What is Errors and Omissions Insurance in real estate?
All professional services have their own form of E&O insurance to protect them from any errors or mistakes that may arise from conducting business with their clients. Real estate professionals — like other service professionals such as accountants, lawyers, doctors, and architects — have specific risks that relate to their industry and business.
Real estate is a fast-paced, often risky business with high-value transactions that are complicated and filled with emotionally invested clients. Trust is the cornerstone of a real estate agent's relationship with their client, and if that trust is broken for any reason, it could lead to an E&O claim. Errors and omissions insurance real estate claims can be filed against a real estate agent for almost any mistake — real or perceived — or omission that a client feels harmed their transaction. When that time comes, it is important to have the best policy available to protect yourself and your company.
What does errors and omissions insurance cover in real estate?
E&O insurance covers any person — employee or independent contractor — performing real estate services on behalf of the named insured entity listed on the insurance policy. PBI Group's firm-wide insurance policies are written for the business entity that owns the real estate brokerage, which can have numerous real estate agents or brokers performing transactions on the company's behalf. The insurance company does not distinguish between real estate agents or real estate brokers; for the purpose of the insurance coverage, both are considered a real estate professional.
At the most basic level, the coverage provided by errors and omissions insurance handles defense costs, legal costs, and court costs related to a claim. The insurance company is obligated to pay for expenses to defend the claim, and any monetary settlements that may arise when dealing with the claim (minus the deductible).
What scenarios are covered vs. not covered by the insurance policy are too many to list — however, common topics that a reputable E&O insurance company provides coverage for include:
- Fair Housing and discrimination claims
- Property damage during a showing or open house
- Failure to advise on previous water or flood damage
- Subpoena response
- Permit issues
- Pollution
- HOA issues
- Listing property incorrectly (sewer, water, square footage, easements)
- Open house incidents
As you can imagine, the coverages are extremely detailed and nuanced — with their interpretation a matter of law. This is why selecting the right protection requires a real estate E&O expert to guide you through the policy and ensure the coverages are configured properly so the insurance company will step up when you need them most.
PBI Group's insurance program — with exclusive access to Palomar Specialty Insurance Company, an A-rated California carrier focused on real estate — provides our clients with one of the strongest policies available for real estate agents. Our term coverage and extended reporting period policies are underwritten with care and precision to provide the Right Coverage at the Right Price. Various policy terms are available — per-occurrence and aggregate policy limits, deductible waivers, defense inside the limits and defense outside the limits, plus endorsements for specific liability.
As a real estate professional, you work hard to provide quality services to your clients. PBI Group does the same to protect your firm and agents with the best coverage available in this ever-changing world.
Common mistakes that can lead to E&O claims against you
When an agent or broker lists a property for sale, both they and their company are taking a risk. The same can be said for the business of buying, leasing, property management, and vacation rentals — every service a client benefits from comes with risk to your firm.
At least 90%+ of claims are filed on real estate agents by clients who are buyers or sellers. It is in your best interest to lower your liability by implementing risk management procedures to reduce the likelihood of an incident that could lead to a claim. Some of the most common mistakes that lead to a claim are related to the property for sale.
"Failure to advise" is the most common type of claim — a catch-all term for a sell-side agent not listing the property correctly, or for the buy-side agent not notifying the buyer of flaws, restrictions, or obligations that are subject to the property. A strong E&O policy will provide cover for the real estate company when a seller or buyer claims negligence has impacted the deal.
