The year ending March 31, 2024 saw further positive developments for licensees as E&O doubled its coverage, with no increase in fees. Indemnity Plan RE0424, that came into effect on April 1, 2024, increased the liability limit for each claim from $1 million to $2 million.

E&O remains in a strong financial position for the year ending March 31, 2024, as seen in the 2023/24 audited financial statements. The adoption of new accounting standards (IFRS 17 and IFRS 9) from April 1, 2023 means the financial statements look different from prior years. A full explanation of the nature and effect of these changes is summarized in Note 4 to the financial statements.

In their audit report, our auditors, KPMG, concluded that the financial statements “present fairly, in all material respects, the financial position of the Corporation as at March 31, 2024, and its financial performance and its cash flows for the year then ended in accordance with IFRS Accounting Standards.”

2023/24 financials show growth in surplus

E&O recorded comprehensive income of $6,506,431 and increased the accumulated surplus by approximately 18% to $55,597,019. This surplus acts as a premium stabilization fund that will be a buffer in the event our claims experience changes for the worse.

One of the contributors to E&O’s bottom line results this past year was our prior success in challenging our tax status with the Canada Revenue Agency (CRA). In addition to the 2020 and 2021 tax refunds we received last year, this year we also received a refund of $1,780,879 for the 2022 tax year. We are now filing our tax returns on the basis that we are a not-for-profit organization.

It is of note that our Insurance Contract Liabilities increased this year from $23,928,716 to $28,907,264, an increase of about 21%. This was due to an increase in liability for incurred claims (the actuary’s estimate of the costs that will be incurred, in addition to the amounts already paid out, in order to eventually close all claims that were open as of March 31, 2024).

Although frequency of claims is down, severity is up. It’s difficult to pinpoint a specific reason, but it’s at least partially due to overall inflation and the high cost of housing in BC. Although damages are not usually measured by the value of a property, diminution in value is a common way to measure damages, so the higher the value of the property, the higher the damages. 

The value of investments in the Insurance Fund increased from $79.6 million last year to $89.6 million this year, an increase of approximately 12.5%. These investments are currently managed by Phillips, Hager & North and Connor Clark & Lunn, professional investment managers, pursuant to our investment policies and procedures that set out clear investment objectives that are consistent with the “prudent investor rule” as required by the Real Estate Services Act, SBC 2004, chapter 42.

Strong capital management supports claim limit increase

The capital management framework put in place by the Board of Directors in 2022, including the preparation of a Capital Target Guideline Analysis by our actuary, is a sophisticated capital management and decision-making tool that assists E&O in establishing surplus thresholds based on our unique risk profile and risk tolerance. It was this framework that guided the Board in making the fee reductions that went into effect on April 1, 2023 and to increase the claim limits from $1 million to $2 million on April 1, 2024. The Board will continue to use this framework in making future decisions on fees and other program enhancements.

In assessing the adequacy of its capital, E&O must comply with regulatory requirements and measurements. Our regulator, BCFSA, measures the adequacy of capital in relation to the risks associated with our business through the capital target analysis prepared by our actuaries. This framework replaces the minimum capital test, which applied to E&O until 2021.

We’re moving our office

After 36 years as a tenant, the E&O Board of Directors decided to invest in real estate and purchase our own property. Later this summer, after we complete the purchase of two commercial strata units at 320 Granville Street, we’ll begin constructing our tenant improvements with a view to moving in by February 2025. Our new offices will be downsized and designed for a modern paperless environment in a commuter-friendly building.

Staff changes

In March, we bid farewell to Cheryl Spratt who retired after just over 30 years as a staff lawyer at E&O. Cheryl helped numerous licensees successfully resolve claims throughout the years. We wish Cheryl much happiness in her new adventures.

In February, we also welcomed a new staff lawyer, Charlotte Leung, who comes to us from private practice where she practiced in commercial, construction and insurance law.

Claims history: A snapshot

The frequency of claims has been remarkably stable since 2020 even though there has been some fluctuation in the market over the last several years. Last year, we had 267 claims reported, compared to 281 claims reported in the prior year (see chart)

We recently opened the 12,000^th claim file since we began operations in 1988. Currently, there are:

• 444 open claim files, with 76% of those in litigation
• 87% of the litigation claims are in Supreme Court, with the remaining 13% in Provincial Court or the Civil Resolution Tribunal (CRT). This trend over the last few years of an increase in Supreme Court claims is likely also due to inflation and the amount of damages sought by plaintiffs often exceeding the $35,000 monetary limit in Small Claims Court.

Closed case results

With more than 11,500 claim files closed since 1988, E&O has spent more than $116 million to defend and indemnify licensees during this time. In the over 2,700 claims that were opened since January 1, 2014 (and are now closed):

• 66% were closed without any expense other than staff costs to resolve them
• 19% resulted in legal expenses only,
• 15% involved indemnity payments by E&O (see chart).

Claims trends highlight negligent drafting

Although almost half the claims against licensees last year were for misrepresentation (43%), a significant number of claims were for negligence related to the contract of purchase and sale (31%). These claims are usually for negligent drafting or negligent advice on the terms of the contract. 

One of the most important jobs of a licensee is to draft a legally enforceable contract that accurately reflects the agreement entered into by the parties. Understanding and explaining the terms of the contract or recommending your client seek legal advice for matters outside your expertise is key for licensees to avoid claims. 

NOTE: Jude Chow’s December 2022 article “Seriously, what’s your deal?” is a must read on this topic.

As usual, the type of claims against licensees are varied. Some areas of note this year include:

Fraudulent funds transfers

This year, three strata and property management brokerages reported claims against them for negligence in sending funds to the wrong party (i.e., a bad actor). In each case, an employee or licensee with the brokerage thought they were receiving instructions from the client or other trusted party but due to a cyber breach, they were unknowingly dealing with a fraudster who directed the payments to their own bank accounts, making off with over $230,000 in funds. No steps were taken by these brokerages to verify the payment instructions directly with the person who purportedly gave them.

Indemnity Plan RE0424 addresses this risk by putting in place a $500,000 sub-limit for social engineering fraud claims (Exclusion 17) with a deductible that is 25% of the damages payable as a result of the fraud (Declarations, s. 4 (c)) unless secondary verification is made to confirm the instructions are genuine and accurate.

All licensees should take extra care to ensure they have proper IT security in place to safeguard their systems including phones, computers and servers. Brokerages should ensure that proper policies and procedures are in place to deal with money transfers.

For more information on loss prevention, read:

• Cyber-fraud can happen to you? How to prevent it, and what to do when it happens (Sept 2023)
• Battling funds and title transfer scams by K. Murray & S. Jadis (June 2023)

Leases and tenant occupied property 

There were 13 claims this past year involving negligence in handling leases or tenant occupied properties. Examples of these claims include:

• Negligent advice to clients about how to evict tenants
• Negligent drafting of a lease
• Giving notice to a tenant without client’s instructions
• Failing to advise of risks in agreeing to vacant possession when property is tenanted

Cheryl Spratt’s article “Serving it right – following the rules when ending tenancies for landlord’s own use” will help you avoid claims of this type and Jude Chow’s article on “Selling tenanted properties” addresses the last of these risks.

Subject clauses

There were 19 claims reported in the last fiscal year dealing with subject clauses. These claims range from negligent drafting of subject clauses to failure to warn of risks in not including subject clauses. There are several resources in our Risk Report archives to assist licensees avoid these claims, including:

• No seal, no deal: poorly worded subjects may void a contract, by B. Piva (Sept 2022)
• Deal or no deal: The cold hard truth about subject conditions, by J. Chow (March 2022)
• The pitfalls of the poorly drafted contract, by S. Twining (Sept 2020)

Resources to avoid claims

Managing Brokers looking for assistance in helping their licensees to avoid claims have several resources to go to including:

• Risk Reports from E&O
• Support for Managing Brokers from E&O
• BCREA’s Managing Broker’s Support Line (for BCREA members, password is required)
• BCFSA’s Practice Standards Advisors

E&O’s staff lawyers are also available to do loss prevention talks for brokerages, boards etc. Please email reception@reeoic.com if you would like to book a talk for your licensees.

Coverage overview

E&O has been the mandatory self-insurance program providing errors and omissions insurance to all real estate licensees in BC since 1988. Our mission statement is to provide cost-effective professional liability insurance, loss prevention tools and legal support services for the protection of real estate licensees and thereby the public.

The terms of coverage are set out in the Indemnity Plan, published annually with a policy year that begins on April 1. The current Indemnity Plan RE0424 is available here. Annual fees are currently $315 per year, paid every two years on license renewal.

Further information on your insurance coverage can be found in the E&O FAQs or the article by Bill MacLeod, KC, and Rob McLeod Risks and insurance for the real estate licensee.