Firms typically have basic E&O insurance — which may or may not protect you and your real estate business. Most real estate licensees don’t know everything you should know about your firm’s policy to ensure you’re protected. Do you know where the gaps are that could leave you without coverage on a claim — or even on ALL of your past sales?
Having individual, personal coverage will not only cover the 4 most common gaps that you might not be aware of, it will give you customized business tools and services that fit your exact needs. Here’s what to know about your E&O.
What is Errors and Omissions Insurance?
E&O insurance was created to reduce the financial risk and protect brokers and licensees should a consumer become dissatisfied after a transaction has occurred. In fact, E&O has become so important that some states require coverage for all licensees. These states include:
- Colorado, Idaho, Iowa, Kentucky, Louisiana, Mississippi, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, South Dakota, Tennessee, and Wyoming.
While many brokerages do carry E&O policies, which can extend to cover their licensees, that doesn’t mean that each licensee is fully covered. The challenge is that too many real estate professionals are not aware of the risk they are in. You may not know is covered under the errors and omissions policy your firm carries or even why you should have your own E&O insurance. This isn’t just risky — it’s dangerous.
Gap #1: What happens to your prior acts coverage in a change of ownership?
One of the more damaging misconceptions about E&O insurance is that all transactions by the licensee will be covered, regardless of which firm they took place under, if that firm carried E&O insurance. This is not always true in cases where a real estate company is sold to another brokerage.
If your brokerage is sold to another brokerage, your broker would need to arrange tail coverage for all licensees BEFORE the sale is concluded. The surviving firm definitely will not pay for claims on transactions that were done elsewhere.
Gap #2: Covered services: is the work you perform even covered?
Coverage is another area that licensees may not be aware of. Even if a firm carries a million dollar coverage limit, that does not mean that a single licensee has access to the entire policy. Limits are shared between everyone. If someone else files a claim, there is less to pay yours. When this happens, you will personally be responsible for the damages of any uncovered portion. A secondary policy can help cover this gap.
Gap #3: Firm Stability
What happens if a firm suddenly has to close its doors? Recently, a firm with 2,200 licensees filed for bankruptcy and had to cancel their E&O policy. Since the policy had already lapsed, licensees could not get coverage for their prior transactions. The licensees that did not have supplemental (individual) E&O insurance were left responsible to pay attorney fees and damages for any claims on past transactions that might come through in the future.
Gap #4: Gaps for Common Activities
Even the best firm E&O policies often do not pay extra to cover discrimination, open house and showings liability, and other optional coverage for activities you may regularly perform. These essential business activities can be covered under your own personal E&O policy. If a potential buyer is injured or damages property during an open house, you, not your firm, will be responsible. When purchasing your own E&O insurance, make sure that you are covered for these activities.
See also our Ultimate Guide to Understanding Real Estate Errors and Omissions Insurance
It’s your business. Don’t just rely on someone else to protect it. CRES offers PERSONAL, PORTABLE and PERMANENT coverage for your real estate business – without high premiums. Get your own policy, with your own limits, and all the coverage you need, for about $1 a day or less, depending on your state.
