2024 Indemnity Plan offers increased coverage at no additional cost

March 2024

Indemnity Plan RE0424 comes into effect April 1, 2024 and will provide every licensee with an additional $1 million in coverage, with no increase in annual fees. The changes in limits mean your:

• liability limit for each claim will increase from $1 million to $2 million;
• annual aggregate limit of coverage for all claims in a given policy year will also increase from $1 million to $2 million; and
• sub-limit of liability for tangible property damage will increase from $100,000 to $250,000 per claim.

These changes are reflected in Indemnity Plan RE0424 at Declarations, s 3(a) to (c), Part III: Exclusions s. 5 (re $250,000 sublimit), Part IV: Conditions, s. 1.1 Limit of Liability – Each Error, s. 1.1.1 and 1.2 Limit of Liability – Annual Aggregate.

Part II: Insuring Agreements, s. 3.5 Scope of Coverage limits coverage to $100,000 (for property damage sub-limit) or $1 million if you had knowledge of the error prior to April 1, 2024.

The Indemnity Plan limits have not been increased since they went from $100,000 per claim to $1 million per claim in 2003, although exposure to larger claims have increased. In addition to the annual fee not increasing, the deductibles are also not increasing (except for social engineering fraud claims, see below).

The care taken by all licensees in carrying out their work carefully every day provides the basis to keep insurance costs low.

Introducing a social engineering fraud sub-limit

Along with these increased limits, we’re also introducing a new sub-limit of $500,000 for social engineering fraud claims, where fraudsters intentionally mislead a person into sending or paying money based on false information provided to that person. Real estate brokerages, particularly strata and property managers, have been the target of this type of fraud recently as electronic fund transfers have become a regular part of doing business. As a result, brokerages have faced claims from their clients for transferring money to the wrong party.

To encourage licensees to take appropriate steps to protect themselves from becoming the victim of this type of fraud, the deductible for these claims will be 25 per cent of the amount of damages UNLESS the insured has taken steps to independently verify the instructions through secondary verification.

Secondary verification is defined as “action by an Insured, having received initial or amended payment instructions by means other than in person, to subsequently contact the person who purportedly gave such instructions, by telephone at a trusted number or in-person, and confirm that the instructions are genuine and accurate.”

These changes are reflected in Indemnity Plan RE0424 at Declarations, s 3(d) and 4(c), Part I: Definitions for “secondary verification” and “social engineering fraud”, Part III: Exclusions s. 17, and Part IV: Conditions, s. 1.1 Limit of Liability – Each Error, s 1.1.1 (iii).

For information on how to avoid cyber fraud see:

• Cyber-fraud can happen to you! How to prevent it and what to do when it happens and
• Battling funds and title transfer scams

Complaints to BCFSA or Real Estate Boards remain not covered

The Indemnity Plan has never provided coverage for complaints made against a licensee to disciplinary or regulatory bodies. This is because the definition of “damages” in the Indemnity Plan excludes “any fine, sanction, penalty or disciplinary hearing costs.” To further clarify this, Indemnity Plan RE0424 adds a specific exclusion for “any proceeding brought by the BCFSA or any real estate board.”

Make sure to review your other insurance needs regularly

With this increase in coverage, some licensees and organizations might be inclined to reduce or cancel their excess insurance coverage. Although the increased limits will provide additional protection and comfort, we’d strongly advise all licensees to do a proper, up-to-date risk evaluation, preferably after consultation with an insurance broker, before making that decision.

Some licensees will continue to face a higher risk of claims that may exceed the new policy limit because, for example, they:

• provide real estate services involving multiple similar properties such as project marketing or land assemblies
• sell commercial, development or waterfront properties
• work in areas where real estate prices are extremely high.

Remember that any legal fees incurred in defending a claim are paid first against the limits of coverage, which can result in there being significantly less than the $2 million coverage limit (as at April 1, 2024) available to pay damages in a complicated or hard-fought claim.

We continue to recommend licensees at higher risk consider purchasing excess insurance and we offer further information on excess insurance on our Excess Insurance page.

Comprehensive general liability (CGL) insurance is another essential for every brokerage and agent, providing coverage for bodily injury and physical property damage to third parties, including risks arising from your premises as well as any showings or listings. 

Excess and CGL insurance are usually purchased by the brokerage. Ensure that the brokerage CGL policy extends coverage to independent contractors and not just brokerage employees.

The following articles are also excellent resources:

• Risks and insurance for the real estate licensee
• You and your professional liability Indemnity Plan.

The present article is for informational purposes only. For purposes of issues of coverage, the Indemnity Plan wording is binding and determinative.

Covered or not covered: claims are stressful!

Let’s face it. As a licensee, having a claim made against you is both stressful and intimidating, even if you have insurance coverage.

But what happens if you don’t have insurance coverage? While the Indemnity Plan offers broad protection for real estate licensees, there are claims that simply fall outside of coverage.

In some instances, a licensee’s otherwise valid insurance coverage can be lost by failing to adhere to the conditions set out in the Indemnity Plan. It’s therefore critical for licensees to understand where their insurance coverage begins, where it ends and, perhaps more importantly, how it can be lost.

Here are a few scenarios where licensees have jeopardized their insurance coverage.

1. The late reporter (aka the procrastinator)

We get it. Life gets busy, and claims aren’t fun (even we’ll agree with that). What is equally not fun, however, is losing insurance coverage for failing to report a claim or potential claim in a timely manner. Under the terms of the Indemnity Plan you’re required to immediately report any claim or potential claim to us in writing¹. This is particularly important if you are facing a lawsuit as there are strict timelines to respond.

In some cases, if default judgment has been entered against you (this can occur when you fail to respond to a lawsuit by the applicable deadline) before you report the claim to us, you may be required to set aside the default judgment at your own expense before we will assume the defence (assuming the claim is otherwise covered).

So, when you do become aware of a claim or potential claim, take action and report it to us promptly and in writing by email to reception@reeoic.com. Unlike a fine Bordeaux, claims don’t get better with time. Not sure what you have is a “claim” or “potential claim?” Call us at 604-669-0019, and we can let you know if you should report the matter to us.

Tip: Don’t allow others to sign and accept registered mail addressed to you unless you have specifically authorized them to do so and to advise you immediately if this occurs. In some cases, licensees have returned to their office after a month-long holiday only to discover that a receptionist accepted a registered document for them while they were away, not realizing that this was service of legal documents. This delay left them facing a default judgment as the time limit for filing a defence had already passed.

2. The landlord

You’ve been named in a Residential Tenancy Branch (RTB) proceeding – what now? Matters before the RTB aren’t covered as they’re excluded by Part III: Exclusions, s 14 in the Indemnity Plan. You have a much greater risk of being named in a RTB proceeding if you put your name or your brokerage’s name as landlord on leases. You’re also taking on all the legal obligations as landlord under the lease. 

A better approach is to have your client, the property owner, named as landlord on any leases or notices respecting the tenancy. If your client is unable to sign these documents themselves, you can sign on their behalf if you have authority in writing from your clients and comply with Rule 45 – Signing agreements on behalf of clients. Remember, when signing on behalf of a client, sign your own name and then indicate beside your signature that you are signing “as agent for” your client.

Tip: Although your Indemnity Plan does not cover you for RTB claims, it’s a good idea to contact us when you are joined or expect to be named as a defendant in such a claim as we can sometimes help prevent other potential related claims from developing.

You may have coverage under your client’s insurance policy, or the client may be obligated to indemnify you pursuant to the terms of your property management agreement. Property management brokerages would be well advised to review their form of property management agreement regularly with their own lawyer to ensure it contains provisions to protect you.

3. The signatory

Attention strata managers and property managers! Much like entering into leases in your own name, if you enter into service contracts in your own name (presumably on behalf of an owner or strata corporation), you do so at your own peril. Liability assumed under a contract is excluded from coverage by operation of Exclusion 8 of the Indemnity Plan² if you otherwise would not have had such liability.

By becoming a party to a contract, you’re agreeing to all of the obligations and responsibilities that go along with it. For example, if an owner refuses to pay an invoice related to a service contract that you made yourself party to, you may have assumed liability for it, even if you thought you were only agreeing to the contract on behalf of your client. Even though you have no control over the actions of your client, you’re now at their mercy and must hope that they indemnify you or honour the contract.

Tips: Assist your clients with their contracts, but don’t take on liability that you don’t need to by becoming a party to the contract! Instead, have your clients review and execute contracts themselves. It’s also a good idea to ensure that your strata or property management agreements have strong indemnity clauses for situations where you may wish to seek indemnity from your clients..

4. The talker

You’ve just received an angry demand letter alleging that you’ve failed in your duties. You may be feeling angry, offended, upset or perhaps apologetic. While it’s normal to feel the need to offer assurances or solutions immediately, take your next steps with caution. What’s that old saying — anything you say can and will be used against you. There can be many appropriate responses to allegations of wrongdoing, but admissions of liability may prejudice your defence and can jeopardize your insurance coverage³. Similarly, you should never offer to settle any claim without first contacting us, as any settlement made without E&O’s express consent will be solely at your own expense.

Tips: Report claims to us promptly and let us guide you with the best response. In most instances, recommending that your client seek independent legal advice will be appropriate or simply advising your client that you require time to seek out your own advice before responding.

5. Commission claims

The Indemnity Plan doesn’t cover claims you make for commissions/fees. It also doesn’t apply to “a claim precipitated by an attempt to collect a commission or fee.” For example, a licensee who pursues their commissions/fees may face a counterclaim in negligence. While a negligence claim would typically attract insurance coverage through the Indemnity Plan, a claim in response to your pursuit of commissions/fees may be excluded from coverage by virtue of Exclusion 6 of the Indemnity Plan⁴.

Tips: Understand the potential risks of an uncovered claim should you decide to pursue your commissions/fees. We suggest you obtain independent legal advice before initiating any claim for your commissions/fees.

Conclusion

Take the time to become familiar with the coverage provided in the Indemnity Plan as well as your obligations under it. Periodically check with an experienced insurance broker whether you might benefit from additional insurance coverage.

For more information on what is or isn’t covered by the Indemnity Plan, and other insurance policies available to licensees, see Bill MacLeod and Rob McLeod’s article Risks and insurance for the real estate licensee and the FAQ section of our website. In all coverage matters, the wording of the Indemnity Plan governs.

¹ Section 3, Part IV: Conditions, of the Indemnity Plan.

² Section 8, Part III: Exclusions, of the Indemnity Plan excludes coverage for claims “relating to or arising out of liability assumed under a contract, unless liability would have attached even without the contract.”

³ Section 4, Part IV: Conditions, of the Indemnity Plan.

⁴ Section 6, Part III: Exclusions, of the Indemnity Plan excludes coverage for claims precipitated by an attempt to collect a commission or fee.

Many of us have heard of the “wonders” of ChatGPT and other artificial intelligence (AI) tools being touted as tools for improving productivity and effortless communication.

While there may be a place for AI tools in some aspects of your work, the current reality is that they’re a long way from being reliable and safe enough to do the substantive work of real estate, such as producing contracts or marketing materials. If you’re going to use them, you need to understand their limitations and how to use them without putting yourself, and your reputation, at risk.

The basics of how AI tools work

Generative AI tools use an algorithm trained on massive data sets, typically aggregated from the internet, to create new content from a prompt entered by the user. These prompts can be text, images, audio, or video. The output or generated content may be text, images, audio, or video. Notably, the same prompt may generate wildly different content at different times.

The output can appear polished and convincing on the surface, but there are plenty of documented instances where the content produced has turned out to be wrong, biased, or even what’s known as “hallucinatory.” In these hallucinatory cases, the tool invents references that don’t exist, delivering content that is highly inaccurate. Because these tools can’t distinguish between fact and fiction, they’re no replacement for your reasoning or critical thinking.

Guidelines for AI tool use

If you do decide to try using a generative AI tool in your work, you’d be well advised to:

• Never enter confidential client information into an AI tool – It’s important to understand that any information you input into a generative AI tool may become part of its dataset and may be shown to other users or used in content generated for them. Inputting client information may be in breach of privacy law, in breach of your contractual or common law duties of care to your past or current clients, and in breach of the Real Estate Services Act, the Real Estate Services Regulation, or the Real Estate Services Rules.
• Don’t use an AI tool for contracts – AI tools are definitely not a replacement for standard form contracts and sample contractual clauses available from BCREA or your real estate board. These standard form contracts and sample clauses have been prepared by experienced lawyers and real estate professionals after careful consideration of the applicable law in this jurisdiction. Using contract language drafted by an AI tool would be a very risky proposition that could leave your clients with unexpected liability and leave you with a lawsuit or BCFSA complaint against you.
• Review the output carefully – Be even more careful than you would be in reviewing a new colleague’s work. For marketing content, you should ensure the content doesn’t contain misrepresentations about the property. Even minor errors can result in claims made against you and diminish your reputation for professionalism. Using AI tools to create or modify photographs can also amount to misrepresentation and may be against real estate board rules or regulations. Using content generated by an AI tool could also expose you to a breach of copyright claim if some of the content was originally ‘harvested’ by the tool from someone else’s intellectual property.

At E&O, we strongly recommend caution before using generative AI tools, and urge you to do a very careful review of any content produced by such tools. There is no substitute for your professional experience and critical thinking skills.

Negligence leads the list of causes for the top five most expensive claims of 2023

March 2024

Each year since we began operations, we’ve done our best to help protect licensees avoid claims, offering our best loss prevention recommendations along the way.

The top five most expensive claims of 2023 is our anticipated annual wrap-up of the year’s activities and offers related tips on how to avoid being one of the claims featured in our 2024 wrap-up article.