Errors and Omissions Insurance
Definition and meaning of Errors and Omissions Insurance in real estate.
Errors and Omissions Insurance is a type of professional liability coverage designed to protect real estate professionals from financial losses resulting from mistakes, negligence, or failure to perform services.
In more detail
This coverage helps shield agents, brokers, and appraisers against claims made by buyers or sellers who feel they suffered financial harm due to a professional mistake. For instance, if an agent fails to disclose a known property defect or makes a math error in a contract, the client might sue.
The insurance typically covers legal defense costs and any settlements up to the policy limit. Real estate brokerages often require their agents to carry this policy to manage risk, though coverage details and requirements vary by state.
Key facts
| Category | Legal, Titles & Closing |
|---|---|
| Also known as | E&O insurance or professional liability insurance |
| Who pays | Real estate agents, brokers, or appraisers |
| Watch out for | Exclusions such as intentional fraud or criminal acts |
A real estate agent accidentally writes the wrong zoning classification on a listing description, leading an investor to buy a property they cannot use for commercial purposes. The investor sues the agent, and the agent's Errors and Omissions Insurance covers the legal fees and final settlement.
Frequently asked questions
Does errors and omissions insurance cover intentional fraud?
No, errors and omissions insurance only covers accidental mistakes and negligence, while explicitly excluding fraudulent, criminal, or malicious actions.
Is E&O insurance legally required for real estate agents?
Requirements vary by state, as some states mandate E&O insurance to maintain an active real estate license, whereas others leave it up to the brokerage.