Low-Cost E&O Insurance from
OREP Working
RE Home
Library/Previous Editions
Editor's Note:
This story shows how to avoid inadvertently losing your E&O insurance coverage
for past work and being left unprotected, should a claim arise; the consequences
to your business and personal life could be disastrous. Fortunately, this is one
problem you can avoid in 2007. If have no insurance, the story brings you
up-to-speed on current market conditions that make having E&O worth considering.
Cutting Expenses as
Business Slows
Why Canceling Your E&O Can Really Cost You!
by David Brauner, Editor
As business slows, some of you are thinking about cutting expenses by either
letting your E&O policy lapse (not renewing) or by canceling mid-term. This is
what you ought to consider before canceling or non-renewing your E&O insurance
for any reason.
Most professional liability insurance is written on a Claims Made basis.
A claims-made policy protects an insured against covered claims or incidents
that occur and are reported during the policy period. What does this
mean? It means that if you face a covered claim today on a report you completed
while insured in the past, you should have protection as long as the policy is
in force.
Switching insurance companies typically is not a problem because most issue
"prior acts" coverage to qualified applicants. As the name implies, prior acts
maintains coverage back to the start of the original policy. The key is
maintaining continuous coverage, which means having no lapse in coverage.
If you make the switch before your current policy expires and can provide
acceptable proof of coverage to the new carrier, in most cases, the carrier you
are moving coverage to will provide "prior acts." It’s always best to ask your
agent.
If you let your claims made
policy lapse, however, it no longer covers past work, even if you were covered
at the time. Think of yourself in this scenario: you receive a threatening
letter from an attorney regarding an appraisal you completed two years ago while
insured. A year ago, however, you dropped your E&O thinking you didn’t need it
and because you didn't want the expense. Now the claim is no longer covered and
you are on your own.
Continuous Coverage is Key
Again, switching carriers is not typically a problem, as most insurers such
as those that OREP works with, provide coverage for "prior acts" to qualified
applicants. However, if you let your current policy lapse before binding with a
new insurer, prior acts is not guaranteed. Each carrier has its own guidelines
regarding the issuance of prior acts to new insureds but most allow only a short
window in which to bind new coverage after the original policy has expired. If
you wait too long, you'll be out of luck.
The same rules apply when
renewing your policy with the same insurer. If you let your policy lapse by
not renewing on time, you run the risk of losing all back coverage when your
policy expires.
Dos and Don'ts for E&O Insurance
1. If you're renewing your insurance, make sure you do so before your
current policy lapses. It is not a good idea to wait until the last minute to
renew for the reasons stated.
Companies such as OREP mail renewal notices months in advance and make repeated
attempts prior to expiration to verify that members who have not renewed are
doing so intentionally.
Most times clients simply misplace or forget their paperwork and are grateful
for the follow up call. If a member is intending to renew, the message to them
is loud and clear: get the renewal paperwork in ASAP before the policy expires!
2. If you are changing carriers, give yourself enough time to do so before your
current policy expires and make sure that your new carrier is aware you have
insurance. Most applications ask whether you have current coverage for this
reason.
3. When corresponding with your insurance company, always follow up to make sure
your fax, email or letter has arrived. It is OREP's policy to issue same-day
confirmation to clients. But it's always smart to confirm that your
application/renewal has arrived. It's just too important not to.
Covering Your Tail
Several factors make carrying E&O insurance more
important than ever. Unlike other professions, claims for appraisers typically
arise years after the date of the report. This is because claims often result
from the subject property going into default- which usually takes at least a
year or two. For this reason, it is vital to maintain coverage for all the work
completed in the boom years, even if business is slow today.
If you are not working and don't want to continue your insurance policy into the
future, another way to keep coverage for past work is to purchase "tail" or
"extended reporting period" coverage. This covers past work for a specified
period of time into the future. It is usually offered for a limited time after
the policy expires, so don’t delay if you want coverage continued.
If you don't have E&O, today's
climate should give you pause to consider it. Appraisers are coming under
greater scrutiny by lenders and regulators in the wake of the fraud epidemic and
the rising number of defaults due to changing market conditions. When a loan
goes bad, the appraisal is always examined.
Home inspectors don't need to be coached about the wisdom of carrying E&O.
Claims for them typically happen soon after the date of the inspection.
Conclusion
If your business is slowing, think twice about canceling your insurance to
cut expenses. It may be a penny wise and a pound foolish should you face a claim
and have to bear the burden of your own defense costs. If you don't have
insurance, the current climate makes it worth considering. The cost for
insurance for appraisers is lower than nearly any other profession. OREP’s
minimum premium is only $455.
If you decide to cancel or not renew, ask your agent about "tail" coverage- to
cover your tail. If you are retiring, purchasing tail or ERP coverage makes
excellent sense.
If you're looking for great rates and fast, professional service, give OREP a
call! It pays to shop OREP.
Disclaimer: This article is written from an insurance perspective and is meant to be used for informational purposes only. It is not the intent of this article to provide legal advice, or advice for any specific fact, situation or circumstance. Contact legal counsel for specific advice.
About the Author
David Brauner is Editor of Working RE Magazine and Senior Broker at OREP,
specializing in E&O insurance for appraisers, home inspectors, agents, mortgage
brokers and other real estate professionals. Coverage in 49 states.
www.orep.org (888) 347-5273.