What you need to know about E&O

by Carlo Calma


No real estate agent is infallible, and that’s why they have Errors and Omissions Insurance (E&O).

Brokerages require their agents to be covered by E&O Insurance, and for good reason – it can protect agents and their offices from costly lawsuits. But if you’re new to the business or are not familiar with the breakdown of services your brokerage provides you, you might not know what that involves.

What is E&O Insurance?

Simply put, E&O Insurance provides coverage in cases where a Realtor or broker has failed to carry out their responsibilities, or did so in a negligent manner, according to NAR’s Risk Management Committee.

Instances, for example, in which a Realtor/broker failed to disclose issues with a property to a client can be grounds for the client to sue. This is where E&O insurance comes in.

Specifically, E&O Insurance is designed to cover lawsuits, settlements and the overall legal costs associated with the lawsuit that was brought by the client.

“It’s important to have it, because if you have a large lawsuit where [an agent/brokerage] loses, or there’s a settlement that could be a huge amount of money, that could be covered by the E&O; otherwise, it would be shared between the company and the associate,” says Gary Stevens, vice president of sales, Baird & Warner Co.

One Size Does Not Fit All

There is no standard form E&O policy, as policy terms vary by insurance provider.

Similarly, pricing for policies vary by provider. Factors such as the amount of coverage, the deductible amount, how many agents and/or employees will be covered and the incident history of the firm greatly impact the cost of the policy, Stevens says.

“The broader the insurance and the more dollar coverage you have, the better it is for your associates,” he says, “because it covers more eventualities and … more potential dollar amounts of lawsuits.”

Some providers, according to Stevens, charge monthly or yearly fees, while others charge per transaction. For that reason, it’s difficult to pinpoint the cost of coverage for individual agents.

However, most E&O policies are sold as a “claims-made” policy, meaning that the policy only covers claims filed during the term of the policy and for a short period of time after its expiration.

Before You Sign…

Establishing who will be covered under the policy is crucial, as it will determine whether team members like independent contractors or personal assistants are covered.

Once that has been determined, NAR advises brokerages to thoroughly comb over the exclusions from coverage. Insurance shoppers should ensure that coverage fits the scope of the brokerage. For example, a broker that processes commercial work should avoid policies that limit coverage to residential real estate.

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