Common E&O Insurance Mistakes

Common E&O Insurance Mistakes
July 13, 2015 Pearl Insurance

Common E&O Insurance Mistakes

Do you think general liability insurance for your real estate business covers all of your risks? If so, you may be in for an expensive surprise. General liability insurance leaves you vulnerable to certain liabilities beyond general coverage.

In order to fully protect yourself and your real estate company, you need to understand the unique coverage provided by E&O (errors and omissions) Insurance. Most business owners know that E&O coverage is an essential part of protecting key business assets. However, even savvy real estate professionals make mistakes when it comes to fully understanding their E&O Insurance policies. Worse still, fewer people know what questions to ask when shopping around.

Mistakes in understanding and shopping for E&O Insurance coverage can be costly. By avoiding common errors, you can ensure your E&O Insurance policy is right for your business. Here are five common mistakes that are made when considering and purchasing E&O Insurance:

Mistake #1: Not Knowing What E&O Insurance Is

The first mistake many business owners make is not educating themselves on what E&O Insurance is in the first place. Many feel that general liability insurance will protect them no matter what may come their way. While essential, general liability insurance does not protect you when clients think you’ve done a shoddy job, however unjustified it may be.

Many businesses are not content with just refusing to pay you for your real estate services if they feel it did not meet their standards or cost them time and money. You may very well find yourself in court if a client can find even the weakest link between someone else’s failure (think contractor or surveyor) and yourself. This is where E&O Insurance proves essential. It helps protect you in lawsuits where a client feels your services were under delivered in error or simply late.

Mistake #2: Not Knowing What E&O Insurance Covers

E&O Insurance coverage for real estate companies generally falls into a few key areas:

1. Coverage For General Errors Or Omissions While Providing Real Estate Professional Services
E&O coverage is an agent’s professional liability policy, similar to how a malpractice policy is a doctor’s professional liability policy. Ensure you know which real estate professional activities are covered by your policy. Does it include coverage for the activities your office is performing? Policies typically cover residential real estate sales and lease activities but are you also actively involved in appraisals, property management, business brokerage, commercial property sales, and auctioneering? Double check your policy to make sure it covers the activities you are involved in.

2. Misrepresentation/Failure To Disclose
Allegations of an agent failing to disclose an issue with the condition of property is probably the most common claim. An agent may not have a duty to disclose or may not have been aware of the condition but they can still be named in a suit which requires defending oneself and can be very costly.

3. Disciplinary Expense Payments
Many policies provide attorney assistance if you are involved in a consumer complaint from your state regulatory body. Their attorneys work to assist in your investigatory response in an effort to keep you from being pulled into litigation.

As you can see, there are many areas of real estate where proper protection and insurance are vital in guarding against potential legal matters. E&O Insurance provides essential coverage for real estate businesses and professionals.

Mistake #3: Being Overconfident

Another common error that plagues real estate professionals is thinking E&O Insurance is unnecessary because of their expertise, experience, or high quality of work. While your real estate knowledge may be impeccable, nobody’s perfect. Common human error is simply unavoidable even for the most skilled and experienced professionals.

Additionally, unplanned events and outside circumstances can cause errors for which your business may still be held accountable. A random accident, health concerns, unforeseen issues with a property, and a multitude of situations you cannot predict may occur.

In situations such as these, you need to protect yourself and your business. Remember, you don’t even need to be in error to be sued by an unsatisfied customer. E&O Insurance protects you from things you cannot control. This includes both random chance and unpredictable clients.

Mistake #4: Assuming E&O Insurance Is Only For “Big” Companies

Another common error is that many real estate agents think E&O Insurance is not for them. Remember, having a home office doesn’t protect you from liability or lawsuits. An angry client does not really care if your office is in your home or a more traditional downtown office building with a large firm.

E&O Insurance is not just for large offices or agencies. It can be purchased even if you are an independent agent who works from home. Independent agents especially need to protect themselves because they do not have the backing of a large firm. E&O Insurance should be a part of every real estate professional’s business plan, large or small.

Mistake #5: Not Shopping Around Or Customizing When Buying E&O Insurance

While having no E&O Insurance at all is a huge mistake, having a bad policy can be equally unhelpful. Much like with other insurance packages, E&O Insurance has to be customized to fit your business. You should be very thorough with your insurance agent, ask the right questions, and make sure the broker is a credible expert.

Your E&O Insurance plan should take into consideration your real estate business’s size, scope, location, history of claims, coverage levels, and the price of the deductible. Remember, an E&O Insurance plan that doesn’t fit your business is of no use to you.

Additionally, make sure you review your coverage on a regular basis to make sure it fits with any growth or changes your business may encounter over time.

Don’t Make These Common E&O Insurance Mistakes!

As you can see, E&O Insurance is an essential part of any real estate business. General liability insurance may provide coverage for your property and liabilities, but it does not protect you from the complexity of risks that arise through the course of providing real estate professional services. With E&O Insurance, you can confidently run your real estate business while being secure and knowing you are protected if issues do occur. Don’t wait until it’s too late, make E&O coverage part of your real estate business to protect your assets, reputation, and future.