E&O Forum: Please give us your two cents' worth!

I'm forwarding this to my Broker.

Well, I'm a Notary Signing Agent.  I purchase the (State of CA) required bond which protects the public to $15k which is really nothing.  I also have an E&O policy to $100k that is some protection.  Some lenders are upping their request to $500k which for an NSA is a very cost prohibitive amount of coverage.

I personally have adopted my brothers attitude:  Insurance and attorneys are expenses you hate to have every time you pay your bill.  That is, until you NEED that coverage...then you are so happy you have it...I suppose this translates to purchasing as much as is affordable.  Works for me!

Mirela, our broker arranges the E&O and just recently changed carriers. I will continue to read your replies here.

Your post is so timely!  I've been trying to research E&O online this week and it's not as easy as I thought it would be.  I'm off to read "E&O Insurance Check-up"!  I'm looking forward to feedback from others on companies and tips.

Yes we are looking at our EO now. Its so crazy to just get a simple policy on anything anymore. I will find out who this new one is and get back at you.

Mireal, given the recent events in the financial sector, particularly AIG, I would want to know the financial stability of the E & O insurer. Be careful.

Bo

Mirela, I have a small brokerage in upstate NY. (29 agents) I don't see a lot of differences between E & O policies.  My main concern has been affordability.   I have found that our state Association's sponsored ins company is charging almost half of what a normal ins. company charges.  I have also been able to purchase an environmental hazard and fair housing riders at about $100 each year.  I have also found a democratic method of sharing the cost of the policy with the agents.  Because the policy is providing protection for the agents, it is reasonable to pass the cost along.  I take the annual premium anddivide it equally by the number of agents currently on board.  I continue to charge each new agent coming on board the same amount and when the next policy comes around I credit the overpayment I have recieved and rebill for the adjusted amount.  The agents are appreciative and so am I for the arrangement. 

Aloha Mirela Monte,

We all have to look at the cost, benefits and risk of having E & O insurance. 

Usually the policy is based on your volume and type of Real Estate you sell.  E & O policies for Brokerages selling Residential properties seem to be cheaper than Brokerages specializing in Commercial Properties.  The lowest premiums are available in your first year and require a high deductible.   

I have seen Brokerages sued just because they have E & O.  I have seen E & O companies make deals and pay outs based on the cost of going to trial --  not on the merits of a Broker's case.  

So what happens when you get sued?  The "wronged" party will go for all they can get out of you.  Including your home and other assets you have in your name. 

Here are some suggestions to help lower your risk of being taken to the cleaners.

1.  Hold your home as tenants by the entireties.

2.  Place a car insurance rider on your vehicle that covers clients.

3. Put into place policies and procedures that all agents must follow on each and every listing.

4.  As a Broker, take an active role in all listings. 

5.  As a Broker, put into place continuous training and quality improvement.

6.  Should a "wronged" party contact you, be professional, and get the facts. 

7.  No matter how right you think you are, Always MEDIATE before you attempt to litigate. 

8.  Should you list a home that does not have home owner's insurance on it -- place a warning in the MLS. 

9.  Always make sure you know who you are talking to when you give that code to enter the home or location of a key over the phone. 

10.  Insurance companies are not the same.  Some are easy to work with and others will do all they can to keep from paying you. 

11. Most E & O companies will take the path that costs them the least amount of money. 

12. Make sure your insurance has the right numbers.  For example.  If you have experienced well trained agents and you are only selling $5,000 lots that have been surveyed and each lot has title insurance with a General Warranty Deed and each lot is not in some sort of hazard zone, purchasing an E & O policy of $500,000 just may be a waste of money.  Why? Most E & Os have a deductible of about $5,000. 

13. Should you have many assetts, consider an umbrella policy.

14.  Make sure all solo buyer agents are Accredited Buyers Represenatives.

Kind Regards,

John Petrella, REALTOR®
ABR®, GRI, Broker/Owner

Direct: 808.640.3953
Local@LocalHawaiiRealEstate.com

Local Hawaii Real Estate
Honesty • Integrity • Commitment

159 Keawe St., Suite 1
Hilo, HI  96720

REALTOR® is a federally registered collective membership mark which identifies a real estate professional who is Member of the NATIONAL ASSOCIATION OF REALTORS® and subscribes to its strict Code of Ethics.

Here are a some points to look into relating specifically to your E&O policy:

Owned property coverage - Are you covered if you or your agents sell personal property - Do you sell your own investment property also and are you covered for that?  Do you manage your own properties?
Lock box - Do you have a sublimit?  Full limits are better but make sure you have the coverage. 
Disclosure of pollutants - Same here, do you have a sublimit?  Full limits are better but make sure you have the coverage. 
Tenant discrimination for property managers - sublimit?  full limits?
Personal Injury - Wrongful entry or eviction, Trespass, Other invasion of right of private occupancy

** Watch for referral exclusions - we have recently seen companies excluding coverage if a claim arises from your referal of a client to an escrow company, mortgage broker, etc.  Many agents consider that part of their customer service. 

** Watch for sub-prime exclusions - they can be very broad

Mirela,

Thanks for the post and all of the feedback.  I just started my own company with my wife, just to avoid paying all of the big company fees.  I desperately need to find a good company that charges reliable rates.  Based on everything that I have been reading in AR this is a real issue with Realtors.  I guess what I don't understand is why NAR has not tried to negotiate a deal for its members.