Errors and omissions insurance for real estate agents describes a type of malpractice insurance coverage for professionals working in this very competitive industry. The coverage provides protection against financial losses from lawsuits filed as a result of any work performed by an agency or one of their agents.
While everyone, regardless of their line of work, strives to do their job as carefully as possible, there is always the chance that someone unhappy with the services they receive may file a lawsuit, even one found to be frivolous or without merit. Legal expenses will be incurred, no matter who ends up victorious in a court of law, and those costs can be devastating to the finances of those involved.
Having errors and omissions (E&O) coverage in place means that the insurance company helps in the defense of the claim, and pays any settlement or judgment against the defendant up to the limits of liability stated in their policy. How to decide whom to insure with, and for what amounts, requires a little time and research.
Find an insurance agent that specializes in this coverage
- In order to give quotes on E&O coverage effectively, a professional insurance agent needs to have specialized knowledge. Be sure that the insurance company you choose has expertise in both real estate and malpractice insurance.
- Ask about prior-acts coverage. Most E&O policies provide coverage on a claims-made basis rather on an occurrence-based one, meaning they cover only claims made during the life of the policy, regardless of when the alleged injury occurred.
Some claims-made policies exclude all prior acts from coverage; some cover acts that occurred within a specified time before the policy was created, while others provide full coverage for prior acts. When changing carriers be aware of when one policy expires and a new one takes effect to avoid gaps in prior-acts coverage.
- Consider “tail” protection. When changing carriers (and full prior-acts coverage is unavailable under the new policy) consider purchasing extended reporting period coverage, or tail protection, from your previous carrier.
- Look for a policy that offers “innocent party protection”. For example, if a listing salesperson deliberately fails to disclose important property information (without the brokerage’s knowledge), the company would be deemed an innocent party.
Errors and omissions insurance for real estate agents is the best line of defense for unfounded accusations, as well as honest mistakes, and can help in the defense of any claim.