Protecting You: Errors & Omissions Insurance

LLess than half of the brokerages in America have Errors and Omissions Insurance. For some people, the strategy is that as long as you don’t have deep pockets, then you won’t be sued. While I understand the strategy, we would rather be prepared for a real fault which would cause a lawsuit – regardless of deep pockets or none. Of course carrying this specialized coverage costs more money up front, money we spend hoping to never benefit from. But it could very well  save much more money in the long run for the brokerage and for our brokers.

We live in a litigious society and when it comes to real estate, people who do not normally have a litigious mind-set give serious thought to suing. One lawsuit can wipe out a Realtor’s business and, without the legal aid that insurance supplies, could also destroy a Realtor® personally. Additionally, someone can sue you without merit and you still need to defend yourself. This is expensive. We hope never to have a claim, but if we do, we hope to show that the claim is not justified, win it, and not lose any money.

There is no way around it, mistakes in real estate are expensive!

A brokerage is insured as a group. Therefore when someone is careless or negligent, we all pay for the failure through increased rates. I am aware of a situation where one claim in over 20 years in business caused rates to go up by 500% and remain that high for five years. When the broker shopped for better rates, no one else would touch him! Remember, that was one claim in 20 years! Additionally when there is a settled or paid claim, a deductible will have to be paid, and that can be thousands of dollars. The time to combat a lawsuit is also an extensive cost.

To mitigate this vulnerability we practice the following:

  • We offer extensive training, hold agents accountable for legal and ethical practice, and remind often about risky practices.
  • We are careful about what kind of brokers we welcome to Bella Casa.
  • We watch out for each other and help each other get it right the first time.
  • We help to problem solve early and properly when a challenging circumstance is fresh and smaller. We work diligently to prevent issues from rising to the level of a claim, and from there to a bigger issue.
  • We invest in specific risk management products and services designed to protect the brokerage and agents from claims.

There are many options in choosing coverage. We have chosen to cover all agents with very good and comprehensive coverage.

The chief benefit of insurance is that someone else pays to fight the claim with expert legal representation. We have what is called ‘First Dollar Defense’ which essentially means that we do not pay any money or even our deductible unless the claim is settled or paid. Our policy also covers you ‘outside the limits’ for issues beyond the immediate claim. We have Fair Housing Protection, and you are also covered when you sell your own home.

Here are the relevant issues to inquire about:

  • Do you have Errors and Omissions insurance which covers all the brokers?
  • What is the dollar limit per claim?
  • What is the cumulative limit per year? (per agent?, per brokerage?)
  • How much is the deductible you will have to pay if a claim is paid?
  • Does your insurance cover legal fees even beyond claim (“outside the limits”)?
  • Do you have ‘First Dollar Defense’; I pay a deductible only if claim is ‘settled’ or paid?
  • Is Fair Housing Protection included?
  • Am I covered when selling my own home?
  • Who is your agent, your carrier, and your underwriter?
  • What is your experience with the claims process? How many claims have been brought against your brokerage?

I am fortunate to have personal knowledge, experience, and information related to 4 claims. I am even more fortunate that none of them were against me. One was a complete fraud on the part of the ladies bringing the claim, but the insurance company settled with them for a large amount of money. Another was alluded to above, another while I was on the board of another brokerage, and another in small claims court where our broker won decisively and was completely exonerated by the judge. The process of small claims, mediation, and binding arbitration is fascinating, but it is also chilling. I am glad to know how things work to be able to help others, but I hope I never have to be there again. This is definitely an area of our business where preventative medicine is better, and insurance protection is worth the cost.

No company covers fraud, so if you are going to be intentionally dishonest, understand that you are on your own and will die (figuratively) if you get caught. We also do not want you in our brokerage! Errors & Omissions coverage also does not cover mold related claims. Our protection is to make sure sellers and buyers disclose and investigate, and that we take this issue very seriously.

Since exposure to risk is directly related to how many transactions one does, we charge $50 per side of every transaction at the close of each sale.

It is not advisable to advertise the details of one’s coverage or contingencies and strategies for handling a claim, but you should find out all you can directly from the Principal Brokers you interview with. For more information let’s talk. There is much more to keeping you financially safe, but it does begin with good coverage. We can help with that!

Randy McCreith, Principal Broker
Bella Casa Real Estate Group
503-310-9147