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Claims, Complaints and E&O Insurance
by David Brauner, Senior Broker
First some background. Errors & Omissions (E&O) is malpractice insurance for mistakes made during the transaction; a non-disclosure of a property condition, for instance or an error involving a deposit loss, failure to notify of a needed inspection or incomplete/incorrect closing documents. General Liability (GL) covers property damage and bodily injury while you’re at the premises and more. Examples of GL claims are, if during a walkthrough you knock over and break a vase (property damage), or back over and injure a homeowner as you exit the driveway (bodily injury).
Business Owners Packages (BOPs) typically go beyond the job site, providing coverage for losses to your own business, such as a trip and fall at your office, loss of business due to fire or theft, a data breach and other coverages, depending on the policy. The minimum premium for a BOP is about $500.
Claims Made and Coverage for Prior Acts
Real estate agents typically are covered under a company policy carried by their broker. Many agents also carry their own low-cost individual policy for more control and flexibility in case they wish to switch brokers. Whether it is a broker’s policy or your own individual policy, chances are your insurance policy is “Claims Made.” This means that for the insurance company to respond to a covered claim, the claim must be reported while the policy is in force. As long as the policy has not expired and there is continuous coverage going back to the date of the transaction in question, there should be coverage for a covered claim.
How does a policy expire? It expires if you don’t renew it on or before the expiration date or if it is cancelled due to non-payment. You can switch carriers at renewal and keep all your back coverage, as long as you renew before the policy expires and provided the new carrier offers Prior Acts coverage. Prior Acts coverage covers all your work going back to the Inception Date of the policy. The Inception Date is referred to as the Retro Date on most policies, which again, refers to how far back your coverage goes. You’ll find your Retro Date on the Declarations Page, which is one of the first pages of your insurance policy. Review your own Retro Date to see how far back your coverage goes.
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Responding to a Claim
There are several reasons why you should notify your E&O insurance company immediately of a claim. First, it’s wise to let the experts handle it: many E&O providers have free, anonymous help lines and other expert assistance- some with a zero deductible. Don’t make things worse by responding on your own. If it’s found to be frivolous, chances are your premium will not be affected or at least not by much.
The second reason to report immediately is that most policies include “duty to report” language, which means exactly what it says: you have a duty to report the claim in a timely manner. Reason three for getting the claim on the record is that it allows the insurance policy to do its job at protecting you. Imagine this scenario: a seemingly frivolous claim surfaces which you report to your carrier, but hear nothing more about for eight months. In the interim, you let your E&O policy expire either intentionally or accidentally. Because you got the claim on the record during the policy period by reporting it when it first surfaced, the policy should respond to a covered claim that surfaces later, even though the policy is no longer in force- regardless of whether you have current coverage. It is in your best interests to report a claim right away. If you do not report it and let your insurance lapse, that claim will not be covered later, even though you were covered at the time of the transaction. So it is in your best interests to always report claims when they happen.
Do Yourself a Favor
Next, respond to any claim or complaint professionally and cogently. Furnish a well-thought out, factual, courteous response. If you dash off an error-ridden, sloppy, disorganized reply, it will be assumed that is the way you conduct your business. If you’re dealing with a claims adjuster at an insurance company, you’ll receive expert help either way, but why alienate someone who is there to help you? Give yourself every chance for success by being pleasant and professional. This also is good advice when explaining a claim to a prospective carrier you’re shopping after the issue is closed. If you can explain the issues clearly, take responsibility where it’s merited and discuss strategies for ensuring that it does not happen again, you stand a much better chance of being offered insurance terms with many carriers, which gives you more choice when deciding who you want to do business with. Not everyone is a good writer but most everyone knows someone who is-reach out for help.
Little White Lies
Please disclose claims to your insurance company. We assume that no one would intentionally conceal a claim on an insurance application, especially in this era of big data. But it is possible, if you’re not careful, to conceal something inadvertently. For example: a homeowner complains about a moisture problem that was missed by the home inspector and threatens to include you in the suit. Time goes by and you hear nothing. Now it’s time to renew your insurance and you decide not to mention the complaint on your renewal application because it’s obviously gone away, or if you’re switching companies, you fail to mention it on the application for the new carrier.
Now let’s say, the claim resurfaces after you’ve renewed your insurance. If at renewal you switched insurance companies and did not disclose the complaint to the new carrier, they may not respond to the complaint at all because you did not disclose it on the application. After all, they insured you based on a clean record. If it’s your same insurance company, they probably will cover you but non-renew you for not disclosing. Folks, even if you’re in a hurry to get the renewal process over with, don’t make the mistake of not reporting a seemingly frivolous incident believing that it took care of itself. It probably didn’t.
You don’t have much to lose by disclosing- chances are a frivolous complaint will not affect the cost of your insurance or the complexity of the renewal process. But the risk is great if you don’t disclose.
If you are leaving real estate sales/brokering, consider “tail coverage” which covers your Prior Acts, or your past work, into the future. You pay for tail coverage one time to cover past work for a certain number of years into the future. Check with your insurance agent for details.
Some insurance companies, such as OREP.org, offer combination policies for real estate sales/brokering and other services, such as real estate appraising or property management. These single policies can cut your insurance bill in half by covering two or more services for one low premium. OREP carries combination policies for individuals with premiums starting at $600 a year.
About the Author
David Brauner is Editor of Working RE magazine and Senior Broker at OREP.org, a leading provider of E&O Insurance for appraisers, inspectors and other real estate professionals in 49 states. He has covered the appraisal profession for over 20 years. He can be contacted at firstname.lastname@example.org or (888) 347-5273. Calif. Insurance Lic. #0C89873.
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