The real estate industry can be very rewarding, a business where agents and brokers who work tirelessly to help buyers and sellers with their property needs can see the results of their efforts on the happy faces of their clients. But there is also the potential for disgruntled clients that can land a real estate agent in court facing a lawsuit. That’s where professional liability insurance in the real-estate world, also known as errors and omissions insurance for real estate agents, comes in. It works much like medical malpractice insurance for doctors.

An E&O policy offers agents and brokers protection against pending lawsuits

Everyone knows that the costs of getting sued for a mistake made in the course of selling real estate can have devastating consequences. As the name suggests, E&O policies don’t cover claims of outright fraud. Typically they cover issues such as, for example, a disgruntled buyer who sues an agent or broker for failing to disclose a defect in a property, or for misleading the purchaser about what they’re buying, or for a breach of contract.

Some of the most common reasons for liability claims against real estate agents can include errors involving the loss of a deposit, or for failure to notify of a needed inspection in a timely manner. Other issues leading to litigation often include undisclosed termite infestations, and even when the property is in fine shape, the buyer may allege that the square footage of the home or surrounding property is smaller than advertised. In fact, brokers and agents may get sued for any number of reasons including:

  • Mold contamination
  • Hidden water damage
  • Incomplete or incorrect closing documents, or
  • Failing to disclose that a property is encumbered by a lien

Many agents and brokers go uninsured, despite the advice of trade associations. Real-estate industry groups strongly encourage their members to get coverage, generally suggesting that they buy an errors and omissions insurance for real estate agents policy individually or through a broker. If an agent is covered, the insurer assumes the bulk of the legal costs, typically up to $1 million with a deductible. When an agent is targeted with a claim, the insurer hires an attorney and takes the lead in crafting a defense strategy or negotiating a settlement.