Real estate brokers errors & omissions coverage

Rough Notes, Jun 1995 by Clapp, Wallace L Jr

Service activities performed by the real estate broker are described on the policy declaration. Such services may include property appraisal, property management, leasing, auction sales, consulting, mortgage broking, escrow agency and real estate investment trust management. Some insurers include these activities as part of the basic errors and omissions coverage, while others add on special services by endorsement or in a separate policy.

The policy is written on a claims-made basis subject to a deductible amount shown in the declarations. The claims-made form requires that a claim be first made against the insured during the policy period, regardless when the negligent act, error or omission occurred.

Some insurers write coverage subject to a retroactive date which is usually the inception date of the first claims-made policy written. By using a retroactive date, losses caused by acts occurring prior to the specified date are excluded even if the claim is made and reported during the policy term.

Persons insured under the real estate brokers policy include the individual, partner or organization named in the declarations. Executive officers and directors of corporations and other partners are automatically included as insureds. Employees or sales agents, and independent contractors or other non-employees, while acting within the scope of the insured's duties are also covered.

Exclusions

The real estate brokers errors and omissions policies are not standard and may vary somewhat in each insurer's contract. Differences are most likely to occur in the exclusions. These may depend on the type of business engaged in by the insured, its appeal to the underwriters, experience of the insured, etc. Some exclusions may be waived or altered according to the needs of the insureds.

Common exclusions are:

(1) Dishonest, criminal or fraudulent acts

(2) intended or expected damages...

(3) failure to pay or collect money held for others...

(4) bodily injury, property damage, personal injury or advertising injury. . .

(5) claims brought by investors, partners in corporations, partnerships, real estate investment trusts in which the insured has an interest in profits or losses...

(6) arising from the purchase, sale or property management of property developed, constructed, owned or to be purchased by an insured...

(7) ERISA services...

(8) violation of securities acts. . .

(9) arising out of conversion, misappropriation, commingling or defalcation of funds.

(10) failure to effect or maintain insurance...

(11) interest, operations or activities as a mortgage banker, escrow agent, construction manager or property developer...

(12) hold harmless agreements...

(13) arising out of claims for pollution contamination or cleanup...

(14) punitive damages...

(15) failure to pay or collect commissions...

(16) unlawful discrimination.

The market

We were able to obtain information from three leading insurers of real estate brokers errors and omissions insurance.

CNA Insurance writes a policy through its underwriting manager, Victor O. Schinnerer & Co., Inc. This program is endorsed by the National Association of Realtors. Liability limits are provided from $100,000 to $2 million or higher for larger more complex accounts. The minimum deductible is $1,000 with optional amounts up to $25,000.