Real Estate Errors and Omissions Insurance Corporation

A special act corporation formed pursuant to the Real Estate Services Act solely to provide errors and omissions insurance to British Columbia real estate licensees.

Risk Report ·

E&O updates

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E&O updates

Claims

Despite the record number of real estate sales in BC in 2016, there was an unexpected decrease of 5% in the number of E&O claims from the last fiscal year, with 335 claims reported in the year ended Feb. 28, 2017.

The strongest predictor of claims activity has traditionally been the volume of residential real estate sales. Claims data for the 10-year period from 2003 to 2013 show that the number of losses (the error or mistake that eventually leads to a claim being reported) averaged 3.7 per 1,000 sales. Given the volume of residential transactions in 2016, we can expect an increase in claims in the next few years as the “errors” made in 2016 are eventually reported to E&O.

Claims liabilities continue to rise even though the number of open claim files remains relatively stable (see chart), indicating that the cost per claim has risen. Claims liabilities reached $19.6 million this year, up from $18.3 million the year before. Claims liabilities represent the actuary’s estimate of the cost that will be incurred, in addition to the amount already paid out, in order to eventually close the 498 claims that were open as of Feb. 28.

The largest category of claims against licensees (47% of claims reported in the last fiscal year) continues to be for negligent misrepresentation, which includes claims for both misrepresentation and failing to disclose material facts about properties.

A growing category of claims is for negligent drafting of contracts, increasing from 18% of claims reported two years ago to 30% of claims reported in the past year. These types of claims are varied but examples include:

  • Failing to include specific chattels as “included items” in a contract;
  • Failing to include a clause in a contract to make a second accepted offer a back-up offer; or
  • Failing to ensure that the seller on the contract was the owner of the property.

Two big topics in real estate news last year were “shadow flipping” and high property values; it was no surprise that related claims would follow. Over the past fiscal year, E&O opened 13 claims on assignments and 11 claims on negligent valuations.

Financials

E&O recorded comprehensive net income this year of $2.5 million and increased the surplus to $20 million from $18 million in the prior year. The surplus acts as a premium stabilization fund and thus as a buffer in the event our claims expenses change for the worse.

E&O’s Minimum Capital Test (MCT) ratio (a solvency test used by insurance regulators) also increased from 284 to 294. It continues to be within the target range of 250 to 350 set by E&O’s board of directors. Premiums remain stable at $350 per year ($700 for the two-year licensing period), an amount that has not changed since 2011.

E&O’s audited financial statements for the year ended Feb. 28, 2017 can be found on the website.

Legislative changes

Effective June 1, 2017, the maximum claim that can be heard in Small Claims Court increases from $25,000 to $35,000. Currently, 74% of E&O’s open claim files are in litigation and of those, 24% were commenced in Small Claims Court.

Also, beginning June 1, disputes for up to $5,000 will be resolved by the Civil Resolution Tribunal (CRT) instead of Small Claims Court. The CRT is an online tribunal intended to help parties resolve disputes more quickly, simply, and cheaply. E&O’s staff lawyers will be able to represent insureds in claims brought in the CRT.