Even the most effectively run real estate practice can be victim of human error, allegations of malpractice, unhappy clients or just plain old bad luck. Protecting a business from the consequences of any of these requires an insurance program that best suits the needs of one’s particular situation. Not all businesses need all types of insurance policies, but understanding what each type of policy does will help you spend your insurance dollars more wisely as well as sleep better at night.
The backbone of any professional insurance program for a real estate practice is Errors & Omissions Insurance. This may be the one policy that any real estate firm might require. Simply put, E&O protects a business against allegations of an error or omission in the performance of providing a professional service. Such allegations could include a factual error, a contract violation or breach of duty, failure to perform in a timely manner or other error in providing or not providing services. It might also include Fair Housing or discrimination issues or escrow disputes. The great majority of Claims against real estate brokerages have to do with disclosure/non-disclosure allegations. Errors & Omissions may also be the most complex type of policy to consider due to its’ numerous conditions and features. Some of the most important include:
An exponentially increasing concern is data breach and cybercrime. There are numerous policy options to respond to these problems, with better and less expensive coverage becoming more available. Privacy/Data Breach Insurance provides coverage should a business’s data be compromised or held for ransom. It can reimburse for notification costs, required credit monitoring, data forensics and restoration, crisis response, first and third person liability suits and other liabilities that might cost a firm tens or hundreds of thousands of dollars to manage on their own. Cybercrime coverage protects a business if escrow or trustee funds are misappropriated by wire fraud, social engineering or some other fraudulent act. Not all businesses need the cybercrime coverage, but a compelling argument can be made that all businesses need the data breach insurance. If considering this coverage, make sure that claim coverage is not limited to only electronic data. Fraud can involve dumpster diving, mail and UPS deliveries, etc so your policy should extend beyond just computer crime.
These policies, called BOP’s, combine the features of a General Liability policy and business equipment protection into one package. The General Liability portion protects a business if there is Bodily Injury or Property Damage incurred as a result of interacting with a business – i.e. a client slips and falls while in your office or while showing a property, or as a result of a door or window being left open resulting in damage to the home, including vandalism or theft. Even if there is a “home-based” business, the real benefit of this coverage is off-premises, while in someone else’s property. Coverage is also provided should there be a fire, theft or other event resulting in a loss of business property. BOP’s are quite broad, and may also cover things like employee dishonesty, valuable papers, business interruption, hired/non-owned auto and much more.
Coverage is mandated in all states if a business has any W2 employees. Typically, owners and officers may exclude themselves from the policy. Policies may include or exclude Independent Contractors, so if coverage is desired for them, policy language should be reviewed to determine coverage. Premiums are based on payroll and may be audited by the insurer. When noting the payroll to the insurer, care must be taken to not include payroll for anybody not being covered, such as an owner, to avoid paying too much. The State of California requires that real estate firms carry workers compensation coverage for independent contractor agents.
This represents the foundation of a solid insurance program. There are other policies that might be appropriate for some, and consultation with an insurance representative knowledgeable in your profession’s insurance needs is recommended to obtain the coverage you need that best suits your business.
John Torvi is the Vice President of Marketing & Sales at the Herbert H. Landy Insurance Agency of Needham, MA. John has been in the insurance industry, focusing on the needs of business owners, for over 27 years. He holds a Bachelors Degree from Providence College and a Masters Degree from Springfield College and is a frequent speaker and contributor to professional journals and conferences for the legal, accounting, real estate and insurance industries.
The Landy Agency is a national leader in providing non-medical, professional liability and cybercrime insurance for accountants, attorneys, and real estate professionals. John can be reached at 781‐292‐5417 or email@example.com. Visit www.landy.com for more information.
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