The Importance of E&O Insurance

BY DEBBIE BINDEMAN, PEARL INSURANCE

Managing the risk exposure for your firm through errors and omissions (E&O) insurance is vital to avoiding or mitigating risk and effectively dealing with problems if they do occur. As experts in the field, Pearl Insurance is here to help you understand your E&O policy so you can focus your attention on real estate.

Errors and omissions insurance is important to insure yourself and your livelihood. It acts as a shield against unforeseen legal challenges, protects personal assets, upholds professional integrity, and enhances client trust, providing a safety net in an inherently complex and litigious industry.

• Personal Asset Protection. In the absence of E&O insurance, a single mistake or lawsuit alleging negligence could put your personal assets at risk. E&O coverage acts as a safety net, safeguarding personal assets against potential legal claims arising from professional errors or omissions.

• Client Confidence and Trust. Having E&O insurance can instill confidence in clients, showcasing that you are prepared for unforeseen circumstances and are committed to protecting your clients’ interests.

• Legal Defense Costs. Legal defense costs can be exorbitant, regardless of the validity of a claim. E&O insurance covers legal expenses, including attorney fees, court costs, and settlements or judgments in covered claims. Without this coverage, real estate professionals might have to bear these expenses out of pocket, which can be financially debilitating.

• Professional Reputation Protection. A lawsuit or claim can significantly tarnish a real estate professional’s reputation. Having E&O insurance in place can demonstrate a commitment to professionalism and responsibility in handling any potential errors or omissions.

• Comprehensive Risk Mitigation. While some errors or omissions might not immediately result in legal action, they can still impact client relationships and result in financial losses. E&O insurance offers comprehensive risk mitigation, providing coverage for a wide range of potential errors, even if they don’t lead to legal claims.

What do E&O policies generally cover?

In general, errors and omissions policies cover the delivery of professional services by those insured. But here is a more specific list of what E&O insurance policies could cover:

• Automatic fair housing discrimination

• Real estate agents, brokers, and more

• Residential transactions

• Commercial transactions

• Land transactions

• Agent-owned residential transactions

• Property management

• Mold claims

• Lockbox

• Open house property damage

• Defense outside the limits

• Liberalization clause

• Innocent partner

• Subpoena assistance

• Extended Reporting Period (ERP)

• Network & privacy

• Public relations advisory services

• Defense for disciplinary proceedings

• Early claims resolution for defense and damages

• Personal injury

• Identity theft

• First-party cyber liability

• Other optional coverages continued on page 28

This list is not all-encompassing. Some of the coverages included in your E&O policy may not be on this list.

Are there any exclusions?

Most E&O policies have at least a few exclusions. Make sure to thoroughly read all of the exclusion language so you’re aware of what would be excluded from a policy. Some common exclusions on E&O policies include claims arising from:

• Bodily injury

• Fraudulent or criminal acts (by the insured)

• Bankruptcy

• Discharge of or failure to identify pollution

• Employment-related issues for the brokerage staff

• Misappropriation or commingling of funds

• Discrimination

• Violation of securities laws

Coverage can be diminished by exceptions if you’re not careful in reviewing what the policy actually provides. The good news is that you can add endorsements if you’re qualified.

What endorsements can I add to my E&O policy with Pearl Insurance?

To offset some exclusions, Pearl Insurance offers endorsements you can add to make your policy comprehensive and customized for your firm.

• You can add coverage for bodily injury and property damage claims for all real estate services, and separately for property management services, when your general liability carrier will not cover the claim.

• Our construction/development coverage adds coverage for claims arising from a property an insured constructed or developed.

• Pearl offers a deductible waiver if you do not want to pay the deductible associated with claims. In order to add this endorsement, you must use standard contracts, offer home warranties, offer inspections, and include a seller’s disclosure form.

Pearl Insurance is committed to helping you manage your risk. Our carrier, AXA XL, rated A+ (Superior) on AM Best, has been partnering with Pearl for 20 years, providing you with the best E&O protection.

Ready to get a quote for your E&O insurance? Give our experts a call at (855) 465-0200.

Debbie Bindeman, CCPU, ARP, RCLS, is the Senior Account Executive, Eastern Region, for Pearl Insurance. Email Debbie at debbie.bindeman@ pearlinsurance.com.