You open the registered envelope and find yourself faced with a lawsuit on a property you sold 18 months ago while under a broker who has since sold his company. No problem. You paid your Errors and Omissions (E&O) insurance premium on that transaction so you’re looking at the most maybe a $1,500 deductible. You contact the current Broker/Owner of the brokerage you were working for when you participated in the transaction and ask that legal counsel be provided, as detailed under your E&O insurance – and the answer is:
“Sorry, you’re not covered. The past owner did not purchase an Extended Reporting Period (ERP) policy and all prior transactions are no longer covered. I’m afraid you’re on your own.”
What if you were a top producer and had hundreds of transactions with the same broker? What if that broker has filed bankruptcy? Unfortunately this is a TRUE story that affected a real agent and his entire family. But the bigger picture is even worse.
By not purchasing the ERP insurance necessary to cover prior acts, the Broker/Owner has left over 20,000 transactions open to lawsuit without any coverage for the agents involved.
And the worst part - there is no requirement that agents under that broker be informed of their “uninsured” status.
How could this happen?
Unfortunately this is not an isolated case and there are literally thousands of agents across the country that are potentially in the same position. Consider a few of the facts:
• There is no grace period for renewal of an E&O policy.
• If the broker is negligent in renewing their E&O policy, doesn’t purchase prior acts coverage or doesn’t renew the policy, all prior acts are not covered.
• In non-mandated states the E&O carrier can choose to discontinue coverage and it is not mandatory for agents to be notified of any changes in the policy or scope of coverage, even though the licensees are paying for the policy and the loss of coverage may financially impact them.
With the fallout of the subprime debacle we can be certain that there are folks out there that have lost their home and are looking for someone to blame. If you consider the fact that somewhere in the neighborhood 1 in every 452 homes in the country is in some stage of the foreclosure process you begin to see the magnitude of the potential problem.
In Trend #10 of the 2009 Swanepoel TRENDS Report – The Good The Bad & The Ugly – we took a long hard look at this potentially devastating issue and provide some suggested action steps. Visiting www.RETrends.com– You need to know where you stand.
