Errors and Omissions (E&O) Insurance, also referred to as Professional Liability Insurance, protects real estate agents, brokers, and realtors from financial losses. It can cover multiple real estate activities, including residential leasing, sales, transaction coordination, appraisals, mortgage brokering, and Broker Price Opinions (BPOs).
True to its name, it helps you pay for the expenses brought upon by claims and lawsuits against professional oversight in these areas. However, the cost of E&O Insurance and its coverage differs for every individual.
Let’s discuss the claims, exclusions, and deductibles involved that affect its cost in the real estate industry.
One of the many possible claims against you may be your failure to carry out promised services. For example, you may have overlooked a previous promise to a client that you would provide the necessary paperwork or scheduling inspection dates. In this scenario, your E&O Insurance can help you pay for the charges that could come up.
It also helps you cover the costs of your alleged failure to uphold professional standards. These include claims for non-disclosure of:
- Health or property hazards like black mold, broken water pipes, or ice dams on the roof;
- Structural flaws or zoning issues (such as misreporting the total area of a property); or
- Existing liens on the property.
Some claims may revolve around incorrectly describing the property in its listing. Misstating the square footage of a home, for instance, can be a major point of contention when clients find out otherwise. Other customers may even assert that you have failed to perform your fiduciary duties. This can stem from the belief that you intentionally avoided showing them certain properties due to their gender, race, religion, or other form of perceived wrongful discrimination.
Hefty sums of money are involved in real estate transactions. Thus, clients are more likely to file lawsuits against real estate brokers whom they deem made errors that led them to financial loss. If you find yourself facing a lawsuit because of this, E&O Insurance will be able to help settle your defense and attorney’s fees, witness and court expenses, judgment, settlement, and other fines.
At this point, it’s worth noting that your E&O Insurance comes with exclusions. This means that the insurance company absolutely refuses to cover certain claims. Common exclusions include claims against:
- Statements that an agent caused damage to an individual’s property;
- Property that is contaminated;
- An agent’s dishonest, intentional malicious conduct or misrepresentation, or criminal actions; and
- An agent causing the harm or death of another individual.
Oftentimes, agents must pay their deductibles before the E&O Insurance takes effect. These can be for damages an agent has incurred or the defense costs for a claim. Depending on your broker, however, you may be allowed zero deductions when you complete and submit their required documents.
For this reason, it may be helpful to keep a copy of all your interactions and transactions with your clients:
- Take detailed notes of your conversations, important dates, and any set appointments
- Back up and categorize all your electronic communications such as calls, texts, and emails
- Provide your clients with documentation of your recommendations (such as home warranties or inspections) and ask them to sign whether they agree or disagree with the actions stated
These records may also serve as evidence in the event that the claims filed turn into lawsuits.
The standard cost of E&O Insurance varies across industries. In the case of real estate, it is based on the premiums you pay and can be priced within the range of $100,000 to $5,000,000. A common option for E&O Insurance is having a $1,000,000/$1,000,000 limit for a year. This means that the insurance holder will only pay $1,000,000 maximum for every claim. Likewise, only $1,000,000 will be paid during that year despite the number of claims filed.
Acquiring Your Own E&O Insurance
Protect yourself from losing a significant sum of money after going through extensive legal processes due to a professional misstep. Check to see whether your agency covers your Errors and Omissions Insurance. Depending on your location, you may even be required to obtain one.
Regardless, it’s best to safeguard your earnings and pay your chosen premium amount monthly or annually. While higher premiums cover more expenses, simply having E&O Insurance can help alleviate the costs of most claims and lawsuits you may face.