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Getting the Most out of Your E&O Insurance Protection
by David Brauner, Senior Broker at OREP.org
Errors and Omissions or “E&O” insurance is quite necessary in today’s world if you’re a home inspector- or any professional. If you’ve been in business for any time at all, you know. For the cost of roughly two to three inspection fees you can rest easy for an entire year and not risk the loss of your assets. Here’s how to get the most out of your E&O insurance protection.
Recently, I’ve seen claims made that were entirely frivolous, and seen them beaten back by the claims adjusters working with OREP- at no cost to the OREP insured. But every once in a while a legitimate claim does cross my desk—mistakes happen. And let me say one thing for sure about insurance—you sure are happy that you have it at times like that!
As you probably know, Errors & Omissions (E&O) is malpractice insurance for mistakes made in your reporting: a non-disclosure of a property condition, for instance, and the resulting damage (leaking shower pan and rotted subfloor that needs to be replaced). General Liability Premises Coverage protects you for losses at the inspection site, if you knock over an expensive vase (property damage) or drop a ladder on the homeowner’s foot (bodily injury). Most home inspector policies include both coverages. If yours doesn’t or if you buy two policies to get this coverage instead of just one, you may be paying too much. If you have your own seperate office outside of your home, check with your agent for additional coverages.
Every professional or E&O policy that I’m aware of for home inspectors is Claims Made. The same goes for real estate appraisers, doctors, lawyers, engineers and most professionals. With Claims Made, the policy has to be current when the claim is reported for coverage to apply. Here is what that means in terms of a claim scenario.
Claim Scenario: An issue covered by the policy arises today from an inspection done 14 months ago, when you had an E&O insurance policy in force:
1) The policy is still in force (you didn’t let your policy expire): The policy will respond and defend you.
2) You switched to a new policy at renewal time before the policy lapsed (and the new carrier offers prior acts coverage): The policy will respond and defend you.
3) You let your policy lapse/expire: there is probably no coverage in this case. Ouch!
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Getting the Most Out of Your Insurance
There are two lessons to learn from this.
1) If you are in business and see the wisdom of having insurance protection, be sure to renew your policy before it lapses to keep coverage for past inspections. When you retire, tail coverage is available to you (ask your agent).
2) Report complaints/claims when they happen. Why? In the scenario above, assume the claim surfaced two months after the inspection, while the policy was still in force. If you reported it, you have coverage today—even if you don’t have insurance today.
I’ve seen the worst happen when inspectors decide not to report a claim or circumstance in a timely manner, either because they thought it would go away or that they could handle it themselves. Or because they thought their insurance would “go up” if they did. In the worst case they don’t report the claim, let their policy lapse and then buy a new policy. Then, that seemingly insignificant complaint blossoms into a claim. They report it to their new carrier and get the bad news: there is no coverage. Every home inspector E&O policy works this way. Because they never reported the claim and let their policy lapse, they are out of luck even though they have insurance today.
That is one very good reason for reporting claims when they surface.
Duty to Report
Another good reason for reporting claims when they happen is that most policies include “duty to report” language. This means it’s your responsibility to report even seemingly frivolous complaints in a timely fashion. And for it to be a claim, it doesn’t have to be on a lawyer’s letterhead to qualify, or even in writing. Any demand for money qualifies with many policies. An email demand qualifies as does a verbal one. Carriers demand you report because they need to know what their potential losses/ liabilities are in order to maintain adequate cash reserves. A claim can actually be denied if you wait too long to report it.
Further, if you know about a claim or circumstance and didn’t report it on your renewal application, well, let’s just say most carriers don’t look too kindly at that even if it’s an honest mistake.
So it’s a requirement to report, but one that works in your favor because the insurance is Claims Made. Again, your E&O policy, if you have one, is Claims Made. If you get the issue on the record and submitted to your agent/carrier while you’re covered, it should be responded to—even years later, even if you no longer have insurance. That’s how you get the most out of your insurance.
Argument Against Reporting
I know, a lot of inspectors believe that reporting every single issue will cause their rates to rise. And that may be true at some programs, but it is not the case at OREP. We’ve created a program where your premium does not rise unless there is an actual loss. There is also free pre-claim assistance furnished by the OREP team of seasoned and professional adjusters who want to make frivolous claims go away as much as you do. Their support and help is free at OREP. And once again, you are not penalized for reporting issues that do not result in an actual expense with OREP’s flagship program. So at OREP it does not cost you to protect yourself by reporting your claims and incidents—it protects you. (OREP handles several programs, so ask your agent for details.)
How to Shop for Insurance
To get the most out of your insurance, renew your policy on time and report issues when they happen.
To get the best value, look for an E&O program with broad coverage that includes the services you’re qualified to provide included in the base policy form and for the minimum premium— without surcharging you.
Shop price and compare coverages and deductibles too. A low deductible keeps more money in your pocket should the worst happen. Most OREP insureds qualify for a $1,500 deductible. If you have a $5,000 deductible at your current program, that’s great until you have a problem. If you have OREP’s $1,500 deductible, that’s $3,500 that stays in your pocket if there are expenses. And if a claim goes to the attorneys, there will be expenses. $3,500 is about three years of insurance payments (or a nice getaway or two)! And that low deductible from OREP begins on day one for qualified insureds. You do not have to wait for it to “disappear” over two or three or five years of paying premiums and being incident free.
How to Get the Most Out of Your Insurance
1. Look for broad coverage, competitive premiums and a low deductible.
2. Look for a program that will defend you at no cost against frivolous issues, won’t raise your premiums for reporting problems and is happy to provide the professional help and support at no additional cost.
3. Look for a program that gives you business support to reduce your risk and save you money: information, guidance and education. And look for agents who treat you with respect and courtesy.
In other words, look to OREP! We’re all this and more. Online indications take only minutes (OREP.org). Financing is available. Thanks for reading.
Free Risk Management Online Course Claims and Complaints: How to Stay Out of Trouble
Presenter: David Brauner, Senior Insurance Broker OREP
David Brauner, Senior Broker at OREP, shares insights and advice gained over 25+ years of providing E&O insurance for inspectors, showing you how to protect yourself and your business. Watch Now!
About the Author
David Brauner is Senior Broker at OREP, a leading provider of E&O Insurance for home inspectors and other real estate professionals in 50 states (OREP.org). He has provided E&O insurance to home inspectors for over 20 years. Contact him at email@example.com or (888) 347-5273. OREP–Organization of Real Estate Professionals Insurance, LLC. Calif. Lic. #0K99465.
Note: The Fall 2019 issue of Working RE Inspector is mailing now to over 25,000 home inspectors nationwide. OREP Insureds enjoy guaranteed delivery of each print magazine and many more benefits.