lawsuits, and they can escalate fast. The dollar limits you require will depend on the level of risk within your business.
Licensees should also check what costs their policy limits will actually cover, as every policy is different. Your E&O policy will have your per claim and policy limit, but it will also have limits in individual coverage areas, such as $100,000 coverage for Environmental/Pollution or Mold claims. That means if a claim involves environmental issues, you’re limited to $100,000 in coverage for that claim. These limits in individual coverage areas tend to be the real difference between Errors and Omissions policies — and the most critical difference because they determine how much coverage you really have for various types of claims.
Why Do Real Estate Professionals Have E&O and Why Is It So Important?
In many states, E&O insurance is mandatory. That includes North Dakota, South Dakota, Wyoming, Idaho, Montana, Louisiana, New Mexico, Mississippi, Tennessee, Kentucky, Colorado, Nebraska, Rhode Island, and Idaho. Whether you live in a state where E&O insurance is mandatory or not, it is a vital component in your risk management toolbox to protect your real estate business from potential lawsuits. The cost of E&O insurance is significantly lower than the expenses you could be facing in a lawsuit situation if you’re not adequately insured. It can provide you with a safety net and peace of mind that someone has got your back — and your business and livelihood are protected.
Protect Your Real Estate Business with CRES E&O Insurance
When you want to protect yourself with real estate E&O insurance, choose specialists. CRES has provided real estate Errors and Omissions insurance to over 100,000 licensees for more than 25 years.
As part of one of the largest insurance brokers in the world, we have access to more and better E&O options than just about anyone else (especially smaller insurance brokers whose access tends to be limited). Let us find you the best coverage for the best price.
CRES Real Estate E&O + ClaimPrevent® includes access to local qualified attorneys to help you prevent claims.
Contact the CRES team at 800-880-2747 for a confidential discussion today.
