Errors and omissions insurance is an important part of the real estate industry. However, despite the necessity of such coverage, misconceptions about how it works are commonplace among real estate professionals. It’s important to dispel these popular misconceptions in order to be informed and prepared in cases of professional liability. To better protect your real estate business from legal claims, learn about the five most common E&O insurance misconceptions and what you can do to assure continued success.
Loss of Past Transaction Coverage If You Move to a New Carrier
While this is a perfectly understandable concern, it is not one based in fact. When you move to a new insurance provider, you retain your coverage for past transactions via prior acts coverage. As long as there hasn’t been a gap in your E&O insurance coverage, coverage for your past transactions carries over.
Your new insurance carrier will transfer the same prior acts or retroactive date from your previous policy. This is true no matter how many times you change insurance providers. However, it’s always good to verify that any new policies include coverage for past transactions and the prior acts date from your old insurance policy.
All Real Estate E&O Policies Are Identical, So Buy the Least Expensive Policy You Can Find
This is a misconception that can prove very damaging. E&O policies are not all alike. Like other forms of insurance, what policies cover and how they function varies from plan to plan and from different insurance carriers. With insurance coverage, you get what you pay for.
Your E&O insurance should be carefully designed to fit your exact needs. Sit down with your insurance provider and review what your business needs. Consider the size of your business, its age, location, scope, and past claims. Of course, also review the insurance policy itself including coverage rates and your deductible. Your E&O policy should be based on what it provides for your business, not on the cheapest price possible.
Loss Run Documentation Is Difficult To Acquire
Your past loss information should be easily obtainable. Such records are detailed, carefully recorded, and obtainable via a simple request. Once requested, you will obtain your loss run documentation within a few business days on average. Note that you have to request this information from your past insurance carrier, as they are legally bound to only provide it to authorized parties. Also, be specific in what you are requesting. The industry standard for loss details usually covers the past five years—be sure to specify if you need a longer time frame.
E&O Insurance Policies Cover Past Events After Cancellation
Another common misconception is that E&O insurance remains active even after it has been cancelled. For example, if you had insurance covering the period of 2008 to 2012 and someone files a claim against you in 2013 for an event in that time frame, you will not be covered if your insurance plan is not active. Simply put, you need an active insurance plan to receive coverage, whether it is in the form of your renewal policy or an Extended Reporting Period (tail) which can be purchased if you are no longer doing business but want to have coverage available should a claim arise from a past transaction.
Additionally, E&O policies contain a retroactive date, which means that any claims committed before a specified date are not covered. Normally such dates are set out when your contract is written. This is done to prevent ex post facto coverage or to allow very old cases to arise. As noted, with prior acts coverage, your existing retroactive date is carried forward when you switch carriers. That’s why it’s important not to have a gap in coverage.
You Are Required to Defend Yourself From Claims and Should Provide Your Own Evidence
When a legal claim is issued against your business, your first response will likely be to defend yourself. This is understandable as you place a high value on your reputation and the work that you do. However, you should not try to defend yourself against potential claims.
Your first act should be to contact your insurance provider when a possible claim situation arises. Insurance law is a highly specialized field and requires expert advice and assistance. You pay your insurance carrier for assistance when these situations arise, and you should immediately ask for their help when it is needed. When you alert your insurance carrier about a potential legal matter, they may be able to prevent a claim from being filed.
Educate Yourself About Liability Misconceptions
As you can see, errors and omissions insurance is a very important aspect of the real estate industry. Real estate is a highly specialized field with its own complex business transactions that can be vulnerable to legal claims. Having E&O insurance coverage keeps your business safe and protects it when unexpected situations arise.
Contrary to popular belief, professional liability coverage is not difficult to obtain, navigate, or utilize for real estate professionals. Remember, no matter how skilled or precise you may be in your business transactions, nobody is perfect. You owe it to yourself and your business to be properly protected no matter what.