E&O insurance delivers vital risk management
By Daniel Rome Levine
Errors and omissions (E&O) insurance is critical to protecting yourself from the inevitable legal issues that arise in real estate transactions. Here are four key points to keep in mind when it comes to E&O.
1. Better safe than sorry. In 2015, Emily Link, CRS, was watching a webinar by a real estate attorney stressing the importance of E&O insurance for REALTORS®. “It’s not a matter of if you will be sued, it’s when you will be sued,” he warned. Link, who has nearly 40 years’ experience and prides herself on her painstaking attention to detail, thought to herself, “Oh, there’s no way.”
Six months later, Link, broker/owner with NextHome Team Link REALTORS® in Simi Valley, California, found herself ensnared in a lawsuit. One of her agents was being sued by the buyer of a property who claimed the disclosure agreement omitted stating that improvements made to the property were done without permits. Link ended up having to pay the $1,000 deductible on her E&O insurance policy to settle the case and her premium went up as a result. Nonetheless, she was happy to have the insurance when she needed it. “A broker would be crazy to not have E&O,” says Link. “Everything we do as REALTORS® creates liability. You cannot afford to go it alone and self-fund a lawsuit.”
2. Don’t let it lapse. Most REALTORS® carry a type of E&O insurance policy known as Claims Made. This means coverage is triggered when a claim is made. But this type of coverage will not respond if the policy is not active at the time the claim surfaces, says David Brauner, founder and senior broker of the Organization of Real Estate Professionals Insurance Services, LLC, that has been providing E&O insurance to real estate professionals for over 15 years and is partnered with CRS.
“Make sure your policy stays in force by renewing your coverage before it lapses,” Brauner says. “If you let it lapse, then all of the coverage for the work you did in the past ends. If you wish to retire, ask your agent about ‘tail coverage.’ Without coverage, you will have to pay defense costs and any judgment out of your own pocket.”
Most states have statutes of limitation that restrict the time in which someone can file a claim after a negligent act, with some allowing as long as 15 years in which to do so, says Eric Myers, vice president and real estate E&O program manager at Victor O. Schinnerer & Co. Inc., an insurance underwriting manager and NAR partner that provides E&O insurance at special pricing to members. Typical annual premiums for E&O coverage run around $500.
3. Check out the policy rules relating to settlements. Some REALTORS® say their E&O insurance carriers are too quick to settle claims. Joy Carter, CRS, with Keller Williams in Coral Springs/Parkland, Florida, is still fuming over an incident from four years ago.
One of her team members listed a condominium unit for a client that included a parking space. The seller also happened to own another parking space in the same condo development, which was not included in the sale. The MLS listing and disclosure form clearly stated that only the one parking space came with the condo, says Carter. However, a real estate aggregator incorrectly entered the information on its website as “one or more” parking spaces. When the buyer saw this, she filed a lawsuit claiming she was entitled to that space, too.
Carter and her team member tried to convince their E&O carrier that they had an ironclad case and the documentation to prove it, but the insurance company would not be swayed. They settled the claim to avoid a protracted fight and told Carter and her partner to each pay $1,250 to meet their deductibles so a settlement check could be cut.
“It was ridiculous,” Carter says. “The MLS clearly indicated it was just one space and they would not fight for what was right.”
All real estate E&O policies vary depending on how they’re written, Myers says, with some allowing the insurance carrier to settle claims without the insured’s consent and others requiring permission before reaching a settlement.
4. Avoid high liability risks. Incorrectly filling out disclosure forms, dual agent/dual agency transactions and home inspections are among the highest liability risk areas for REALTORS®.
Link, who has served as an expert witness in court cases involving real estate agents, says she frequently has to send disclosure forms back to other agents and transaction coordinators, sometimes multiple times, to fix errors. “They say to me, ‘Why are you so picky?’ and I answer, ‘Because this is what lawsuits are made of.’”
Having the same agent or different agents within the same brokerage represent both sides of a transaction is asking for trouble, Myers says. “It is impossible to retain an agent’s fiduciary duty to a client when the agent represents both sides of a transaction,” he says.
Home inspections can also be legal land mines. “Coverage protects you for what you do and also any suit you may be drawn into, like over a home inspection,” Brauner says.
You can find competitively priced E&O insurance through CRS at USIAffinity.com/CRS.
