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Selecting the Right Real Estate E&O Insurance Policy


Selecting the Right Real Estate E&O Insurance PolicyReal Estate Errors & Omissions (E&O) or Professional Liability insurance is a critical component of any sound insurance program for those involved in real estate sales, property management and related fields. That’s because the single greatest liability exposure most real estate agents and brokers face are malpractice lawsuits filed by dissatisfied buyers or sellers. Allegations can include misrepresentations, negligence, failure to disclose and other violations of the agent’s or broker’s legal and fiduciary duties. Moreover, even if the suit is completely baseless, defending a malpractice lawsuit can cost hundreds of thousands of dollars and damage your reputation.

Typical sources of litigation include undisclosed termite infestations, mold contamination, or hidden water damage. Boundary disputes are a point of contention. The property could be in fine condition, but the buyer could allege that the square footage of the home or surrounding property is smaller than advertised. Brokers and agents also get sued for failing to disclose that a property is encumbered by a lien, entangling the property in the previous owner’s debts.

Real Estate E&O insurance offers agents and brokers protection against the costs of getting sued for a mistake made in the course of doing their job. Choosing the right policy can be difficult as there are differences in local laws and market condition, which makes it hard to compare policies and know what to look for in the fine print. Following are some suggestions when selecting an E&O policy:

  • Find a specialized insurance advisor that understands the E&O market. An E&O insurance professional will have expertise in both real estate and malpractice insurance, which will enable you to get the right policy for your needs.
  • Make sure all your services are covered. Be sure to discuss all the services you offer—residential real estate, commercial real estate, property management—and that you can obtain a policy that addresses the unique exposures for each of these areas.
  • Review carefully at prior-acts coverage. Most E&O policies provide coverage on a claims-made basis rather on an occurrence-basis one. That means they cover only claims made during the life of the policy, regardless of when the alleged injury occurred. Some claims-made policies exclude all prior acts from coverage; some cover acts that occurred within a specified time before the policy was created; and others provide full coverage for prior acts. When changing insurance carriers, be aware of when one policy expires and a new one takes effect to avoid gaps in prior-acts coverage. Speak to a professional insurance advisor about the type of prior-acts coverage available.
  • Consider “tail” protection. If you are changing insurance carriers and full prior-acts coverage is unavailable under the new policy, consider purchasing extended reporting period coverage, or tail protection, from your previous carrier.

Nearly a dozen states, mostly in the Midwest and South, require real estate agents and brokers to carry basic policies, but elsewhere, coverage is optional. It is critical, however, that real estate professionals carry this much-needed protection and with the proper limits. Axis Insurance Services specializes in E&O insurance for residential real estate agents, commercial real estate agents, property managers, appraisers, title agents and others in the industry. Please give us a call at (877) 787-5258 to discuss your needs and how our E&O programs can address them.

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Blogged on: March 23, 2016 by Mike Smith
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