Firms typically have basic E&O insurance. However, having individual, personal coverage will not only cover gaps that you might not be aware of, it will give you customized business tools and services that fit your exact needs. But do you know everything you need to know about your firm’s policy? Do you know where the gaps are that could leave you without coverage on a claim or all of your past sales?
What is Errors and Omissions Insurance?
E&O insurance was created to reduce the financial risk and protect brokers and agents should a consumer become dissatisfied after a transaction has occurred. In fact, E&O has become so important that some states require coverage for agents and brokers alike. These states include, Alaska, Iowa, Mississippi, North Dakota, South Dakota, Tennessee, Colorado, Kentucky, Nebraska, Rhode Island, Wyoming, Idaho, Louisiana, and New Mexico.
While many brokerages do carry E&O policies, which can extend to cover their agents, that doesn’t mean that the agent is fully covered. The challenge is that too many agents are not aware of the risk they are in. They have not been properly educated about the type of coverage their firm carries or even why they should be carrying their own E&O insurance. This isn’t just risky–it’s dangerous.
Ownership changes happen all the time–what would happen to prior acts if there was a change in ownership?
One of the more damaging misconceptions about E&O insurance is that all transactions by the agent will be covered, regardless of which firm they took place under, if that firm carried E&O insurance. This is just not true. E&O policies are in the name of the firm, not you. If you move firms it is likely that you will not be covered on your old policy. Your new firm definitely will not pay for claims on transactions that were done elsewhere.
Covered services: is the work you perform even covered?
Coverage is another area that agents may not be aware of. Even if a firm carries a million dollar coverage limit, that does not mean that a single agent has access to the entire policy. Limits are shared between everyone. If someone else files a claim, there is less to pay yours. When this happens, you will personally be responsible for the damages of any uncovered portion. A secondary policy can help cover this gap.
What happens if a firm suddenly has to close its doors? Recently, a firm with 2,200 licensees filed for bankruptcy and had to cancel their E&O policy. Since the policy had already lapsed, licensees could not get coverage for their prior transactions. The licensees that did not have supplemental E&O insurance were left responsible to pay attorney fees and damages for any claims on past transactions that might come through in the future.
Gaps for Common Activities
Even the best firm E&O policies often do not pay extra to cover discrimination, open house and showings liability, and other optional coverage for activities you may regularly perform. These essential business activities can be covered under your own personal E&O policy. If a potential buyer is injured or damages property during an open house, you, not your firm, will be responsible. When purchasing your own E&O insurance, make sure that you are covered for these activities.
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.