Real Estate Errors and Omissions Insurance

Everything Real Estate Agents Need to Know About Errors and Omissions Insurance

What Is Errors and Omissions Insurance?

If you’ve just gotten your real estate license, congratulations — you’ve made it past one of the largest hurdles in your real estate career. Of course, that’s just the beginning of something much bigger. Ahead lies one of the most unique and fulfilling opportunities one can have, but before you start building your real estate empire, you need to protect yourself with errors and omissions insurance.

Errors and omissions insurance (E&O insurance), also sometimes referred to as professional liability insurance, helps protect real estate agents and their brokerage firm against losses from mishaps with professional services. Here, we’ll dive into what E&O insurance covers, how much it costs, and why it’s important to have (even if your state does not require coverage).

What Does Errors and Omissions Insurance Cover?

Generally speaking, E&O insurance covers against losses and/or damages resulting from negligence or errors and omissions in the performance of professional services. That can include reimbursement for lawyer fees, court costs, administrative fees, and settlement costs as a result of the legal action taken against you.

Common E&O insurance claims might be the result of, but are definitely not limited to:

  • Failure to make reasonable accommodations for a client with a disability
  • Failure to obey the Fair Housing Act
  • Failure to disclose environmental attributes of a property (e.g., lead paint in the home)
  • Error in contractual agreements that result in monetary loss
  • Cyber liability (e.g., software or operational errors resulting in damages)

Note: Occurrences like bodily injury or property damage at an open house typically aren't covered by E&O insurance policies. Rather, real estate Brokers and agents will have to seek out a separate general liability policy to protect their real estate business from such claims.

Of course, a disgruntled client can’t just make baseless claims. For legal action to be taken, a real estate agent must have failed to meet a client’s reasonable expectations, the industry’s basic standards, or adhere to parameters outlined in a contract resulting in damages. Should you ever happen to find yourself in such a situation, it’s best to seek advice from a licensed attorney right away.

Did You Know?

The National Association of REALTORS® (NAR) has long helped real estate professionals navigate the somewhat complicated process of finding an insurer. Today, getting insurance coverage is streamlined through their REALTOR Benefits® Program which partners with Victor Insurance Managers Inc. As one of the most experienced insurance underwriting firms in the industry, real estate professionals who seek insurance coverage through NAR can be sure they have the correct coverage to handle most real estate errors.

Are Real Estate Professionals Required to Get E&O Insurance?

Not surprisingly, insurance requirements for real estate agents differ from state to state. Those who do business in the following states are legally required to carry a real estate E&O policy:

  • Nebraska
  • North Dakota
  • New Mexico
  • Rhode Island
  • Texas

However, it’s recommended that all real estate agents and Brokers carry some form of E&O insurance. Real estate transactions are never small, and we all make mistakes from time to time; even if you operate outside of the aforementioned states, it’s a good idea to protect yourself, your business, and your livelihood by carrying E&O insurance. For more information about policy requirements, contact your local real estate commission or talk to an experienced real estate professional about finding coverage.

How Much Does E&O Insurance Cost Real Estate Agents?

When setting your yearly budget, don’t forget to include the cost of E&O insurance. Costs can vary from agent to agent as policy premiums are based on the type of coverage, how much coverage is selected, and the policy period, but reports:

  • 38% of agents pay under $600 per year
  • 44% of agents pay between $600-$1,200 per year
  • 18% of agents pay over $1,200 per year

How to File An E&O Insurance Claim in Real Estate

Let’s say you’ve made an error or you’ve recently learned that you’ve been named in a lawsuit. You may need to make a claim. If that’s the case, the first step is always reviewing your insurance policy and gathering the necessary information:

  • Name of business
  • Policy number as well as E&O coverage details
  • Current contact information
  • A brief description of the incident including when you were first made aware of it

Then contact your insurance agent and inform them of what’s happening. During this conversation, you can ask questions about your coverage, your deductibles, what your options are as a policyholder if the issue goes to court, and who you can talk to at the agency in the future. As always, document everything, including all interactions with the insurance company. When in doubt, talk to a licensed attorney who can help you navigate the case.