A malpractice insurance policy, which is commonly referred to as errors and omissions (E&O), is necessary liability insurance for real estate professionals. The coverage protects against financial losses from lawsuits filed as a result of your work as a real estate professional. Everyone who is passionate about their job does their best to avoid errors, but no matter how carefully you do your job, you’re at risk, especially from lawsuits that may be unfounded or frivolous, as do sometimes occur. The fact remains that legal expenses must be paid no matter who wins in court, and those costs are often devastating to your finances.
The good news is that when you have E&O coverage the insurance company defends the claim and pays any settlement or judgment against you up to the limits of liability stated in the policy. A typical E&O policy pays claims that come about due to error, omission, or negligence in regard to your duties as a real estate agent, as well as any claims that are made during the policy period.
Certain claims are not covered, including claims resulting in dishonest or criminal acts by you, claims associated with polluted property, claims against you if you end up causing bodily harm or death to another person, and claims arising from damage you cause to someone’s property.
Chances are that if someone files a lawsuit against you, they will also file a complaint with your state real estate commission; therefore it is of the utmost importance that you keep accurate records of any and all transactions. This includes the times and dates of telephone conversations and what was discussed, the buyer or seller’s response when you asked if they wanted to purchase home warranty protection, and whether a buyer decided not to do a home inspection against your recommendations. Write it all down and put it in their file in case an issue later arises.
Realize that it’s not uncommon to ask your buyer or seller to sign a statement that you recommended a specific action. The buyer who didn’t want a home inspection may later have a complaint if something doesn’t work the day he or she moves in. If your files contain the signed waiver, then it’s no longer your problem. You want your customers to be happy, but you also want the protection afforded by real estate professional liability insurance for those times when you’re accused of any wrongdoing.