Quality

“Can I buy quality E&O insurance online?” That is a great question many financial professionals are asking themselves today. With insurance as important as professional liability, the last thing they want is a policy that leaves them unprotected when they need it most. They also don’t want to buy coverage that is confusing, hard to shop for, or too expensive.

To this end, online E&O insurance providers such as EOforLess.com have developed technology platforms that . . .

  • simplify the process of buying E&O,
  • allow low-risk financial professionals to buy it affordably, and
  • assure that all insurers and administrators involved in the program meet quality standards.

But the question is, which online E&O provider can be trusted to deliver?

The key is to carefully inspect every aspect of the firm’s online shopping platform to make sure it provides:

  • extensive coverage options,
  • ease of use, and
  • adequate post-sale support.

Visitors to EOforLess.com will quickly notice that it’s extremely easy to select the right policy, apply for coverage, and pay for it online. Within minutes, financial professionals can bind and print their E&O insurance in order to secure appointments with sales intermediaries and/or insurance carriers.

Solving the quality issue starts with selecting an appropriate policy type for a financial professional’s needs. At EOforLess.com, coverage is available for life & health agents, P&C agents, registered investment advisor representatives (RIAs), and real estate brokers & owners. For each business type, buyers can click through to evaluate different levels of coverage corresponding to their business model and regulatory license.

For example, life and health agents who manage a “vanilla” life practice—i.e., selling only life, accident, health insurance, and long-term care products—can select base-level coverage. However, those who sell all the above products plus fixed and indexed annuities can select a higher-level coverage.  Finally, those who sell all the above products, as well as variable life, variable annuities, and mutual funds, can select top-tier coverage. As they climb up the coverage “ladder,” the operating risks of that business model increase, which means the buyer’s E&O premium will rise accordingly.

For each business model/license type, EOforLess.com provides an informative coverage summary, along with a complete specimen policy via download. After reviewing the summary and specimen policy, E&O insurance purchasers will know exactly what they bought . . . and will have the confidence of knowing they will be protected should a client sue them.

Quality also manifests itself in how easy it is to buy E&O insurance online at EOforLess.com. Once they’ve picked the right coverage, financial professionals simply click the “Buy Now” button. This takes them to an easy, two-step purchase process:

  1. Enroll in the National Ethics Association (sponsor of EOforLess.com). This involves providing some basic information and submitting billing and payment option details for the membership.
  2. Apply for E&O coverage from EOforLess.com. This involves providing information about their business, as well as answering a short list of risk-assessment questions. If the agent qualifies, they simply purchase the policy they’ve selected and bind their protection.

Agents also have the ability to print a proof-of-coverage document immediately in order to show marketing intermediaries or insurance/investment firms that they have adequate E&O insurance protection.

Another quality indicator is the degree to which E&O buyers must shoulder a portion of their claim costs. At EOforLess.com, life and health agents will never pay for deductibles or for any other hidden fee.

At the end of the day, when they deal with EOforLess.com, life/health insurance agents, P&C agents, investment advisors, and real estate professionals will know they purchased quality E&O insurance for an affordable price, with minimal effort, in five minutes or less. What’s not to like about buying E&O insurance online?

Reliable

A quality E&O shopping experience doesn’t just involve being able to select the right coverage and to buy it easily and quickly online. It also involves having reliable post-sale support in the event financial professionals have a problem with billing or find themselves facing a client complaint and/or litigation.

In short, financial professionals have many different ways to buy E&O insurance online. But not all shopping platforms are created equal. To assure that they purchase the right coverage at an affordable price and that they get post-sale support, they should only deal with firms that have extensive experience, a commitment to provide an easy and convenient buying experience, and administrator and insurance carrier relationships that securely backstop the program. EOforLess.com succeeds on all these counts . . . and more.

Real estate E&O insurance 101 is designed to give you an overview of what an E&O insurance policy offers real estate agents, brokers, and owners. It reviews how it protects your company and you against claims and lawsuits arising from current and past transactions or clients.

Before you dig into the following, a definition of E&O insurance is in order. Errors-and-omissions insurance (E&O), also known as professional liability insurance, provides defense and indemnification for the claims or lawsuits arising out of the professional services, including advice your brokerage and yourself provides on a daily basis. No two E&O insurance policies are identical. This calls for a careful review of all forms and, especially, exclusions.

E&O insurance provides coverage for claims, including lawsuits mainly based on the counsel or advice you give to your clients. This type of insurance is commonly used to pay for the cost of hiring a law firm to defend and represent you or your company. These policies can also provide monetary payment to third parties in the settlement or judgment of a lawsuit, otherwise known as “Damages”.

What we offer is an overview of E&O insurance coverage and how it can provide peace of mind to you while you continue to conduct your real estate business in a professional manner. The sections presented here are:

  • Understanding E&O Insurance for Real Estate Professionals
  • Why Real Estate Professionals Need E&O Insurance
  • Avoiding Gaps in E&O Coverage

Understanding E&O Insurance

Most real estate professionals have a good notion as to how important malpractice insurance is to those who toil in the medical profession. Such insurance protects doctors and dentists against damages as the result of a botched operation, for example, or dental implants that refuse to stay in place. For those who sell real estate, these protective policies are referred to as E&O insurance.  These policies serve to keep you, the real estate professional, from financial ruin as the result of providing bad advice or failing to provide promised professional services to clients. In short, E&O insurance covers your real estate brokerage firm and yourself should you fail to provide a service that you promised or should your client accuse you of failing to complete the service promised. Since real estate is an enterprise that provides a service to prospective buyers or sellers for a fee, purchasing E&O insurance is as critical to your success as buying and selling properties. No matter how long you’ve been in the business of marketing properties, situations can go awry.

Most E&O insurance policies are written to protect your assets against the costs of defending claims filed against you, not to mention potential judgments or settlements and punitive assessments and charges. Even if the allegations are determined to be untrue, thousands of dollars may be needed for defense costs, otherwise known as “Claims Expenses”. That’s devastating for an individual real estate professional, and it can be a huge financial loss for even the largest of real estate companies.

Now that you’ve come to the realization that E&O insurance is a must, how do you go about shopping for such coverage? First off, find an insurance company that specializes in E&O insurance for real estate agents and real estate brokerages. A good insurance underwriter will take the time to understand what coverage you desire and need. The insurance underwriter will gather the appropriate information in order to determine your eligibility, asking about the size and scope of your business, professional designations, prior policy history, desired claim deductibles, and limits. This information factors into your policy premium rate.

Why Real Estate Professionals Need E&O Insurance

The sky’s the limit when it comes to the variety of claims an irate buyer or seller can lodge against real estate agents and brokers for real or purported allegations of wrongdoing. The list can include defects discovered in a structure or property, facts not disclosed at the time of the transaction, even delays in the closing of the transaction. More grievous, of course, would be charges of libel, slander, or discrimination.

These are all reasons why you should have a comprehensive E&O insurance policy in effect before such charges surface. Even if you run a squeaky clean brokerage with a full arsenal of checks and balances, plus precise operational procedures in force with documentation signed by your clients in advance of offering services, things still can go wrong.

Take as an example a client who files an unfounded or frivolous lawsuit or claim against you or your real estate company. You could be 100 percent in the right in such a situation, but that’s not going to protect you against the legal or “Claims Expenses” associated with defending your good name. When you or your real estate brokerage are covered by a well-crafted E&O insurance policy, you’re protected against financial losses that could occur as a result of claims or lawsuits filed by clients who are displeased or suffer losses due to your performance as an agent or broker. With proper coverage, your insurer not only defends you in court but it also pays any “Damages” that might result from a court case.

The amount of coverage differs from insurance company to insurance company, which makes it imperative to shop around for a policy that is tailor made for your situation at the best price. You should take an active part in discussions with your insurance broker to achieve the most comprehensive coverage possible, including discussing liability limitations, exclusions, and deductibles.

Another important thing to know about E&O insurance policies are the common exclusions from coverage. No policy is going to cover criminal acts or dishonesty on the part of any real estate professional, which includes causing harm or death to another person. Also not covered is damage that you or a fellow broker might cause to real property.

Keep in mind that while having a comprehensive E&O insurance policy in hand assures a financial assist against claims, generally speaking, it’s still up to you to prevent those claims from being filed in the first place. Be proactive by keeping close tabs and records on all of your real estate transactions. Take copious notes, detailing conversations and promises made. Then ask your client to sign proper disclosures and statements confirming the transaction. Know and understand your real estate laws per state.

Avoiding Gaps in E&O Coverage

E&O insurance is a safety net against claims, be they legitimate or fictitious, that could potentially cause financial ruin for your real estate agency should a court decision hold you liable for your actions. By now you’ve learned that E&O coverage is a vital part of your insurance arsenal. But if you allow a gap or lapse to occur in that coverage, you could find yourself in the same position as if you’d never paid for an E&O insurance policy in the first place. Just like a “gap” in regular breathing can be fatal so can failing to renew your E&O insurance policy before it expires. We’ve all got excuses: you can blame that lapse on forgetfulness, a busy schedule, or just plain procrastination. But that’s not going to work for you if a claim is filed in the interim.

Unfortunately a gap in coverage could result in your underwriter refusing to backdate your coverage, leaving you exposed to any claims that could be filed during that time. You may lose coverage for all your past transactions. Some insurance companies will insist you provide an explanation for the lapse (e.g., a death in the family, personal illness or a natural disaster). In addition, the E&O insurance carrier might ask for a signed waiver claiming you aren’t aware of any potential or pending claims.

While some underwriters will make allowances for a grace period, there’s no guarantee your insurance company will do so. The best approach is to maintain continuous coverage, even if you don’t sell real estate during parts of the year or you’re taking an extended vacation.

Here are some tips on avoiding a lapse in E&O insurance coverage:

  • Know and understand your retroactive date. Most E&O policies are now written on what is called a “claims-made and reported” basis. This means that coverage will only respond to the policy period that the claim was made and reported under or back to the retroactive date listed on the policy. In order to reduce the chance of a gap in coverage, it’s imperative that you know your retroactive date and that any policies going forward match that date.
  • List all professional services provided and review all exclusions. Whether you’re solely conducting real estate sales and leasing or you’re additionally tackling commercial activities, mortgage brokering, appraising, and property management, it’s vital that you list all the professional services your company provides. If you neglect this area, certain services may be excluded from coverage at the time of a claim. Always review and understand all exclusions listed on the policy.
  • Don’t miss payments. Missing payments can result in cancellation of your E&O insurance policy. Cancellation due to non-payment is a dangerous gap in coverage. In addition, you might have trouble getting reinstated or you might have difficulty getting a carrier to issue a new policy with the same retroactive date and coverage. Timely payment of your insurance bill gives you peace of mind and a good chance of avoiding financial ruin.
  • Understand how defense costs are covered. E&O insurance policies can provide either a separate limit for “Claims Expenses” or a shared limit for defense and indemnification. If the policy is a shared limit, defense cost may erode the limit provided. By understanding how the defense costs are covered, you can determine if you should purchase a higher limit of liability.
  • Report claims on time. All claims must be reported in a timely fashion to the insurance company. By understanding what constitutes a claim (review the definition of a claim in your E&O policy) you can then determine when to report a claim. Some real estate companies incorrectly assume that because they have a large deductible that they can wait to report a claim until they have to meet their deductible.
  • Determine if you need to purchase “tail” or “ERP” coverage. If your real estate company is sold or closes down, it is recommended and often required to be able to report claims that arise from when the company was still operating. By purchasing tail or ERP (Extended Reporting Period) coverage you can avoid a gap in coverage after the closure or sale of the business. The price and length of these endorsements is usually determined in the policy.

*NOTE: Please review your actual policy for coverage intent.

Reprinted with permission of Arthur J. Gallagher & Co.

For more information on affordable errors and omissions insurance for low-risk real estate agents and brokers, visit E&OforLess.com. For information on ethical sales practices, please visit the National Ethics Association’s Ethics Center.

(Editor’s note: this is the last installment in our series about the most common real estate E&O insurance claims.)

Misrepresentation Regarding Flooding or Leaks

We see many claims regarding the failure to disclose or the misrepresentation of flooding or leaks in a subject property. These claims will likely include incidental allegations and/or claimed damages, such as damage to personal property, structural defects, difference in value of the subject property, and repair costs.

Some examples of claims in this area include:

  • The seller told the real estate agent that the basement floods, but the agent told the seller not to disclose it. (In this situation, we would typically see a complaint filed by the buyers based on negligence, fraud, and the applicable consumer protection statute, followed by a cross-claim from the sellers.)
  • The real estate agent should have known of the house’s propensity to flood because of the water stains on the basement walls.
  • The real estate agent told us the water was wind driven and came in through the roof during a hurricane, when in actuality the house has a propensity to flood during lesser storms.

Misrepresentation Regarding the Value of the Property

Claims alleging the misrepresentation of the value of the property may occur in a number of scenarios. For example, the buyer of a home or the mortgage lender may allege the appraisal overvalued the subject property. In addition to appraisals, plaintiffs may allege misrepresentation concerning broker price opinions (BPOs), which provide a fair market value estimate of the subject property. (Note that some jurisdictions place limits on BPOs done by licensed real agents.) In contrast, a seller may allege his or her real estate agent undervalued the subject property and listed it for too little.

Reprinted with permission of Rice Insurance Services Company, LLC

For more information on affordable E&O insurance for low-risk real estate agents and brokers, visit E&OforLess.com. For information on ethical sales practices, please visit the National Ethics Association’s Ethics Center.

This article continues with the seventh and eight most common real estate E&O insurance claims: consumer protection act and money dispute.

Consumer Protection Act

Most jurisdictions have enacted consumer protection laws that challenge any “unfair methods of competition… and unfair or deceptive acts or practices in or affecting commerce.” Some courts have held consumer protection laws applicable to real estate transactions. Therefore, it is feasible for a plaintiff to invoke his/her jurisdiction’s applicable consumer protection laws in regard to a lawsuit concerning a real estate transaction. Multiple damages, e.g. treble damages, may also be awarded if the plaintiff can successfully prove the defendant violated the consumer protection law. An award of treble damages is a tripling of the plaintiff’s actual damages. Treble damages are allowed by certain statutes, which vary jurisdiction to jurisdiction. Like punitive damages, insurance carriers do not typically consider treble damages a covered damage. Therefore, it is possible the defendant would be personally responsible for an award of treble damages.

Earnest / Escrow Money Dispute

Another commonly made claim stems from the alleged failure of the real estate agent to pay, collect or return insurance premiums, escrow monies, earnest money deposits, security deposits, tax money or commissions. For example, a seller may allege the real estate agent failed to collect the earnest money deposit from the purported buyer. In the alternative, a buyer may allege the real estate agent erroneously disbursed the earnest money deposit to the seller. Earnest money disputes may not be covered by your E & O policy. However, some insurers do allow the licensee to supplement his/her basic coverage to include an optional endorsement, sometimes referred to as a rider, which provides additional coverage in this area.

(Editor’s note: We’ll cover the remaining real estate E&O insurance claim types in Part Five of this series.)

Reprinted with permission of Rice Insurance Services Company, LLC

For more information on affordable E&O insurance for low-risk real estate agents and brokers, visit EOforLess.com. For information on ethical sales practices, please visit the National Ethics Association’s Ethics Center.