When Your Insurance Doesn't Cover You

[David Brauner]

Here’s a riddle- how can an agent/broker have errors and omissions insurance coverage in place at the time of a sale, yet have no coverage a few months or years later when a problem surfaces in connection with that transaction? The answer is simple but the problem is not.

The average claim costs about $25,000 to defend these days- guilty or not. So, when trouble happens you want to make sure you’re covered. But having insurance is not always enough. Many real estate professionals may not understand that their policies are Claims Made, meaning that claims must be reported during the policy period. The “policy period” ends when a policy is cancelled or allowed to expire (not renewed). At this point, coverage ends for your past work, also known as “prior acts” coverage. Renewing with the same carrier or switching to a new company at renewal time does not result in the loss of prior acts coverage as long as the renewal or switch to the new carrier is completed before the date the policy expires. And, of course, as long as the new company provides coverage for prior acts (most do provide it but always ask).

Most agents and brokers realize that claims can take a year or two to surface at least, which is why keeping prior acts coverage is so vital. For this reason, many agents choose to carry their own E&O insurance. This enables them to control their own coverage to make certain it remains current and in force- so they'll have it when they need it. Individual premiums are priced low enough these days to make this a strategy worth considering.

Action Steps
* If you're responsible for your company's E&O policy, begin the renewal process early enough to avoid an unintentional lapse in coverage- whether you are staying with the same insurance company or shopping for a new one. This is especially true if there is a claim or incident as underwriting may take longer. Avoid letting the policy lapse at all costs. If you're retiring, ask your agent about "tail" coverage, which keeps coverage in force for a year or longer into the future.

*Consider General Liability or “business” insurance to cover claims at your own place of business- like a “trip and fall” incident, or one that may arise while you or your staff are at a property, such as knocking over a homeowner’s antique vase during a walkthrough (oops!). Most BOPs (Business Owner’s Policy) provide very wide coverage for your business, including those mentioned and others, such as theft, loss of business and more.

*Consider purchasing a low-cost individual E&O insurance policy of your own, which is portable and covers you for any transaction you might do.