Q: When does a real estate agent need E&O Insurance?
A. Ideally, an agent would have real estate Errors and Omissions Insurance from the moment the start their business or begin working as a contractor for a larger agency. Why is it important to have coverage so soon? Well, in part, it's because of the way E&O Insurance works.
In the insurance world, Real Estate Errors and Omissions Insurance is what's called a "claims-made " policy. What does that mean? E&O may cover professional liability lawsuits, but the same policy must have been in place both at the time of the incident leading to the claim and when the claim was actually filed. So even if you've had multiple E&O policies in the past, you're really only protected during your most recent and active policy period. Lawsuits about old real estate advice or sales that occurred before you started your policy typically aren't covered.
What makes this harder is that many real estate agencies don't offer E&O Insurance to their agents. In By the Numbers, we reported that only 22 percent of agencies offered coverage for their agents. The remaining 78 percent of agents had to get coverage on their own or risk going without it.
Going forward, make sure you know your E&O Insurance. If you're an independent agent contracting with a larger company, check to see if the company will offer you coverage. If you do want coverage, it's best to sign up for real estate Errors and Omissions ASAP to give you the longest history of coverage.
To learn more about covering your risks as a real estate, check out our Q&A page for "What kind of realtor insurance should an independent agent buy?"