Errors and omissions insurance coverage is a product that companies across an array of industries carry, as these policies can be critical to keeping firms solvent in the event of lawsuits.
For the real estate industry, which manages millions of dollars in housing and commercial real estate transactions, carrying adequate E&O insurance is pivotal. While many agencies may maintain sufficient coverage levels, there are still a large majority of firms that fail to fully understand their policies.
A recent industry report noted that brokers and agents who don’t fully comprehend the fine details of E&O policies may underestimate their needs when it comes to comparing different insurance options. As a result, some may make ill-informed decisions that could lead to coverage gaps or polices that don’t fully meet their unique requirements.
In fact, many of the attorneys who service brokers and agents have voiced their own concerns about the misunderstandings these industry leaders have regarding their coverage. In some instances, brokers would submit claims to insurers and later find that they were not covered for certain activities. In response, these companies were forced to carry these costs out-of-pocket, placing significant financial strain on their bottom lines and putting them in jeopardy should a lawsuit be brought against them.
However, there are several ways that brokerage companies can become more informed and knowledgeable about their policies.
1. Work with an industry expert
Given the critical nature of E&O insurance, it’s important that companies choose firms that have specialized knowledge in the field, a great deal of experience and a positive history of administering these policies. Insurance should be considered an investment in a company’s risk management program, so choosing a provider that has a demonstrated level of expertise is pivotal.
2. Know which services are covered
While this may seem like a no-brainer, RealtyTimes noted that it’s not uncommon for brokers to assume that certain services are covered, only to later find out that they were excluded from the policy. Commonly excluded areas include residential, commercial, property management, sale of business opportunities and sale by an agent of his or her own property. Typically, most insurers will cover all of these areas, but it’s best to be safe before assuming that all categories are included.
3. Ask about innocent party protection
In some cases, issues can arise that were not the fault of the broker, so inquiring about innocent party protection can protect the brokerage firm. For instance, NAR noted that if a listing salesperson purposely does not disclose important property information without the broker’s knowledge, innocent party provisions would help protect the firm.
For coverage to protect yourself as a real estate agent, broker or firm against Errors and Omissions claims, visit Norman-Spencer.com/TopTier.