Many of the top real estate defense lawyers have reported a trend of the professionals that they represent failing to understand their E&O policies or not purchasing coverage at all. News reports have stated that there are too many stories of brokers tendering E&O claims only to find out that – while their insurer does offer the relevant coverage – they were not covered for the activities in which they were engaged. One recent report stated that too often brokers choose insurance based primarily upon premium cost, without realizing that the insurance product they are buying doesn’t provide the coverage that they need.
This oversight is problematic, but not entirely surprising. Coverage provided by real estate E&O policies can be confusing due to the high level of financial risk involved in most real estate transactions when weighed against how they are written to address most, but not all of, the potential risk exposures the real estate agent may encounter. For example, not all E&O insurance policies cover the real estate agent for selling his or her own home, yet most agents still choose to represent themselves anyway, Anton Stetner of Keller Williams Realty told Bankrate.
Despite the savings realized by the seller/agent in avoiding a commission on the sale (to another agent), the practice is inadvisable for precisely the same reason that many insurance companies are reluctant to cover an agent for it – there is a significantly higher risk of an E&O insurance claim.
As a real estate professional, it is crucial that you ensure that the real estate errors and omissions insurance you buy covers you for the activities in which you engage; take the time to read your policy and just don’t assume it covers you for everything. You should seek counsel from the insurance agent who helped you select and place your coverage – but beware – not all insurance agents are disciplined in real estate agent E&O coverages, so make sure you qualify them by asking about their experience in real estate E&O before you count on their advice. Finally, as Hunt points out, it is important to remember that E&O covers you on a claims-made basis, meaning that when your coverage with an insurer ends they no longer cover you, even for actions that happened while you were insured.
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