As a real estate agent, you have a lot to protect. You have to protect your business, your reputation in the community, your agents, and most importantly your clients and the relationship you have built with them. Protecting these assets involves managing risks and avoiding problems, and then protecting yourself when problems do occur, with the knowledge that they will. Errors and Omissions Liability Insurance, also known as E&O coverage, is one way in which you can do this.
What happens when a real estate agent fails to provide the level of advice or service that the job demands? In many instances, the client will file a lawsuit. Negligent acts or failure to provide the level of service and advice accepted is a professional liability of the real estate trade, and this is what E&O coverage protects against.
This insurance is a form of professional liability insurance available to any business that performs a service or provides advice in exchange for a fee. This definition includes real estate agents, alongside other consulting professionals like lawyers, consultants, and counselors. With E&O Insurance in place, real estate agents are protected from liabilities and claims if their clients hold them responsible for any errors, omissions, or failures to provide services outlined in the real estate contract.
Do you have to have E&O coverage for your firm? It’s required by law in 13 states, but many firms choose to have it regardless. According to Insurance Journal’s 2011 E&O survey, 85% of firm owners choose to purchase E&O coverage.
This guide will help you determine whether the purchase of E&O Insurance is right for your firm as well as how to choose a good policy.
Getting To Know E&O Insurance
Whether you are looking at a new E&O policy or have a policy in place that you wish to evaluate, take the time to really get to know your policy. Insurance policies vary quite a bit from one insurance provider to the next, and you need to compare your policy to others to know what your coverage is and how it applies to your firm. Here are some factors to consider when comparing your policy to others available to your firm.
What Is Covered?
In general, your policy will protect your firm’s financial and possibly even reputational assets in the event of a lawsuit. However, you may not have all of the coverage you think you do, which is why you need to read the policy for yourself.
Most policies will cover the delivery of professional services by those insured. However, the policy will list exceptions to this coverage, and you need to clearly understand what these areas are and how they apply directly to your firm. Are certain specialties your firm offers excluded? If so, then the policy is not a good fit for you. You must have a policy that covers all of the services you deliver.
What can you do if you notice exceptions that make the policy a poor fit for your needs? One option is to choose a different policy. Because of the vast variety in these policies, you may be able to find one that fits better. Another option is to ask for the coverage. Your insurance provider may be able to offer it for a small additional cost.
In addition to knowing what actions are covered, you also need to know what costs the policy will cover. Every E&O policy will cover legal defense costs, as this is a huge part of what E&O Insurance provides. This means that your court costs and attorney fees will be covered should a client bring a lawsuit against you.
Who Is Covered?
Next, take a closer look at who is covered by the E&O policy. You want a policy that covers all of the agents and other employees that work for your firm. Remember, if one of your employees makes a mistake on behalf of a client, and the client sues, your firm is liable for those costs if the insurance policy does not cover it.
This can be a problem if your firm uses both employees and independent contractors. Make sure both are covered. Also, if your agents use personal assistants that the firm does not employ directly, and those assistants make a mistake leading to a lawsuit, the coverage may not apply. Again, you must study your policy carefully to make sure all of your people are covered.
When Does The Coverage Begin And End?
If you are shopping for a new E&O Insurance policy to replace your existing policy, it’s important to know the coverage beginning and ending dates. You need to ensure that you have no gaps between the time one policy ends and the other begins. Those gaps open the door to a lawsuit for which you could be held liable due to lack of coverage.
How Much Coverage Do You Have?
One of the options you have when choosing a policy is the dollar limit on the policy, which limits how much the policy will pay for any individual claim. The higher the limit, the higher your costs will be, so choose a dollar amount that is in line with your business risk. Also, the policy may have an annual limit for all total claims, so consider this as well.
As you consider your amount of coverage, take a look at how the insurance company would handle frivolous complaints, and ensure that the policy leaves room for you to exercise control over the settlement in these cases.
How Much Is the Deductible?
E&O Insurance will often include a deductible, which is an out-of-pocket amount your firm has to pay before the policy kicks in. The availability of different deductible levels is based on a firm’s characteristics, such as its size.
What Is the Cost of the Insurance?
Finally, consider the cost of the insurance. Many factors can impact this cost, including:
- Total coverage
- Limits on the policy
- Deductible amounts
- Your perceived level of risk
You can lower these costs by starting the shopping process long before you need the coverage. This gives you the chance to comparison shop for the best possible insurance. Keep in mind the most comprehensive policy may save your firm money by covering items another policy might exclude. You can also lower your cost of coverage by using office procedures that limit the risk of an error, and thus make you look like a safer risk to an insurance company.
Remember, mistakes can and will happen, and you need protection when they do. That protection comes from E&O Insurance. As you shop for E&O coverage, take control of the process, rather than trusting that your insurance agent knows your business and its needs well enough to find the right policy for you. With the right amount of research, time to compare, and a thorough understanding of these policies, you can find an E&O Insurance policy that will fit your budget and your firm, giving you and your agents the protection you need.