Skip to content
errors and omissions insurance guys hand

Why Your Specific Real Estate Activities in the Past MUST Be Covered in All Future E&O Policies

Real estate licensees can find themselves in a challenging situation if they haven’t read the fine print when switching insurers. Not having current coverage for SPECIFIC past activities (like property management, agent-owned property, etc.) is a significant risk. 

Failure to read the fine print or a false sense of security that you’re completely covered through your real estate broker’s insurance can come at a cost both emotionally and financially. Did you know the average cost to get out of a real estate lawsuit is around $80,000? 

Here’s what can go wrong if your current errors and omissions policy doesn’t  cover all the activities you’ve done in the past. 

What Can Go Wrong?

The ‘Uncovered’ Activity

Imagine this… you’re excited about moving into a new role at a new real estate brokerage. You’ve got your E&O Insurance organized for your new gig in sales after a successful career in property management and everything is going smoothly. Then, you’re slapped with a lawsuit from one of your ex-property management clients. And you find out your new E&O Insurance won’t cover past transactions relating to property management because either your individual policy or your real estate broker’s policy doesn’t include it. 

The Transaction From Long Ago

Sometimes old transactions can come back to bite you. Imagine if a buyer of a property you sold comes back to you 5-15 years later to sue you. Maybe they found out the home they purchased had an extension that was not fully approved by the local authorities. They allege you told them everything was approved when you sold them the home. It’s “he said/she said” and your current insurer says they can’t cover that issue because you switched firms and changed coverage. 

Relying on Your Real Estate Broker Having the Right Insurance

Some real estate licensees rely on their broker to have “the right errors and omissions insurance.” And often, they have a false sense of security that they will be covered completely. The problem is your new firm may not have coverage for every activity you, as a licensee, were involved in in the past. 

Some licensees have been burned when their broker has defaulted on insurance payments. Mostly this occurs as an administrative error or a one-off mistake. Nevertheless, if the insurance premiums are not paid, the real estate broker and all licensees relying on the broker’s insurance are not covered. 

In other cases, the broker may go out of business, leaving licensees uncovered for past transactions once the business winds up. Mergers and acquisitions can also muddy the waters as far as insurance coverage goes, with licensees not fully understanding what coverage they have. 

Whenever there’s a gap in your E&O coverage, you lose coverage for your prior transactions.

It’s common for acquirers to purchase the business as an asset but not have any interest in taking on the liabilities from previous transactions. In this case, licensees wouldn’t have E&O protection for past transactions.

The Impact

Of course, there will be disappointment that all those years of paying for E&O insurance have brought you to this point where you’re not even covered when something in the past has gone wrong. But you’ve also got the stress and financial challenges ahead of tackling the lawsuit yourself. 

Lawsuits cost big money. Even if you’ve done nothing wrong, it still costs money to defend yourself against a lawsuit. If you don’t have sufficient insurance, guess who’s paying for that? You!

Lawsuits are also a significant distraction to your real estate business and income-producing activities. Who wants to be wasting time in legal proceedings when you can be out enjoying your work and working with buyers and sellers or managing real estate? 

Tips to Avoid a Lawsuit 

All of these unfortunate situations can be avoided by:

  • Ensuring that any E&O insurance you sign up for has coverage for ALL of the activities you’ve done in the past
  • If you’ve EVER in your real estate career been involved in property management or selling agent-owned property, commercial sales or property management, etc. – those SPECIFIC ACTIVITIES MUST BE LISTED in EVERY FUTURE E&O POLICY to give you coverage for those past transactions. 

Here are our top tips to make sure that happens:

  • Look for an individual real estate E&O policy so you’re in control of your own protection. 
  • When purchasing your individual E&O policy, look for a customized policy that will offer better coverage than an off-the-shelf option. 
  • If you’re relying on your broker’s E&O insurance coverage, make sure you know what’s covered and what isn’t. Do a risk assessment to decide whether you should take out additional coverage. 
  • Make sure you have continuous coverage and check your policy every year when it renews to make sure this is included. Also, review annually what activities are covered in your policy document to make sure you’re covered for everything. 

Get Continuous Protection With CRES E&O + ClaimPrevent®

Protecting yourself from real estate lawsuits is serious business.

If you need help evaluating your real estate E&O coverage options,, contact the friendly team at CRES. 

We provide comprehensive coverage as well as free member access to our expert team of qualified real estate attorneys with every E&O + ClaimPrevent® policy. This means you can proactively seek advice about risk management and legal issues in your real estate business to help prevent lawsuits.  

We’ll find you the best protection at the best price, because we have unequaled access to more E&O options than just about anyone else. Contact the CRES team today at 800-880-274 for a confidential discussion.

Back To Top