Are you nervous to talk with your errors and omissions (E&O) insurance provider?
You may worry that you’ll have to file a claim if you call, or that it costs money to ask questions. What if you start an insurance claim and you end up with an angry broker, mounting legal costs, and higher premiums?
You should inform your broker and call your provider at the first sign of an E&O-related issue, says Barney Schwartz, senior vice president at Assured Partners, a Texas REALTORS® risk management partner.
“E&O providers have help lines, and why they have them is because they don’t want agents and brokers to hesitate to reach out,” he says.
There are several reasons you should involve your broker and provider as soon as a problem arises.
Problems can grow if ignored. Many brokerages won’t reach out until a claim is “serious,” Schwartz says. But by then, the issue may have turned into a lawsuit. E&O providers may be able to negotiate and resolve problems if they are included early on.
Say you get an angry email from a buyer in a past transaction who alleges the home has a problem you knew about and failed to disclose. Some agents ignore emails like this and hope the issue goes away. However, even if you are certain you did nothing wrong, you and your broker may benefit by informing your E&O insurer as soon as you receive the email. Your E&O provider can discuss options to help you resolve the situation before it turns into a full-blown lawsuit.
Settled claims are expensive. The average payout for a settled claim is $37,000, including expenses and indemnity payments. Claims tend to be even higher in Texas. Broker/owners who are proactive usually have fewer claims.
A new provider won’t help you. Since E&O claims can arise six months to a year—or longer—after the fact, claims must be made within a policy period, Schwartz says.
Let’s say you knew about an issue and did nothing, and the issue becomes a claim after you change insurance providers. When you report this as a new claim, your old provider won’t cover it because the claim wasn’t reported during the prior policy period. Your new provider won’t cover it either because the provider asked if there was prior knowledge before their policy took effect. You knew and did nothing. So now, you may have to pay the costs yourself.
“This isn’t hypothetical. I have known of this happening to three clients in the last few years,” Schwartz says.
Providers can help you respond. Most E&O policies have no deductible charge and will assist if you receive a subpoena request or Texas Real Estate Commission complaint. They do this because mistakes such as a poorly answered TREC complaint or turning over more documents than legally required can turn into a claim.
Your provider knows better. E&O providers have seen these topics before and have a good understanding of your risks. Policy holders frequently call about coverage on agent-owned properties, deductible waivers, and cyber insurance. Fair housing and discrimination topics become more common in competitive and low-inventory markets.
“Brokers should feel comfortable discussing E&O topics. E&O insurers would be able to answer these questions,” Schwartz says.