Real Estate E&O: Apples to Apples Comparison?
Real Estate errors & omissions (E&O) insurance is a specialized and nuanced coverage. Brokers will often find these 10 critical real estate errors & omissions coverage missing in their real estate errors & omissions policy. In the insurance world, cheap online “quote, bind, and issue” business insurance policies are everywhere.
These policies might serve their place for a small home business just looking to check the box for insurance. Yet subpar E&O coverage for real estate firms can be disastrous when the insurance company denies a claim.
That said, cheap online policies are not the only culprits in the real estate E&O market. In fact, the fast majority of real estate errors & omissions policies have a host of surprising, and often concerning gaps, exclusions, and missing coverages.
Real estate E&O insurance is a very unique type of insurance coverage. Thus, many well-meaning insurance agents simply aren’t aware of the exclusions in the common policies they are selling to real estate brokers.
So, let’s put your policy to the test together, and reveal the top 10 coverages we find that are missing from many real estate errors and omissions policies across the nation.
#1: Agent-Owned Property Coverage
Most real estate errors & omissions policies have broad exclusions for both the purchase of property by a real estate agent, and the sale of owned property.
We address this topic more fully in our blog on agent-owned properties. Also keep in mind, the same is true for properties developed or constructed by an agent, spouse or related entity. We’ll discuss these in a minute. Just know if this sounds at all applicable to you or an agent in your firm, you definitely need to look into this coverage.
So many agents are selling their primary residence, buying land, or flipping houses. Without coverage, you are at risk to alleged conflicts of interest or perceived wrongdoing.
#2: Bodily Injury & Property Damage (BI/PD)
Real estate brokers might be liable for contingent bodily injury or property damage (BI/PD) when they are held responsible for contributing to an injury through their actions, advice, an error, or omission.
Examples of bodily injury claims include injuries sustained while showing a home or failure to disclose things like mold or lead.
If an an agent fails to disclose mold resulting in mold remediation costs, or if an agent forgets promises to turn off the water on a listing and forgets this could result in property damage claims.
Many real estate E&O and general liability policies exclude these claims, leaving many agents paying these expensive out-of-pocket payments.
To prevent these gaps, it is important to find a comprehensive errors & omissions policy that is not missing BI/PD coverage for property management and other real estate services at the full policy limit.
#3: Properties Developed/Constructed by Agent
As we started to explain above, most E&O policies exclude coverage for the sale of agent-constructed or developed properties, leaving agents exposed to potential lawsuits on transactions that are already inherently more risky.
These exclusions often include the sale of property developed or constructed by an agent’s spouse, or by an entity in which they have ownership interest.
We dig into these details in our blog here. If this is relevant to you, take a few minutes to research coverage options for your firm. There are a few E and O insurance carriers that are not missing errors & omissions coverage for these transaction. Our team here at FirmSecured works with most of those insurance programs.
#4: Mold/Fungi/Environmental Coverage
Many E&O commonly either exclude claims related to failure to disclose mold, fungi, lead, asbestos, etc., or they seriously limit the amount of coverage available for these claims.
Also, keep in mind, if your policy excludes contingent bodily injury and property damage claims, you would likely not have coverage for claims related to sickness or property damage resulting from these same pollutants.
Once again, there are E&O carriers that offer much more comprehensive professional liability coverage for these pollution claims.
#5: Discrimination/Fair Housing Coverage
While discrimination or fair housing claim coverages are commonly included in errors and omissions quotes and policies, they are also often limited.
For example, the declarations page (dec page) on your policy might reveal that you only have 100k of coverage for a fair housing claim. Many real estate agents have been sued for fair housing violations found by fair housing testers, often for very nuanced areas of the law (like assistance pets).
#6: Property Management Activities Coverage
For some E&O policies, you need to purchase an add-on or endorsement to have any coverage for property management at all. Other policies will include coverage, but the details reveal some important considerations.
As we discussed above, your E and O policy might exclude bodily injury & property damage (BP/PD) claims. This exclusion usually extends to BI/PD claims in property management. On other policies, only property management BI/PD claims are excluded!
In our article on BI/PD, we discuss exactly why this coverage is so essential for property managers.
#7: Escrow Coverage
You want to make sure you policy has coverage for when your role would be defined as a short term escrow agent, as well for escrow disputes in general.
Some individual E&O policies in mandatory states for E&O have only a few thousands dollars of coverage for escrow claims. Even firm E&O policies might have limited coverage for real estate escrow claims.
#8: Defense Outside the Limits
Real estate professional liability policies either cover defense costs outside the limits (abbreviated as DOL), or include defense costs within the limit of liability (DWL).
While this might seem like a small distinction, the ramifications of which coverage you have might cost you hundreds of thousands, and in some cases, millions.
When defense costs are inside the limit (DWL), defense costs (attorney’s fees, court feeds, etc.) reduce your total limit of liability.
When defense costs are include outside the limit (DOL), you essentially have a separate limits of liability for defense costs. For some insurance companies, that would be another $1 million in coverage just to defend you.
If you need help determining whether you have DOL or DWL, we can help you review your coverage.
#9: Copyright, Trademark & TCPA Coverages
Most real estate errors & omissions quote and policies have an exclusion for claims resulting from copyright, trademark, or Telephone Consumer Protection Act (TCPA) violations.
As NAR explains, photos on listings can result in all sorts of copyright issues. While some quality real estate cyber insurance policies cover these claims, a few of the best E&O policies also provide coverage here.
#10: Deductible (Retention) Waiver
While this one isn’t a gapping coverage whole you need to fill immediately, it is important to consider. The best of E&O policies will include conditions for a deductible waiver.
Typically, they will have a few requirements you need to have met/documented on a transaction if a claim comes up. If you have evidence of meeting these risk management practices, the insurance company will waive your deductible up to a certain amount or specific percentage.
On some policies, the restrictions are narrow, so you will likely end up paying your full deductible. Other policies have conditions that are not all that hard to meet, and result in a waived deductible on most claims.
We’ll help you review your deductible waiver to save you money when it comes time to file a claim. If you want to learn more about deductible waivers, check out our blog explaining some of those details.
There's More Missing Errors & Omissions Coverages...
As we have seen, E & O policies can be as different as night and day.
In addition to the 10 coverages we reviewed today, there’s so many other important coverages in your errors & omissions policy that could be missing. Our team is ready to help you review your risk and coverage.
Some of these other coverages include the hammer clause, aggregate deductible, first dollar defense, or coverage for broker price opinions (BPO’S). Wire fraud because of the negligence of a real estate agent is increasingly important. Appraisals, short sales, REOs, foreclosures, business brokering, auctioneers, referral companies, and subpoena expenses are also areas where you should check coverages.
Get Quality Errors & Omissions Options Today
Our team would be honored with the opportunity to assist you or your firm with your E&O coverage. We work with real estate brokers nationwide on real estate insurance. Our goal is to help brokers find the best price and understand the coverages they are choosing.
To get started, simply complete the contact form below. If you would rather set up a few minutes to discuss your E & O coverage, you can schedule a phone call or time on Google Meet here.
Finally, remember that most E&O policies do not cover some of the most common cyber liability claims for real estate brokers. So when budgeting for the cost of E&O, you might also want to start planning to budget for cyber insurance. We have a resource just like this one dedicated to explaining the cost of cyber insurance for real estate firms.