Maybe it is Time to Review Your E & O/Professional Negligence Policy

During this time of year, insurance carriers tender their renewal policies for review and approval. Most agents and brokers do not review the policies and accept the new one....unless the premium causes them to review options.  

Is this a good idea?

A common misconception is that only large firms need insurance. However, smaller firms (maybe three to five agents and a broker can face heightened risks due to limited resources. As a result, the cost of insurance is outweighed by the consequences of not having it—legal fees, settlements, and reputational damage can cripple a real estate firm.  

Benefits of professional negligence /  E&O policies include:

• Financial protection: Offers coverage of legal fees, settlements, and judgments arising from client liability claims.
• Client confidence: Having insurance can boost client trust and professional credibility, potentially making your practice more attractive to them.
• Peace of mind. Knowing that you have protection can allow you to focus on your clients and business, without worrying about possible claims.

Risks of Operating Without Malpractice Insurance

Running a real estate firm without insurance can expose firms to significant risk. There may even be professional consequences if your licensing authority requires your brokerage to have malpractice insurance.

By securing and reviewing this form of insurance, you can help protect your practice from unforeseen challenges and ensure its resilience.

Real-Life Impact: What Can Happen Without Insurance

All it takes is one simple mistake. Even the best agents are not infallible. You can read more about past scenarios and statistics that underscore the importance of having insurance, and how damage from a single lawsuit can be significant. In times of crisis, this protection can be the difference between recovery and ruin, reinforcing your practice’s capacity to thrive.

Also consider the types of mistakes that lead to claims:

• Over 50% of claims involve substantive errors.¹
  • Substantive errors allege that an agent failed to know or apply the law or carry out adequate investigation of client quesytions/concerns.  One large area of negligence is quting home or lot sizes that turn oiut to be inaccurate. I have noticed this many times - including an investment property that I just purchased in Kannapolis NC. Agent stated the property was 2.0 acres when it was 1.7 and that included a city easment that was not disclosed (I asked).  This was rectivied and the proce adjusted but it could have been a disaster.
• Over 20% of claims involve administrative errors.¹ 
  • Administrative errors may include procrastination, failing to calendar, or clerical errors. All agents and brokers rely heavily upon admin staffs so thisisan area that requires some oversight. 
• Screening Errors are the most commonly cited errors.²
  • Not having an effective system in place for screening and preventing potential issues could result in a liability claim. I have seen this happen a number of times...the buyer or seller is not what they claim to be and buyers or sellers rely upon the agent to verify and there can be a needless loss of time and capital (repairs etc.)