What are Professional Liability (E&O) Defense Costs?

Defense Costs Errors & Omissions Professional Liability E&O

As a real estate agent or professional, you need to to understand what professional liability defense costs are. Most professional liability or errors and omissions (E&O) insurance policies frequently mention defense costs.

In this article, we will explore what defense costs are and how they are covered by insurance. We will also give you specific situations where defense costs may come into play!

What are Defense Costs?

Policyholders incur expenses defending lawsuits or claims; these are known as defense costs. For professional liability insurance, defense costs can include legal fees, court costs, or expert witness fees.

These costs can quickly add up, even if the case is ultimately dismissed or settled out of court.

court room legal costs

Does Professional Liability Insurance Cover Defense Costs?

Professional liability insurance policies typically include coverage for defense costs.

Sometimes professional liability policies include coverage for defense costs separately from the policy limits. So, the policy usually has a separate limit for defense, covering defense costs up to separate limit. This is known as “defense outside of the limits.”

In other cases, the policy limits include defense costs. This likely means you would have less coverage available for the actual settlement, since you presumably used some of that limit to pay defense costs.

Review your policies carefully to understand your coverage for defense costs. That’s why we wrote a blog to answer questions regarding defense inside (DWL) and outside of the limit (DOL).

Examples of Professional Liability Defense Costs

Real estate agents encounter various risks and potential claims, including allegations of negligence, breach of contract, misrepresentation, and more.

negligence defense costs legal real estate E&O

Here are some examples of situations in which defense costs may become relevant:

  • A real estate agent fails to disclose a property’s history of flooding or water damage. The buyer later discovers these issues after purchasing the property and sues the agent for negligence. The real estate agent’s E&O policy likely covers the legal and defense costs, as well as any damages awarded.
  • A real estate agent fails to properly advise a client on zoning or land use laws. Because of that, the client builds a structure that violates local regulations. The client sues the agent for the resulting fines and penalties. The agent’s E&O policy would probably covers the defense costs and any damages awarded. 
land development real estate defense costs
  • A client claims that a real estate agent provided inaccurate information about the value of a property, leading the client to overpay. A real estate E&O policy would probably cover the defense costs associated with the lawsuit, as well as any damages awarded if the agent is found liable.
  • A real estate agent misrepresents a property’s size or condition in marketing materials, leading potential buyers to make offers based on inaccurate information. The seller sues the agent for lost profits or damages resulting from a failed sale. The real estate broker’s E&O policy should cover the defense costs and any damages awarded.

You need to be sure you have adequate insurance coverage for defense costs to protect yourself financial impact of a lawsuit or claim.

Understanding defense costs and how they impact insurance coverage helps professionals make informed insurance decisions.

A Team Who Understands Real Estate E&O

At FirmSecured, we work with real estate brokers nationwide to help them find quality coverage at competitive prices. We are team specializing in insurance for real estate and property management professionals.

Our goal is to not only assist you as you find the best coverage, but also to ensure that you understand the policy options available to you: including defense cost coverage options. 

To begin the process, simply fill out the quick form below. Alternatively, if you would like to schedule a brief conversation to discuss your E&O coverage, you can book a time on Google Meet.

Jonathan Lugo Insurance

About the Author

Jonathan Lugo

Founder | FirmSecured

I am the founder of the FirmSecured program powered by Veritas Risk Management. I’m licensed in over 30 states and love helping real estate brokers find quality E&O and cyber liability insurance coverage. I currently live in Northeast Tennessee with my incredible wife, Madeline.