NATIONAL
NEWS
| The ABCs of E&O
Insurance |
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 Today,
Real Estate agents are working in a competitive marketplace
where disclosure regulations and other consumer protection
laws have exposed them to an unprecedented risk of liability.
A negligent act, a mistake in judgement, or an omission of
important information can jeopardize an agent’s career,
financial stability and reputation. Errors and Omissions (E&O)
insurance can help protect against this.
You may be the most careful
and meticulous Real Estate professional out there. But no
matter how ethical and professional you are, every time you
conduct a Real Estate transaction, you are at risk of being
sued, perhaps even for unfounded or frivolous reasons. Legal
expenses must be paid no matter who wins a case, and those
costs can be outrageous. For this reason, it is important
to learn about E&O insurance.
E&O describes a specific
type of insurance coverage that is often used by Real Estate
professionals. E&O coverage protects Real Estate agents
against financial losses in the event that a lawsuit is filed
against him or her for any activities conducted in the Real
Estate profession.
Also known as "professional
liability" or "malpractice" insurance, E&O
insurance should be considered by anyone who works with clients
in the Real Estate profession, as it protects you against
claims that you did something incorrectly for a client or
did not do something that was expected of you in the course
of a Real Estate transaction.
E&O insurance is similar
to professional liability insurance that is carried by doctors,
architects, and financial professionals, and is equally important.
As an agent, you might not think that you face any liability,
but a single lawsuit can be devastating to your business.
 The
Real Estate business is a tricky one because seemingly satisfied
customers can experience remorse for many reasons. Often,
a client may attribute it to something that a Real Estate
agent did. A buyer might claim that his agent did not negotiate
properly on his behalf. He might also claim that the agent
selling the home misrepresented the quality or condition of
the home.
Consider yourself in this
scenario: You receive a threatening letter from an attorney
regarding a Real Estate deal you completed a year ago. Your
former clients are suing you for negligence and misrepresentation
seeking to recover a lost amount. You’ve never bothered
to get E&O coverage because you assumed you didn’t
need it and because you didn't want the expense. Now, you
are on your own. Even if you win the court case, you will
most likely be stuck paying the legal fees incurred during
the case.
On the other hand, if you
have E&O coverage, your insurance company defends any
claim against you and pays any settlement or judgment against
you up to the limits of liability stated in your policy.
 E&O
insurance helps protect you in two important areas: attorney
fees and settlement fees. Attorney fees are often the most
expensive part of dealing with a lawsuit. If you are sued
by a client or company, even if you are not at fault, you
will likely still have to pay for your legal defense. Legal
fees can add up quickly and can be devastating to your finances.
E&O insurance also covers the amount
of any settlement you would pay if found at fault. In the
Real Estate business, it is easy to make mistakes; E&O
helps reduce the risk of these mistakes ruining your business.
The cost of E&O insurance
may vary greatly according to geographic location and industry.
There is a lot of competition between providers, however,
so you’ll find it easy to receive cost comparisons and
detailed policy information. When looking for the right insurance
policy, make sure the following are clearly outlined:
- Defense costs and limits of liability,
in which attorney’s fees will be covered over and
above liability limit;
- A per-day dollar amount to be covered
for loss of earnings for trial attendance;
- Statement of deductible amount per
occurrence for liability, and deductible amount for defense
costs;
- A section stating that the policy applies
to errors, omissions or negligent acts in the course of
providing or failing to conduct professional services;
- Lock box coverage;
- A section stating the services you
provide and what your responsibilities are; and
- The retroactive date for claims.
 When
searching for the right E&O insurance policy, consider
your options. It may be helpful to contact your state insurance
commissioner for a list of approved E&O providers. Also,
talk to other agents in your area who can advise you as to
coverage options and costs when selecting E&O insurance.
If the terms are confusing, consider hiring a lawyer to make
sure you’re getting the coverage you need.
When you consider the worst-case
scenario of what could happen if you face a lawsuit, it is
clear that by not purchasing E&O coverage a company can
be taking a serious financial risk. These types of losses
are not covered under a general liability policy, and the
potential for disaster is simply not worth the gamble.
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