Errors and
Omissions Insurance

What is an agent-owned property transaction?

Sometimes referred to as self-dealing, agent-owned transactions occur when an agent is the owner of a property and acts as a seller and/or buyer's agent on their own property's transaction.

A typical real estate transaction includes an agent working for a buyer or seller to market, sell, or assist with the purchase of residential property. The buyer or seller are the third parties in typical transactions. The intent of errors and omissions coverage is to protect the real estate professional from third-party claims, not claims from self-dealing.

Are agent-owned property transactions covered under errors and omissions insurance?

Agent-owned transactions, according to insurance company data, are very difficult to defend due to a perception that agents may be inclined to make a personal sale by any means necessary and would be held to a higher standard. In fact, agent-owned property claims on average pay out 5x that of a claim from a third-party transaction. For this reason, E&O policies typically include exclusions related to agent-owned property transactions when handled by the agent/owner. Many insurance plans will go on to include limited coverage through "givebacks" for agent-owned transactions when certain risk management procedures are met.

What if an agent is constructing and developing properties for sale?

An agent who is constructing and developing properties for sale will also run into exclusions. Coverage givebacks may not apply to constructed and/or developed properties. To secure coverage, a separate endorsement would be necessary naming that type of transaction coverage.

Best Practice

In order to uphold real estate professional codes of conduct and ethical guidelines, the best practice is to hire a disinterested agent from your firm to handle agent-owned property transactions. An arms-length transaction is easier to defend should the transaction result in a claim against you or your real estate firm.

Real Estate ProtectionPlus Coverage Option:

Our more commonly used agent-owned transaction givebacks include:

1. Residential (1–4 family dwelling) property sale when the transaction includes:
1. State or local board approved sales contract
2. Executed property disclosure form acknowledged by the buyer before closing
3. An accredited written home inspection report issued or waived, in writing, by the buyer
2. Residential property owned and managed by an insured agent is allowed even when the agent has 100% ownership in the property and acts as the property's manager
3. Combined interest of the insured is less than 20% of the property; this is one way for non-residential, agent-owned property transactions to be covered (e.g., raw land and commercial properties)
4. Sale of property acquired by an insured under a written guaranteed sale listing contract, and title is held by an insured for twelve (12) months or less and the property was listed for sale continuously by an insured from the date of acquisition to the date of resale

These additional coverage givebacks apply to arms-length transactions:

1. The sale, listing, or management of the named insured's residential property by another insured who is not the owner of said residential property (the named insured is the person/entity listed on the policy declarations page)
2. The sale, listing, or management of real property by an insured who is not the owner of such real property

What is a subpoena?

A subpoena is a court-ordered command that requires you to do something which may include producing documents, appearing in court, or attending other legal proceedings in person.

What should I do if I am served a subpoena?

If you are served with a subpoena, you need the assistance of a legal professional. It is also important to notify your insurance carrier immediately.

Best Practice

If you have concerns about a real estate transaction, you should notify your insurance company and your legal counsel. You may be able to take action prior to a claim being filed or a subpoena being served.

Real Estate ProtectionPlus Coverage Option:

Subpoena assistance is a supplementary payment which means payments are not subject to the plan deductible and are paid in addition to the policy's limits of liability. Expenses will be reimbursed provided they were incurred in responding to a subpoena that the insured first receives and reports, in writing, to AXA XL during the policy period, resulting from the performance of real estate services by the insured. There is a reimbursement limit of up to $30,000 per subpoena.

What is a lockbox?

A lockbox is any keyless entry system or similar device on a property being shown or listed for sale while that property is in the care, custody, and control of a real estate professional.

What is an open house?

An open house is considered an advertised designated time period (up to 3 hours) where multiple potential buyers have the opportunity to view a specified property listed for sale and in the care, custody, and control of a real estate professional.

Why is lockbox coverage important?

If someone enters your listing by obtaining the lockbox code without your approval and vandalizes, steals, or destroys the property, lockbox coverage will provide defense and damage coverage.

Why is open house coverage important?

If theft or vandalism occur on a property during an open house, this coverage will reimburse damages. A homeowner's policy may cover the loss, but in the event that the homeowner (or their insurance provider) looks to the real estate professional for the loss, an errors and omissions policy will offer protection.

Best Practice

It is recommended that access codes for lockboxes are changed regularly to decrease the risk of unauthorized entry. If possible, an entry log with date, time, and identity of persons using the access code and entering a property should be kept up to date. Try to conduct open houses during daylight hours with a buddy. Inform co-workers of your location and scheduled hours. Make sure to bring a charged cell phone and check all rooms before and after open house hours.

Real Estate ProtectionPlus Coverage Option:

Lockbox protection is a coverage extension and provides coverage up to your policy's limits. There is no deductible for lockbox claims. Claims will be covered when any keyless entry system or similar device is in use on a property being shown or listed for sale while that property is in the insured's care, custody, and control. Open house protection is also a coverage extension providing coverage up to your policy's limits.

What is mold and how is it dangerous?

Mold is a type of fungi that grows in moisture-rich environments. Outdoors, it is part of the natural process of breaking down organic material, but indoors, mold can be unhealthy. It can be found on basement walls, bathroom tile, around windows, leaky pipes or faucets, or other areas.

Best Practice

If real estate professionals fail to disclose the existence of mold, they may be at risk of a claim. Like environmental coverage, it is always best practice to clearly disclose all issues in writing in a property transaction.

Real Estate ProtectionPlus Coverage Option:

Mold coverage limits begin at $100,000 with higher limits available. There is no additional premium charged for this valuable coverage. Keep in mind that the coverage does not extend to the costs associated with site clean-up.

What is a potential public relations event for a real estate firm?

Events can occur within a firm resulting in negative local or national media coverage causing harm to the firm's reputation. Examples of such events include:

1. The departure, incapacitation, illness, or death of a key member of the firm
2. Dissolution of the firm
3. Violent act, kidnapping, sexual assault, criminal firearm use, or workplace incident or accident

Best Practice

Businesses should have a crisis management plan in place in the event of a crisis situation

Real Estate ProtectionPlus Coverage Option:

: Expenses will be reimbursed up to $25,000 per public relations event, subject to a maximum of $50,000 per policy period up to 60 days after the public relations event occurred. It is often best to hire a public relations firm to assist in mitigating any negative impact to your firm's public image.

What are fair housing laws?

The federal Fair Housing Act prohibits any discrimination in the sale, lease, or rental of housing, or making housing otherwise unavailable, because of race, color, religion, national origin, sex, and, as amended (1988), handicap and familial status. Individual state and local laws may prohibit discrimination based on additional classes not covered by federal laws.

The National Association of REALTORS^® (NAR) opposes discrimination in housing based on race, color, religion, sex, handicap, familial status, sexual orientation, gender identity, and national origin. This policy is embodied in NAR's Code of Ethics. Review Article 10 of the Code of Ethics.

Why are fair housing laws important?

The Fair Housing Act ensures equal rights for everyone who wants to rent or own a house. The law offers protection against discrimination in property transactions (sale or rental) and covers most housing. A buyer has the right to expect that housing will be available without discrimination or other limitations. Learn more about fair housing laws.

What activities are prohibited by fair housing laws?

A real estate professional cannot discriminate in a real estate transaction based on race, color, religion, sex, handicap, familial status, or national origin. An agent may not fulfill a request by a seller/landlord or buyer to act in a discriminatory manner.

In addition, a seller (or landlord) cannot deny that housing is available or advertise the available property only to persons of a certain race, color, religion, sex, handicap, familial status, or national origin. A seller or landlord may not request a buyer or a real estate professional to place any limitations on their behalf.

See examples of fair housing discrimination.

Best Practice

As a real estate professional, you should always conduct yourself in a manner which is not discriminatory. Be courteous to all. When interviewing prospects, be consistent in asking the same questions of all potential buyers. When discussing housing availability, make sure you are consistent and document your findings. Make sure you show options in every location available. Finally, have a follow-up plan in the event you're involved in a fair housing violation complaint.

Best Practice

As a real estate professional, you should always conduct yourself in a manner which is not discriminatory. Be courteous to all. When interviewing prospects, be consistent in asking the same questions of all potential buyers. When discussing housing availability, make sure you are consistent and document your findings. Make sure you show options in every location available. Finally, have a follow-up plan in the event you're involved in a fair housing violation complaint.

Real Estate ProtectionPlus Coverage Option:

Fair housing discrimination coverage is included in the AXA XL policy form with a sub-limit of $250,000. Higher limits are available. This coverage extension provides defense costs and damages for civil action resulting from fair housing discrimination.

Additional Resources

Ways to Avoid Fair Housing Discrimination: A Claims Scenario, January 2020, Risk Manager

National Association of REALTORS^® Fair Housing

Fair Housing Overview, U.S. Department of Housing and Urban Development

What is environmental "Failure to Advise"?

An environmental failure to advise event (or claim) occurs when a property tests positive for radon, lead, asbestos, or another pollutant and the buyer files a claim after the sale alleging the existence of the pollutants was not disclosed by the real estate professional.

Best Practice

If real estate professionals fail to disclose the existence of environmental issues, they may be at risk of a claim. Like mold coverage, it is always best practice to clearly disclose all issues in writing in a property transaction.

Real Estate ProtectionPlus Coverage Option:

Protection for these failure to advise claims will be covered up to the policy limits, including defense and damages in the form of settlements and judgements related to the claim. This coverage does not cover the costs of site clean-up.