As a real estate agent you must work hard and practice due diligence to protect yourself and your firm. You can ‘dot your I’s and cross your T’s’ but in the litigious environment of real estate sales the legal risk of doing business will always exist. You may face claims, truthful or otherwise, of misrepresentation, negligence, and lack of disclosures that could ruin decades of hard work. Professional liability insurance, also know as Errors & Omissions insurance, may cover potential risk that general liability insurance wouldn’t otherwise cover. This article will detail what is and what is not covered under professional liability insurance and how it could help you protect yourself and your assets.
What is Errors & Omissions (E&O) Insurance?
E&O insurance covers companies as well as individuals in the event a client holds a real estate agent responsible for a service, or lack of service, that did not provide the promised outcome. Professional liability insurance, malpractice insurance, and E&O insurance are all synonymous but are industry specific. For most real estate agents, E&O insurance covers judgments and settlements as well as defense cost. This is especially important for small-scale real estate agents because defending claims in court, even those without legal grounds, can lead to bankruptcy.
What E&O Insurance Cover
E&O insurance steps in where general liability insurance falls short. Coverage protects against a range of legal disputes but it is important to ensure that they include the following:
- Alleged or actual negligence – E&O insurance should, at a minimum, cover claims of negligence, frivolous or otherwise, arising from incorrect advice, errors, or omissions.
- Defense cost – E&O insurance should cover the cost to defend claims of negligence, even in the case of groundless or frivolous lawsuits.
- Claims and damages – E&O insurance should cover judgements that award damages to the injured party, and in some instances, cover punitive damages.
- Claims and damages arising from services provided in the past – This is especially important for real estate agents. Some E&O policies will cover claims and damages from services provided prior to the purchase of the E&O policy. For example, if your E&O insurance coverage starts today and you get sued tomorrow for an incident that occurred a year ago, then you may be covered.
What E&O Insurance Doesn’t Cover
E&O insurance generally does not cover claims that would otherwise be covered under a general liability insurance policy or claims arising from intentional fraud:
- Bodily Injury or property damage – Claims that arise from bodily injury or property damage would be covered under general liability insurance and not under E&O insurance.
- Fraudulent Acts – Acts that are illegal or intentionally dishonest are generally not covered under E&O insurance. However, most insurance policies will pay for the cost to dispute these claims. If the legal proceedings prove that the acts were in fact fraudulent then a reimbursement for legal fees must be paid to the insurer.
- Services not specified in the insurance policy – any claims in regards to services not covered under the insurance policy will not be covered under E&O insurance. If you have E&O insurance for your real estate agency but get sued for selling wealth management services, then E&O will not cover these claims.
Is E&O Insurance Right For You?
E&O insurance, like other professional liability insurance, is a must for anyone offering professional services. With the proper combination of general liability insurance and professional liability insurance real estate agents will ensure their assets are covered.