Shopping for E&O Insurance
Step by Step
Who do you trust to manage your risk? Make sure you have the right policy.
- Start the process no later than 45 days before your policy renews or the date wish to start your coverage. Larger firms should start the
process 60-90 days before renewal. - Order a loss run report from the carriers you were insured with the previous 5 years.
- Select an insurance broker that specializes in E&O Insurance. To quote E&O insurance effectively, it requires specialized knowledge. It is also best to work with a broker that has access to multiple carriers in order to provide you options. You do not need to engage the services of multiple insurance brokers if you select one that has strong insurance carrier access and specialized knowledge.
- Take your time filling out the application completely and fully. Answer all the questions truthfully. This is a critical step as you are making a warranty to the insurance company that the information is true and complete. They can later decline a claim if the application contained material misrepresentations about your firm. It is very important to detail all professional services performed or that you anticipate performing in the next year.
- Survey your agents by email (keep those emails) to ensure there are no known claims or incidents that could turn into a claim that have yet to be reported to your existing insurance company. Any such matters should be reported to your existing E&O carrier prior to the expiration of your policy. There will be a question on the application regarding this and it needs to be answered mindfully.
- Provide to your insurance broker the application, loss runs (if applicable), details of any claims in the past 5 years and a copy of your current E&O policy dec page (if applicable) to prove your prior acts date. Additionally, if you have risk management programs, new agent mentoring or ongoing training programs that would demonstrate your diligence to keep claim activity low, submitting a narrative about such will only help an insurance underwriter, who will be reviewing your application, give you the best pricing possible.
- Review quotes – not only for price, but for coverage as well. No two E&O policies in the industry read the same or provide the same coverage. This step is vital in order to know what your money is buying. Ask for sample policies and any endorsements to accompany your quotes. Read all of the exclusions to learn what your policy will not cover. A specialized insurance broker can assist in analyzing the various quotes/policy forms to help with your decision.
- Make sure the carrier you are selecting is “A” rated by AM Best.
Reviewing Quotes & Policies
All policies have a definition section. If a word in your policy is bold, it means it is defined. It is very important to read the definition of the words.
Agent-owned coverage – review what properties are covered and under what stipulations. There are usually steps that must be followed in order to trigger coverage; as well as some policies have restrictions on the number of days you own such a property and who can sell the properties.
Choice of Counsel - it is important to know who will be representing you if you have a claim. Do you get to select that individual or are they assigned by the insurance company? It is advisable to purchase a policy where you have a say in who represents you.
Commercial Property – if your firm sells commercial property, ensure your policy properly addresses such.
Deductible reductions – many, but not all, policies offer some form of a deductible reduction if certain conditions are met. Review what triggers a reduction in the deductible and select the one that works best for your firm.
Disciplinary Proceeding Expense – policies that have this coverage often vary in limits. Review your quotes to compare.
Discrimination/Title IV – policies that have this coverage often vary in limits. Review your quotes to compare.
Extended Reporting Period (Tail Coverage) – if you are close to retirement or contemplating closing your brokerage to join another firm, it is important to have a policy with the option to purchase at least a three- year extended reporting period (tail). Remember – any transactions that you previously closed will only have coverage if you have continuous coverage at the time a claim is filed. Even though your brokerage firm is no longer in business, you can still be sued for your prior work and the only way to ensure you are covered for such is to buy an extended reporting period (tail coverage) for your existing E&O policy.
Family transactions – some policies exclude or restrict family transactions. Determine if your operation would be affected if there is such a restriction.
Insured - Review the definition of an insured – make sure it includes independent contractors (your agents) and the administrative staff of independent contractors.
Land and Mobile Homes transactions – some policies exclude such transactions
Lock Box/Open House Coverage – some policies only cover lock box and policies have varying limits. Review your quotes to compare.
Named Insured - Make sure all your DBAs are listed as a named insured. Only those entities named on the policy will have coverage in the event of a claim. This is especially important with the new BRE team names.
Pollution Coverage – often a restricted coverage on policies. Read what each quoted policy will be providing in this area, as it differs greatly, and select the broadest coverage that fits your budget.
Prior Acts (retroactive date) – Your prior acts date is the start date of the first E&O policy you purchased, assuming you have continuously renewed that policy. Your retroactive date is portable and any new company quote should show that date. If you have had a gap in coverage, then your prior acts date will be reset.
Professional Services covered – VERY IMPORTANT - some policies detail them in the definitions section of the policy, others require they be listed on the dec page of your policy. Ensure any and all services you engage in are listed (residential, leasing, property management, business broker, escrow, BPOs etc.). Should you enter into a new service during the policy year it will be critical to notify your broker to ensure you have coverage for such in place.
REOs – ask if they are covered under residential real estate sales or if they are considered property management. DO NOT ASSUME! Many carriers want property management shown under your professional services to cover REOs.
Additional Considerations
What policy limits should I purchase?
You will want to ask for multiple limit‑option quotes. You should purchase the highest limits your budget will allow, as most policies are defense inside the limits, which erodes the amount of money left to pay out on a claim. Additionally, you want to evaluate your sales volume and contracts with outside vendors, which commonly seek a $1,000,000 claim and aggregate limit.
What deductible should I purchase?
You will want to ask for multiple deductible‑option quotes. Often, you will find that higher deductibles do not have as large of a cost savings as you might think. You need to select a deductible that you can afford to pay out of pocket in the case of a claim. Remember to seek out what, if any, deductible‑reduction options your quotes may contain, as this should be a factor in your deductible decision.
When should I buy E&O if I’m a new broker?
E&O should be purchased before taking a listing or showing property and should be continuously renewed with no gap in coverage to provide proper protection.
Ask Your Broker About Their E&O
1. Does this company carry E&O insurance? This includes several key follow‑up questions:
- What is the name of the insurance carrier? Make sure they are “A” rated (www.ambest.com).
- What is the policy expiration date?
- What are the limits of coverage (per claim/per aggregate) and the deductible?
2. Do I contribute to the cost of the coverage? Annually? Per transaction?
3. Do I contribute to the cost of the deductible if there is a claim?
4. Is there a deductible‑reduction provision in your policy? If so, what requirements must be met to trigger the reduction (i.e. – use of home warranty, home inspection, or a transaction‑management system)?
5. What Professional Services does your policy cover? (i.e. – Commercial, REOs, Property Management, Leasing, Business Opportunities.)
6. Does your E&O policy cover agent‑owned transactions? If so, what restrictions or requirements should I be aware of before entering into such a transaction?
7. Are my personal assistants covered by your E&O policy?
8. How many claims were settled and/or reported to the insurance company last year?
9. Who is responsible for renewing the insurance? How is the decision made on what policy to purchase?
10. Who should I notify if I receive a complaint or believe there could be a possible claim? Do you have written guidelines I should follow?
It is advisable ...
Ask your broker for a certificate of insurance or a copy of the policy each year to verify coverage is in place. There should never be a gap ineffective/expirations dates year to year or previous transactions may be uncovered.
Step by Step
Who do you trust to manage your risk? Make sure you have the right policy.
- Start the process no later than 45 days before your policy renews or the date wish to start your coverage. Larger firms should start the
process 60-90 days before renewal. - Order a loss run report from the carriers you were insured with the previous 5 years.
- Select an insurance broker that specializes in E&O Insurance. To quote E&O insurance effectively, it requires specialized knowledge. It is also best to work with a broker that has access to multiple carriers in order to provide you options. You do not need to engage the services of multiple insurance brokers if you select one that has strong insurance carrier access and specialized knowledge.
- Take your time filling out the application completely and fully. Answer all the questions truthfully. This is a critical step as you are making a warranty to the insurance company that the information is true and complete. They can later decline a claim if the application contained material misrepresentations about your firm. It is very important to detail all professional services performed or that you anticipate performing in the next year.
- Survey your agents by email (keep those emails) to ensure there are no known claims or incidents that could turn into a claim that have yet to be reported to your existing insurance company. Any such matters should be reported to your existing E&O carrier prior to the expiration of your policy. There will be a question on the application regarding this and it needs to be answered mindfully.
- Provide to your insurance broker the application, loss runs (if applicable), details of any claims in the past 5 years and a copy of your current E&O policy dec page (if applicable) to prove your prior acts date. Additionally, if you have risk management programs, new agent mentoring or ongoing training programs that would demonstrate your diligence to keep claim activity low, submitting a narrative about such will only help an insurance underwriter, who will be reviewing your application, give you the best pricing possible.
- Review quotes – not only for price, but for coverage as well. No two E&O policies in the industry read the same or provide the same coverage. This step is vital in order to know what your money is buying. Ask for sample policies and any endorsements to accompany your quotes. Read all of the exclusions to learn what your policy will not cover. A specialized insurance broker can assist in analyzing the various quotes/policy forms to help with your decision.
- Make sure the carrier you are selecting is “A” rated by AM Best.
Reviewing Quotes & Policies
All policies have a definition section. If a word in your policy is bold, it means it is defined. It is very important to read the definition of the words.
Agent-owned coverage – review what properties are covered and under what stipulations. There are usually steps that must be followed in order to trigger coverage; as well as some policies have restrictions on the number of days you own such a property and who can sell the properties.
Choice of Counsel - it is important to know who will be representing you if you have a claim. Do you get to select that individual or are they assigned by the insurance company? It is advisable to purchase a policy where you have a say in who represents you.
Commercial Property – if your firm sells commercial property, ensure your policy properly addresses such.
Deductible reductions – many, but not all, policies offer some form of a deductible reduction if certain conditions are met. Review what triggers a reduction in the deductible and select the one that works best for your firm.
Disciplinary Proceeding Expense – policies that have this coverage often vary in limits. Review your quotes to compare.
Discrimination/Title IV – policies that have this coverage often vary in limits. Review your quotes to compare.
Extended Reporting Period (Tail Coverage) – if you are close to retirement or contemplating closing your brokerage to join another firm, it is important to have a policy with the option to purchase at least a three- year extended reporting period (tail). Remember – any transactions that you previously closed will only have coverage if you have continuous coverage at the time a claim is filed. Even though your brokerage firm is no longer in business, you can still be sued for your prior work and the only way to ensure you are covered for such is to buy an extended reporting period (tail coverage) for your existing E&O policy.
Family transactions – some policies exclude or restrict family transactions. Determine if your operation would be affected if there is such a restriction.
Insured - Review the definition of an insured – make sure it includes independent contractors (your agents) and the administrative staff of independent contractors.
Land and Mobile Homes transactions – some policies exclude such transactions
Lock Box/Open House Coverage – some policies only cover lock box and policies have varying limits. Review your quotes to compare.
Named Insured - Make sure all your DBAs are listed as a named insured. Only those entities named on the policy will have coverage in the event of a claim. This is especially important with the new BRE team names.
Pollution Coverage – often a restricted coverage on policies. Read what each quoted policy will be providing in this area, as it differs greatly, and select the broadest coverage that fits your budget.
Prior Acts (retroactive date) – Your prior acts date is the start date of the first E&O policy you purchased, assuming you have continuously renewed that policy. Your retroactive date is portable and any new company quote should show that date. If you have had a gap in coverage, then your prior acts date will be reset.
Professional Services covered – VERY IMPORTANT - some policies detail them in the definitions section of the policy, others require they be listed on the dec page of your policy. Ensure any and all services you engage in are listed (residential, leasing, property management, business broker, escrow, BPOs etc.). Should you enter into a new service during the policy year it will be critical to notify your broker to ensure you have coverage for such in place.
REOs – ask if they are covered under residential real estate sales or if they are considered property management. DO NOT ASSUME! Many carriers want property management shown under your professional services to cover REOs.
Additional Considerations
What policy limits should I purchase?
You will want to ask for multiple limit‑option quotes. You should purchase the highest limits your budget will allow, as most policies are defense inside the limits, which erodes the amount of money left to pay out on a claim. Additionally, you want to evaluate your sales volume and contracts with outside vendors, which commonly seek a $1,000,000 claim and aggregate limit.
What deductible should I purchase?
You will want to ask for multiple deductible‑option quotes. Often, you will find that higher deductibles do not have as large of a cost savings as you might think. You need to select a deductible that you can afford to pay out of pocket in the case of a claim. Remember to seek out what, if any, deductible‑reduction options your quotes may contain, as this should be a factor in your deductible decision.
When should I buy E&O if I’m a new broker?
E&O should be purchased before taking a listing or showing property and should be continuously renewed with no gap in coverage to provide proper protection.
Ask Your Broker About Their E&O
1. Does this company carry E&O insurance? This includes several key follow‑up questions:
- What is the name of the insurance carrier? Make sure they are “A” rated (www.ambest.com).
- What is the policy expiration date?
- What are the limits of coverage (per claim/per aggregate) and the deductible?
2. Do I contribute to the cost of the coverage? Annually? Per transaction?
3. Do I contribute to the cost of the deductible if there is a claim?
4. Is there a deductible‑reduction provision in your policy? If so, what requirements must be met to trigger the reduction (i.e. – use of home warranty, home inspection, or a transaction‑management system)?
5. What Professional Services does your policy cover? (i.e. – Commercial, REOs, Property Management, Leasing, Business Opportunities.)
6. Does your E&O policy cover agent‑owned transactions? If so, what restrictions or requirements should I be aware of before entering into such a transaction?
7. Are my personal assistants covered by your E&O policy?
8. How many claims were settled and/or reported to the insurance company last year?
9. Who is responsible for renewing the insurance? How is the decision made on what policy to purchase?
10. Who should I notify if I receive a complaint or believe there could be a possible claim? Do you have written guidelines I should follow?
It is advisable ...
Ask your broker for a certificate of insurance or a copy of the policy each year to verify coverage is in place. There should never be a gap ineffective/expirations dates year to year or previous transactions may be uncovered.