An overview
In British Columbia, we enjoy living in a peaceful, prosperous, lawful society, that is generally well run to avoid the worst risks. By planning and good business practice we can mitigate the remaining risks, including through insurance.
For real estate licensees, particularly those running brokerages, some basic advice may help orient you as to the kinds of insurance that you should consider. For the detailed planning of insurance, you should consult an experienced insurance broker.
Here is a table of the protection offered by Real Estate Errors and Omissions Insurance Corporation, as and from April 1, 2024, the Real Estate Compensation Fund, and commercial insurance policies.
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|
Risks |
Real Estate Errors and Omissions Indemnity Plan |
Real Estate Compensation Fund |
Commercial policies |
|
Negligence |
Negligence in acting as a real estate licencee |
Covered to $2 million per claim and per year |
Not covered |
Excess E&O extends the Indemnity Plan limits |
|
Fraud |
Criminal, dishonest, fraudulent or malicious acts unrelated to theft of trust funds or property |
No insurance for your own such acts |
Not covered |
Excess may insure you for defence costs |
|
|
The Indemnity Plan covers innocent parties who are liable as a result |
Not covered |
Excess extends the Indemnity Plan limits |
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|
Loss of trust funds as a result of fraud, such as social engineering fraud |
Coverage to $500,000 per error |
Not covered |
Social Engineering and Funds Transfer Frauds-part of Crime (Fidelity Coverage) and Cyber |
|
Theft |
Stealing trust funds or property by licensee, brokerage employee or independent contractor |
Not covered |
Covered to a maximum of $200,000 for a single claimant and $1 million for a brokerage |
Crime (Fidelity) Coverage extends limits of coverage |
|
Data Breach |
A data breach that leads to the misuse of information by a third party or a malware transmission |
Not covered |
Not covered |
Cyber coverage applies |
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|
A data breach that gives rise to an error in providing real estate services |
Covered in some circumstances |
Not covered |
Excess and Cyber may apply |
|
Damage |
Bodily injury to third parties arising from your operations and premises |
Not covered |
Not covered |
Commercial General Liability (CGL) applies |
|
|
Property damage to third parties arising from your operations and premises |
Covered subject to $250,000 sub- limit |
Not covered |
Commercial General Liability (CGL) applies |
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|
Loss of office property and assets and business interruption due to fire, theft, vandalism, flood, earthquake or other perils |
Not covered |
Not covered
|
Property policies apply |
|
Employer and Director (usually sold together) |
Claims against you for wrongful dismissal, breach of contract, sexual-harassment and other wrongful employment practices |
Not covered |
Not covered |
Employment Practices Liability (EPL) policy applies as may some Excess insurance |
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|
Claims against you as a director or officer of a real estate brokerage for mismanagement, conflicts of interests and other allegations |
Not covered |
Not covered |
Directors and officers liability (D&O) applies |
Notes on the kinds of insurance policies for real estate brokerages
Excess insurance
This sort of coverage typically increases the limits of coverage above the limits provided by the E&O Indemnity Plan. Thus, an excess policy might provide say $1 million, $2 million, or more in coverage in excess of the Indemnity Plan limits.
Depending on the excess carrier, there may be additional coverages that are offered as part of an excess policy. This could be a limited form of cyber coverage, or a limited protection against the costs of disciplinary proceedings.
The nature of the work done by a brokerage should guide decision-making regarding whether to buy excess insurance and how much. The following factors need to be considered:
- Value of transactions (past and current).
- Commercial or residential – Commercial or development transactions tend to be higher value so that does tend to make them higher risk for excess claims.
- Claims that arise out of co-listing will likely have all brokerages retained by the seller sharing the $2m limit of the primary policy.
- If your brokerage is engaged in marketing multiple-unit housing, brokerages should note that multiple claims from the same project may be related claims and subject to one limit of coverage under the Indemnity Plan.
Crime (Fidelity) insurance (which may include Social Engineering and Funds Transfer Frauds)
Crime or fidelity insurance provides coverage for a brokerage against employee dishonesty. It would be additional to the protection given by the Real Estate Compensation Fund which protects against such dishonesty up to $200,000 per claimant. Where there are multiple claimants against a single brokerage, the limit of coverage is $1 million.
Such a policy may or may not protect against Social Engineering Fraud which would protect a brokerage against loss where a fraudster tricks an employee into divulging information or paying funds to someone not entitled to them. It may also include Funds Transfer Fraud that will respond if your bank is defrauded.
Cyber insurance
Such a policy insures against risks of computer hacking, or malware transmission. Such policies generally insure against your own losses in the event of a hack or virus, notification costs if personal information is stolen, cyber extortion (ransomware), the costs of IT forensics, and the costs of restoring your computer systems if hacked.
It may insure you for third party claims as a result of stolen data or confidential information and may include the provision of immediate technical assistance in the event of a data breach.
The purchase of such policies typically include services which provide technical advice and support to harden computer systems against hacking and to guide responses in the event of a cyber attack.
Commercial General Liability (CGL) insurance
This coverage is an essential coverage. It provides coverage for bodily injury and property damage to third parties including risks arising from your premises, open houses, and showings. It may include coverage for advertising liability, tenants’ liability, defamation (libel and slander) and other personal injury claims. Those buying this insurance should note that many CGL policies do not insure licencees who are independent contractors, and not employees of the brokerage. Consultation with an experienced insurance broker can result in placement of coverage for independent contractors with some carriers through an additional endorsement to the brokerage’s policy or alternatively through a standalone policy for this purpose.
Brokerages that also provide property management services need extensions of coverage under their CGL policies to cover the broader risks that arise from those services. The situation is similar with regard to strata property management services, but broader coverage is usually effected by the addition of the brokerage as an additional insured to the strata management corporation’s policies.
Property insurance
A Property policy may be part of an “office package” policy with commercial general liability coverage. It covers the physical assets of the brokerage including office contents, equipment, and business interruption arising from perils such as fire, theft, vandalism, flood and earthquake. The amount of the coverage will depend on the extent of the assets.
Directors and Officers Insurance and Employment Practices Liability
These coverages are typically sold together. Directors and officers insurance coverage provides coverage against management related risks, i.e. claims by shareholders or others that the brokerage has been mismanaged. Employment practices liability protects against claims from a wide range of allegations related to wrongful employments practices, including claims of wrongful dismissal, sexual harassment and discrimination.
Real Estate Errors and Omissions Indemnity Plan
A more detailed summary of coverage under the Indemnity Plan is set out below for your guidance only. The application of coverage is determined by the wording of the Indemnity Plan.
See also the FAQs re: coverage under the Indemnity Plan. This table appears to contain a lot of “Nos” and fewer “Yeses” as to coverage, but this is misleading. In practice the coverage under the Indemnity Plan is quite broad, and it has protected real estate licencees well since the inception of the compulsory professional liability insurance program in 1988.
Coverage under the Indemnity Plan is limited in part because other kinds of insurance are better able to provide the coverage (e.g. bodily injury.) Some kinds of risk are excluded because it would be a bad thing to insure them, and it would increase the costs of the insurance program unduly (e.g. insuring conduct which results in punitive damages).
|
Risks |
Covered? |
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What claims |
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Negligence, including negligent breach of fiduciary duty |
Yes |
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Business or personal interest claims, i.e. claims by a company controlled by an insured party, etc. |
No |
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Data breaches that lead to the misuse of information by a 3rd party or a malware transmission |
No |
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Libel or slander |
No |
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Discrimination, restraint of trade, wrongful entry or eviction or other invasion of rights of private property or private occupancy |
No |
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Dishonest, criminal, fraudulent or malicious acts |
No. Innocent parties are covered who are liable as a result of such conduct. |
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Contractual claims (unless they would be covered apart from contract) |
No |
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Bodily injury, mental injury, death |
No |
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Property damage related to an error in real estate services |
Yes, but limited to $250,000 including costs of defence |
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Commission claims, or any claims precipitated by commission claims |
No |
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Punitive and other damages, sanctions, special costs |
No |
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Costs or sanctions relating to disciplinary proceedings such as the BCFSA |
No |
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Thefts, trust shortages caused by frauds, and losses caused by dishonest employees |
No |
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What activities |
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Providing real estate services to the public |
Yes |
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Acting as a director or officer of a company |
No |
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Activities as an insurance agent or insurance broker, builder, property developer, mortgagee, notary public, property appraiser |
No |
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Giving a guarantee of future value or income of a property |
No |
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Obtaining a profit or benefit to which you are not entitled, e.g. secret flips. |
No |
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Failing to insure property |
No |
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Transactions where you and/or your spouse or a company in which you and/or your spouse hold more than a 10% beneficial interest or may acquire a beneficial ownership interest in the property (although the brokerage may be covered in such transactions) |
No |
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When |
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Mistakes made while a real estate licensee even if not discovered until you cease being a licensee |
Yes |
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Who |
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You, your Personal Real Estate Corporation, employees you supervise and the brokerage which is vicariously liable for your mistakes |
Yes |
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The above information is current as of February 8, 2024 and refers to Indemnity Plan RE0424 that comes into effect April 1, 2024. Insurance markets change. As a result, new kinds of coverage may be extended or alternatively may become restricted. Those seeking to manage their risks effectively should seek updated advice from an experienced insurance broker as may be necessary.
