What is Errors and Omissions Insurance?
Errors and omissions insurance, commonly abbreviated as “E&O,” is a type of professional liability insurance for real estate agents and brokers, helping them avoid paying legal costs out of their own pockets. This insurance covers claims that arise due to mistakes, omissions, or negligence related to the agent’s duties.
Coverage Provided by Real Estate Brokers
Many real estate brokers sell errors and omissions insurance to their agents as part of a larger package of services. They often provide these bundled services to the agent for a flat fee. Agents do not always think about the possibility of a lawsuit when they are just starting out or signing a contract with a company, so they may not purchase coverage. When they decide to buy insurance, they may not read through all the details of the full policy. They just know they have coverage.
Common Exclusions in Errors and Omissions Insurance
An exclusion is part of the policy that specifies events and costs that the company will not cover.
All errors and omissions insurance plans will exclude coverage for any claims arising from dishonest or criminal acts by the agent. If you are a real estate agent and have made false claims about a house you are trying to sell, or if you have committed any type of fraud in the process, you cannot expect errors and omissions insurance to assist you. The same applies to claims against an agent that caused harm or death to a person, or if they caused damage to someone’s property. These are common exclusions in most errors and omissions insurance plans, in addition to claims arising from damage caused by the agent to someone’s property in the course of business.
Deductible Limits in Errors and Omissions Insurance
A deductible is the amount that the agent must pay toward a claim before the insurance coverage kicks in. Some errors and omissions insurance plans may have two deductibles. There may be a deductible for defense costs and another for paying damages if it turns out that the agent is at fault.
Some companies allow for there to be no deductibles in errors and omissions insurance packages, as long as the agent maintains a complete record of all documents required by the company and the law. However, this can be detrimental if the agent cannot provide a complete package of documents from the closing process.
Steps You Can Take to Protect Yourself
If a client files a lawsuit against a real estate agent, they are likely to also file a lawsuit against the company (which has greater financial resources). They may also file a complaint with the real estate board in the agent’s state.
If you are an agent, keeping very accurate records of all exchanges with clients may help your case in defending against these matters. This may also assist the company in its legal defense. For instance, some agents maintain diaries tracking clients’ names and the dates of phone calls or meetings and the topics they discussed.
When receiving phone calls from clients, you should take detailed notes. Ensure to record the client’s response to any issues, confirmations of receipt of forms or documents, or returned data provided by third parties like lenders or sellers with quotes.
As a real estate agent, you should feel secure in your recommendations to clients. Therefore, there is no extra issue in asking them to sign documents that outline the precise actions you are suggesting. This is one way to prevent “he said, she said” types of legal claims, which occur frequently in the home buying or selling process and dealing with transactions. If you decide to use this approach, make sure that your forms include a checkbox or line to indicate whether the client agrees or disagrees with what you suggested. For example, if the buyer declined to conduct a home inspection, they may come back to you if the heating system fails on the day they move in. You will be covered if you have a signed waiver from the client showing that the client opted out of doing so.
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Tips are essential when exchanging money. Agents should document as many facts as possible during real estate transactions. This can help in the future if the client becomes angry about any aspect of the sale. Some agents even keep records of all text messages. Smart agents will also maintain a file containing every email.
The agent may not need to rely on errors and omissions insurance coverage if these precautions are taken, but the insurer may be happy if they purchased the coverage. The insurer is your partner in most cases because they don’t want to pay either. They will defend the lawsuit brought against you, and the more evidence you can provide to support your case, the better.
Source: https://www.thebalancemoney.com/real-estate-agent-errors-and-omissions-insurance-eando-1797739
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