As a real estate professional, you must protect both yourself and your real estate business from potential risks and liabilities. Real Estate Errors and Omissions (E&O) insurance can offer essential coverage that you’ll be thankful for if ever face a claim or lawsuit in your business. Whether it was an honest mistake or oversight — or whether it wasn’t your fault at all — even the most astute real estate professionals could find themselves in a lawsuit situation.
While some E&O insurance policies offer comprehensive essential coverage, it’s important that you’re aware of coverage limitations if you choose the wrong Errors and Insurance policy.
Here are 7 times when the wrong E&O Insurance may not cover you and leave you with unexpected legal problems —and expenses.
1. You acted as a property manager, but you discover your E&O don’t include property management coverage
Your real estate Errors and Omissions policy covers you for certain services — so it’s important that every service you plan to deliver, you might get involved in, or you were EVER involved in is included in your current E&O policy.
Real estate licensees need specific property manager coverage to be covered for property management work. It may not be included in regular real estate E&O insurance policies. From potential disputes with tenants or maintenance issues, property managers face additional risks that are above and beyond a regular policy. So, before you extend your services into the realm of property management, make sure you add property management insurance to maintain adequate protection.
And if you (or any of your licensees) EVER did any property management work, to be covered for those past transactions, EVERY future E&O policy you have (whether company or individual policy) must include property management coverage. If you have an individual E&O policy, be sure it has property management coverage. But if you’re relying on your company E&O policy, be sure to ask for a copy of that policy every year to be sure you continue to be covered.
BEST PRACTICE: be sure all of your own past activities continue to be covered by having an individual E&O policy. If you ever change real estate offices, you’ll know you’ll still have coverage that moves with you.
And if your expertise is in property management, be sure you have property manager errors and omissions insurance.
2. You have a claim, but discover your real estate office exhausted the total amount of E&O coverage for the year
It’s common for real estate offices to have a shared E&O insurance policy that covers all licensees within the office. But what if your office has been hit with either a lot of claims or some sizable claims during the year? If your real estate office has already exhausted the total coverage amount for the year, your claim may not be covered. Think it doesn’t happen? Sadly, it happens frequently, especially if your office was trying to save money and bought an E&O policy with lower limits. Another reason to maintain your own individual E&O insurance policy.
Note that CRES company E&O policies can give your real estate company up to $3 million in coverage. Depending on your state, individual E&O policies typically include coverage up to $500,000 for the policy year. Find out about E&O insurance in your state.
3. Your claim exceeds your policy limits for an individual area of coverage
It’s important to check coverage amounts for individual coverage areas — which is the real difference between E&O policies. For example, if your policy only covers $10,000 for pollution/environmental issues and you have a claim for $33,000, the total amount would not be covered by your E&O. You will have to cover the remaining balance.
Before you choose your own E&O policy or a policy for your real estate company, compare the coverage amounts in individual coverage areas, as well as what kinds of coverage the policy includes. In many cases, a CRES E&O + ClaimPrevent® policy will include more extensive coverage in individual coverage areas, and may include specific-to-real-estate coverage, like Open House and Showings coverage, you won’t find with other policies.
4. Your policy doesn’t cover Agent-Owned Property sales for other than your primary residence
E&O insurance only covers your professional activities. It typically will not extend to a property you, your spouse, or a close relative own that is not your primary residence. If you plan to deal with real estate transactions involving property or investments that you or your relatives own personally, be sure your Agent-Owned Property coverage goes beyond your primary residence. With most CRES E&O policies, Agent-Owned Property Sales covers any vacation or rental properties up to a 4-plex.
5. Your policy wasn’t renewed on time, and now you don’t have coverage
Failure to renew your E&O insurance policy on time will result in your coverage expiring. This leaves you and your company unprotected and vulnerable to a potential lawsuit. And if it’s your company’s E&O policy, you may not even know your company let the policy lapse until you need coverage.
If you have an individual E&O policy, you can keep track of your policy renewal and ensure your insurance is paid by the due date.
If you’re relying on your company’s E&O insurance, don’t be afraid to confirm if your company’s E&O will be renewed on time. Better to ask before your company has a problem.
6. Your policy wasn’t renewed on time, so now you have a gap in coverage and your prior transactions aren’t covered
Missing your policy renewal will not only cause an issue if you have a lawsuit during the period of your coverage gap. It also means your prior transactions will not be covered. So you’ll lose coverage for transactions during the coverage gap, as well as all transactions before the gap. That’s why it’s crucial to maintain continuous coverage to protect yourself from potential claims related to past transactions.
7. You changed real estate companies. Both your old company’s E&O and your new company’s E&O say they won’t cover your prior transactions
Your Errors and Omissions coverage must be continuous to have coverage for prior transactions.
If you can foresee a day when you might want to change real estate companies, best to have individual E&O in your name which is portable and will move with you. Your prior transactions will be covered for as long as you maintain continuous E&O coverage. You won’t have to worry about losing coverage as long as you maintain your own E&O insurance.
Realistically, if you move to a new brokerage and a claim is made against you from your time at a prior brokerage, it’s highly likely your former broker will be mentioned in the claim. So your former E&O insurer will likely be involved in the claim and should offer coverage.
Another option if you’re moving to a real estate brokerage that has CRES company E&O: Talk to us about converting your individual E&O policy into a firm-plus-agent policy. We’ll include coverage to everyone back to their license activation date while they are with the Named Insured company.
Protect Your Real Estate Business with E&O Insurance
As part of one of the largest insurance brokers in the world, we have access to more E&O policies than just about anyone else. And we might know more about protecting real estate licensees than just about anyone. Let us find you the best coverage for the best price.
CRES real estate E&O + ClaimPrevent® can offer you access to qualified attorneys pre-claim to help keep you out of trouble. So, if you have a question about your E&O policy and what it does and does not cover, we can help. Contact the CRES team at 800-880-2747 for a confidential discussion today.
