Most real estate brokers and brokerage owners buy E&O insurance, along with the rest of their professional insurance program, with the understanding that these policies protect their firms and employees from lawsuits alleging malpractice, bodily injury, or cybercrime.

All parties should know when, if, and how coverage might apply before something goes wrong. Don’t assume generalities about any coverage. For example, one type of policy might cover an instance of bodily injury—a client slips, falls, and gets hurt—during an open house, but not during a showing. Another type of policy offers coverage for the exact opposite scenario.

Make Permissions Clear

For coverage to be applicable, the representative of the real estate firm must be acting on behalf of, and with the authority of, the named insured. In other words, if an agent does something without the permission of the broker/owner and a claim results, coverage can be denied.

Put all permissible activities and responsibilities of the agent in the independent contractor agreement, so everybody knows up front if property management, commercial sales, broker price opinions, or anything else are allowed, forbidden, or require special approval.

If there is a claim resulting from the alleged actions or inactions of an agent, who is responsible for the deductible? Be sure to include that information in the independent contractor agreement to avoid an ugly dispute during the already stressful time of a lawsuit.

Trust the Process

As policy requirements dictate when and how a claim must be filed, brokers should inform agents and employees of the importance of timely and accurate reporting of a potential problem. If a lawsuit is filed, only the broker or a designated representative should be speaking with the attorneys. All other communications should be locked down. Please do not go on Facebook expressing your indignation and professing your innocence!

As computer network breaches and wire fraud become almost commonplace in the real estate industry, broker/owners can help lessen the risk by establishing clear and expected protocols. Almost all cybercrime is the result of human behavior. Training on the recognition of fraudulent emails, links, and attachments can be of considerable benefit. Requiring the use of company-approved and secured email addresses and websites can be extremely helpful.

Read the Fine Print

The above only offers an overview of insurance issues and resulting potential conflicts.

If you are a broker, take a deep dive into your policies and convey the coverage as best possible to agents and employees. If you are an agent, it is OK to ask what is your share of the deductible or how you might be covered for certain activities. Consult with an insurance representative who is familiar with your industry and how it is insured.

The wrong time to find out about any of this is when you are holding the letter from the plaintiff’s attorney. Like many things in life, a little knowledge and prevention goes a long way!