E&O Insurance Glossary

Definitions of terms that may be associated with real estate Errors and Omissions insurance:

A-Rated
Agent Owned Property
Broad Form Endorsement
Claims Expense Outside
Conformity Coverage
Contingent Liability
Defense Outside the Limits and Defense Within the Limits
Disciplinary Proceedings or Discipline Hearing Expense
Discrimination/Fair Housing
Escrow Disputes/Earnest Money Deposits
First Dollar Defense
Franchise Coverage
Lock Box Coverage
Policy Limits
Pre-Paid Legal
Prior Acts/Retroactive Coverage
Retention
Risk Management Services
Seller’s E&O/Seller’s Protection Plan
Subpoena Coverage
Tail Coverage

A-Rated

The highest rating class from A.M. Best, an independent company that rates insurance companies on their financial stability and future claims-paying ability (see www.ambest.com).   All CRES insurance policies are provided through A-rated carriers.
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Agent Owned Property

The agent­-owned property endorsement adds coverage when you want to be the listing agent on the sale of your own, or a direct relative’s, residential one to four-­unit property, as long as the following requirements are met: a home inspection report is issued, a home warranty is in place, and all state-­required property transfer disclosure statements are completed. Agent-Owned Property is  where the real estate licensee holds a pecuniary interest. Some policies exclude transactions for the sale of agent-owned properties or only cover owner-occupied property, not rental properties. Others require special conditions precedent to coverage.
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Aggregate Limit

The overall policy limit of the amount of coverage during the annual policy period.  When E&O insurance provides $100,000/$500,000 coverage, for example, the second number indicates the maximum dollar amount that can be paid for all claims in total on your behalf during the policy period.  Also called “Policy Limit.”  (The first number is the “Per Claim Limit.”)

Broad Form Endorsement

This endorsement may be included or an option in your CRES E&O plan.  Broad Form includes:

• Subpoena coverage: $30,000 to cover your expenses per subpoena
• Disciplinary Proceedings coverage: $20,000 per disciplinary proceeding, up to $50,000 per policy period, to cover your costs for reasonable attorneys’ fees and other necessary costs, expenses, or fees
• Loss of Earnings coverage: $750/day or $10,000 per claim, up to $50,000 per policy period, to cover your actual loss of earnings for required attendance at trial, hearing, mediation, or arbitration involving a claim against you
• Public Relations coverage: $25,000 per public relations event, up to $50,000 per policy period, for reasonable public relations advisory services
• Non-Profit Directors/Officers coverage: $15,000 per claim, up to $30,000 per policy period. The broker/owner or the named insured are covered for damages and defense costs related to activities of the broker/owner as a director or officer of a non-profit organization
• Data Breach Notification coverage: $50,000 in Cyber Liability coverage for notification costs due to a Data/Security breach.

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Claims Expense Outside (or “Defense Outside the Limits”)

This means that attorney’s fees and other defense expenses are covered separately from the “aggregate” or “policy limit” of liability coverage. There is a separate limit for these expenses.  Also called “Claims Expense Outside the Limit” or CEOL.
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Claims Expense Inside

This means legal fees, court and filing costs, and judgment amounts are all under one single policy limit amount.  Also called “Claims Expense Inside the Limit” or “CEIL”, or Defense Costs Within the Limit or DWL.

Conformity Coverage

If your state requires Errors and Omissions insurance for real estate licensees, and you hold a real estate license in a second state that requires E&O insurance, Conformity Coverage allows your E&O policy for your home or primary state to conform to the insurance requirements of the second state as well.
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Contingent Liability

The Contingent Liability Endorsement, also called “Open House and Showings” coverage, adds bodily injury (to others) and property damage coverage to your policy. It also covers you for injuries that result from your real estate signs. It protects you should a client get hurt at a showing or something is stolen at an open house. Without this endorsement, the agent may be liable. This coverage is usually excluded from a general liability policy for real estate professionals.

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Defense Outside the Limits and Defense Within the Limits

Refers to an endorsement on a Real Estate Errors and Omissions policy. Defense Outside the Limits (DOL) adds a separate limit for defense costs, in addition to the limits of the E&O policy. If Defense Within the Limits (DWL), defense costs are included within the limits of the E&O policy.

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Disciplinary Proceedings or Discipline Hearing Expense

Coverage that pays the expenses required to defend you in the event that a real estate commission or regulatory body takes disciplinary action against you. This coverage is usually optional. Some companies include it as part of the policy; some may include it with Risk Management.
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Discrimination/Fair Housing

Coverage to protect you against discrimination claims or Fair Housing violations. Although not as prevalent, these claims still occur, especially if you’re involved in leasing. This coverage can include defense costs only, or defense costs and damages.

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Escrow Disputes/Earnest Money Deposits

Covers claims that arise from alleged failure to pay or refund escrow money, security deposits, taxes or commissions. This type of dispute is often included in E&O policies; however, some carriers require an optional endorsement to provide coverage in this area.
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Environmental/Pollution Coverage

Environmental or Pollution coverage (and in CRES policies, includes Mold coverage), applies when there’s a failure to disclose pollutants in a property. Pollutants means any solid, liquid, gaseous irritant or contaminant including, but not limited to, mold, asbestos, radon, or lead. This provides coverage for claims stemming from unknown pre-existing or new pollution conditions or environmental hazards.
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First Dollar Defense

With First Dollar Defense, your Errors and Omissions insurance pays for attorney’s fees.  You’re only responsible for out-of-pocket claims expense (the “Retention”)  in the case of a settlement or liability judgment in which damages are awarded. Without First Dollar Defense, your out-of-pocket claims expense (Retention) is applied to the first costs incurred, which often are attorney fees.
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Franchise Coverage

If you’re affiliated with a franchise, this endorsement adds a franchisor to the definition of real estate firm, to ensure coverage as part of the policy.
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Lock Box Coverage

Covers claims in the event someone improperly gains entry via a lockbox you’ve placed on a property.  Some policies cover just Property Damage, not Bodily Injury.
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Policy Limits

Limits are provided on a per-claim and an aggregate basis, representing the amount the policy will pay per claim and in total for the term of the policy.   With an E&O policy that offers $500,000/$500,000 policy limits, that means each claim will be covered up to a total cost of $500,000 (the first number), and the total or aggregate amount of all claims during the policy period will be covered up to a total cost of $500,000 (the second number).
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Pre-Paid Legal Services

A no-cost or reduced-cost suite of legal services designed to assist in the event of a dispute or issue. Usually distinct from an insurance policy. See also Risk Management Services.  All CRES E&O policies include pre-claim legal services.
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Prior Acts/Retroactive Coverage

Coverage for claims arising from acts that occurred before the beginning of the policy period. (Policies written on a claims made basis cover only claims reported during the policy period.) Prior Acts coverage is necessary for covering a claim made during a current policy period for an event that happened before a policy was in force. With CRES E&O, you’re covered for prior transactions for as long as you’ve had continuous Errors and Omissions insurance (from any company).
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Retention

The dollar amount you’re responsible for paying in the case of a claim, before the policy pays.  You would cover the costs up to your retention limit, and the insurer would pay the remainder, up to the policy limit. Retentions (out-of-pocket claims expense) usually range from $1,000 for individual E&O policies, and from $1,000 to $100,000 for company E&O policies. CRES E&O policyholders in most states can also reduce your E&O retention by providing a CRES Building Permit History Report to the buyer and/or purchasing a Qualified Home Warranty*  

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Risk Management Services

CRES E&O policies include access to expert legal support and services to help manage risks, resolve disputes PRE-CLAIM and represent the insured in the event of a claim.
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Seller’s E&O/Seller’s Protection Plan

E&O coverage that is provided to the sellers of a residential real estate property, to protect them in the event of a claim filed by the buyer after the sale of the property. If your CRES E&O includes Seller’s E&O Protection Plan, or you add it as an option, you can then offer Seller’s E&O to every potential seller to win more listings!
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Subpoena Coverage

Coverage for attorney’s fees to provide advice regarding the production of documents, prepare the insured for sworn testimony and represent the insured at the deposition.
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Tail Coverage

Coverage purchased to extend E&O coverage after the end of a policy term for one to four years. Tail coverage protects you for claims from past transactions that may occur after you retire, sell, or close your real estate business.
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