Here are some of the major exposures that are lurking below the water that insurance agents need to consider for their clients:

Tenant discrimination. Real estate agents must adhere to rules of ethics as specified in the Fair Housing Act. Professional liability policies may have lower sublimits for this specific coverage.
Pollution. Failure to disclose pollutants has increased as a professional liability exposure. This is also a coverage that tends to have a sublimit included.
Owned property. Today more real estate firms own real estate as an investment. Typically, the real estate agents' role is as a third-party. When the real estate agent or firm owns a property, it is difficult to claim lack of knowledge as a defense during a claim. As a result, the carriers may attach conditions requiring disclosures and limitations related to the amount of owned real estate that they will cover and/or require. For example, the carrier may require that a real estate agent who does not own the property be involved in the transaction.
Property management. Real estate agents are often property managers. As a result of the pandemic, many of their tenants have been unable to pay rent. COVID legislation permitted the tenants to remain in the property and avoid eviction. As COVID's impact lessened, evictions could and did resume. Collecting rent from financially devastated tenants and instigating evictions as set forth in the lease is both awkward and difficult.
Social engineering and fraudulent transfer sublimit. This is another area of coverage where insurance companies are offering a small sublimit on the policy, if not completely excluding it. For example, a real estate agents' professional liability policy with a $1 million limit could have a $100,000 social engineering/fraudulent transfer sublimit. If the real estate agent's client was the victim, the amount of the loss could easily exceed the real estate agent's policy Typically, a monoline cyber policy will provide much broader protection than what is offered on the professional liability policy form.

Several coverages should be considered:

Retention reduction. This can result in a reduction of the amount of the deductible based on certain conditions.
Hammer clause. This provides the insured who prefers not to settle a claim, thereby admitting liability, the option to allow the carrier to continue fighting on their behalf. Generally, this contract condition would present how the payment would appear beyond that point. Most policies with this endorsement will have anywhere from a 50/50 to 80/20 split in the insured's favor of all incurred costs beyond the point the settlement occurred.
Open house lock box. If there is damage to a home related to the unauthorized or negligent use of the lock box, this endorsement provides coverage.
Sale of developed property. This endorsement covers situations where the real estate firm is involved in the construction of the property.
Contingent bodily Injury and property damage. When property damage or bodily injury occurs as a result of negligence, this endorsement will provide coverage that would normally be excluded under the professional liability policy.

Many potential coverage traps indeed lurk below the water's surface. Insurance agents should understand and be able to recommend the many different types of coverage.

Special Reports /

What's lurking underwater for real estate professional liability?

Related Stories

Recommended For You