Errors and Omissions insurance (E&O) is a type of malpractice insurance coverage for real estate professionals. The coverage protects against financial losses from lawsuits filed as a result of your work as a real estate professional. No matter how carefully you may do your job, you are always at risk, even from lawsuits that may be unfounded or frivolous. Legal expenses must be paid no matter who wins in court, and those costs can be devastating to your finances.
By having real estate E&O coverage, the insurance company defends the claim and pays any settlement or judgment against you up to the limits of liability stated in the policy.
Some basic ideas about typical coverage
Typical E&O coverage pays claims that come about due to error, omission, or negligence in regard to the duties you may perform as a real estate agent. It will pay claims that are made during the policy period.
Common E&O exclusions
- Claims resulting in dishonest or criminal acts by you
- Claims associated with polluted property
- Claims against you if you cause bodily harm or death to another person
- Claims arising from damage you cause to someone’s property
E&O liability limits may vary depending on your policy. Ask your agent for an explanation of your options.
The policy may have two deductibles (the amount of money you must pay before the insurance coverage kicks in); there will likely be one deductible for defense costs and another for payment of damages if you are found to be at fault.
Protect yourself with accurate notes and receipts
If someone files a lawsuit against you, chances are they will also file a complaint with the state real estate commission. Keep accurate records of all transactions, as well as notes regarding all phone calls, what was said and any decisions that were made. Keep a record of all of the buyer or seller’s responses with regard to things such as the purchase of home warranty protection, or having a home inspection done, which you may have recommended. Write all of these things down and put it in a file.
It’s not uncommon to ask your buyer or seller to sign a statement that you recommended a specific action. The buyer who didn’t want a home inspection may come knocking at your door if the air conditioning doesn’t work the day he or she moves in. If your files contain the signed waiver, then it’s no longer your concern.
Document as many facts as possible during your real estate transactions. It could help you later if your client becomes unhappy about some aspect of the sale. Real estate E&O insurance is there when things turn sour, but it is prudent to keep the client satisfied which will keep the referrals coming your way.