Reflections on 30 years of E&O
By Leslie Howatt, Executive Officer
It’s been 30 years – February 1, 1988 – since E&O was proclaimed into existence, and although much has changed, much has also remained the same.
At that time, a self-insurance program for the real estate industry was necessary to provide more stable and cost-effective coverage than was otherwise available in the market. As was noted in the first newsletter published by E&O in December 1988,
“What self-insurance does for the industry is give it the opportunity to learn from its claims experience and the financial incentive to improve that claims experience by better education and increased professionalism.”
These reasons remain valid today.
E&O’s first directors were Gary Brady (Chair), Beverley Highton, Charles Mitten, Barry Clark, Donald Donson, William Hunter and Donald Shannon. The first sets of minutes were typed on an electric typewriter and the “claims register” listing all the claims reported that first year was handwritten.
Claims were managed by LWR Risk Management until December 4, 1989, when E&O proudly set up its own stand-alone operation at West Pender Street, with two employees. Since then, the office has changed location to the adjacent tower and increased the staff to nine employees, including four in-house lawyers who handle all the claims reported to E&O.
There were 83 claims reported to E&O in its first year, with the first claim described as “fire following furnace demonstration.” That claim cost E&O $38,000, all in legal fees to defend it.
As the first Indemnity Plan contained a “prior acts exclusion” that denied coverage for any error that took place prior to March 1, 1988, the number of claims initially reported was low, but it steadily increased each year until hitting a record of 499 claims in the 1993 policy year. In the most recent policy year, E&O had 343 claims reported.
The first Indemnity Plan provided up to $100,000 in coverage and the first full-limits case was reported that year. That claim is described as “sale collapsed after Insured failed to communicate removal of condition.”
The policy limit increased to $1 million on March 1, 2003, and since then, two full-limits cases have been paid out. One related to claims of negligence against seller’s agents for failing to provide amended disclosure statements to pre-sale purchasers, and the other was against a limited dual agent for failing to discover and disclose that the property had once been used as a gas station and to recommend an environmental inspection.
The types of claims reported in the early years were described in the April 1989 newsletter:
“The sort of claims we are seeing are typical of a more active real estate market. For example, we are seeing claims brought by vendors alleging that their property has been undersold. Licensees can guard against this type of claim by doing a thorough appraisal of a property when listing it and retaining comprehensive working notes in their file so as to be able to defend their estimate of value in case of a future challenge….
Another typical scenario that we are seeing is that of the vendor refusing to complete on the alleged grounds that the Contract of Purchase and Sale is not binding because it was improperly drafted…. While it is always important for licensees to draw enforceable Contracts of Purchase and Sale, that is never more apparent than when the real estate market heats up.”
These words remain true today. The record sales volumes over the last few years have resulted in similar claims. Over the first 15 years of E&O, 12% of claims closed were for negligence in the drafting of contracts. Over the last 15 years, that increased to 16%. Claims for negligent valuation of property were not tracked until recently. Over the last six years, there have been 36 claims of this type.
The Indemnity Plan has evolved to include coverage for strata and property managers, who must now be licensed. The first premiums charged were $100, changing over the years to meet the rising costs of claims and the increase in coverage to $1 million. Premiums now sit at $350 per year, as they have since 2011.
In 30 years of operations, E&O has handled more than 10,000 claims and spent more than $80 million on defence and indemnity payments. It’s interesting to note that for every $1 spent on indemnity payments, we spent almost $1.50 on defence costs. The strong defences provided to insureds have resulted in approximately 84% of claims being closed with no indemnity payment by E&O.
The changes that have taken place in the BC real estate profession in recent years will lead to interesting times ahead. The continued high volume of real estate transactions, along with the increasing expectations and standards for licensees, will make the continued existence of E&O more important than ever.