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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.

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Risk Report · August 30, 2017

Risks and insurance for the real estate licensee

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Risks and insurance for the real estate licensee

By William G. MacLeod, Q.C., MacLeod and Company

William G. MacLeod

In British Columbia, we enjoy living in a peaceful, prosperous, lawful society that is generally well run to avoid the worst of risks. We are able by planning and good business practice to mitigate the remaining risks, including through insurance.

An overview

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 (E&O), the Real Estate Special Compensation Fund, and commercial insurance policies.

 

Risks

Real Estate Errors and Omissions Indemnity Plan

Real Estate Special Compensation Fund

Commercial policies

Negligence

Negligence in acting as a real estate licensee

Covered

Not covered

Excess 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.

 

Loss of trust funds as a result of fraud (not by a licensee), such as social engineering fraud

Coverage questionable

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

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 applies.

 

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 real estate operations and premises

Not covered

Not covered

Commercial General Liability (CGL) applies.

 

Property damage to third parties arising from your real estate operations and premises

Covered subject to $100,000 sub-limit

Not covered

Commercial General Liability (CGL) applies.

 

Loss of office property and assets and business interruption due to fire, theft, vandalism, flood, earthquake or other perils

Not covered

Not covered

 

 

Property applies.

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.

 

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.

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. Instead of $1 million in limits per error, an excess policy might provide, for example, an additional $1 million or $2 million in coverage in excess of the Indemnity Plan.

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 legal defence costs of disciplinary proceedings.

The nature of the work done by a brokerage should guide whether to buy excess insurance and how much. The increase in values of BC real property to historic levels justifies close consideration of this issue. Also, if the 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 Special Compensation Fund, which protects against such dishonesty up to $100,000 per claimant.

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

A Cyber policy covers against risks of computer hacking or malware transmission. It insures against your own losses in the event of a hack or virus, such as notification costs if personal information is stolen, cyber extortion (ransomware), the costs of IT forensics, and the costs of restoring your computer systems.

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.

Commercial General Liability (CGL) insurance

This coverage is essential. It provides coverage for bodily injury and property damage to third parties including risks arising from your premises. It may include coverage for advertising liability, tenants’ liability, defamation (libel and slander) and other personal injury claims.

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 employment 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 licensees well since the inception of the compulsory 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?

What claims

 

Negligence, including negligent breach of fiduciary duty

Yes

 

Business or personal interest claims, i.e. claims by a company controlled by an insured party, etc.

No

 

Data breaches that lead to the misuse of information by a third party or a malware transmission

No

 

Libel or slander

No

 

Discrimination, restraint of trade, wrongful entry or eviction or invasion of rights of private property

No

 

Dishonest, criminal, fraudulent or malicious acts

No. Innocent parties are covered who are liable as a result of such conduct.

 

Contractual claims (unless they would be covered apart from contract)

No

 

Bodily injury, mental injury, death

No

 

Property damage related to an error in real estate services

Yes, but limited to $100,000 including costs of defence

 

Commission claims, or any claims precipitated by commission claims

No

 

Punitive and other damages, sanctions, special costs

No

 

Costs or sanctions relating to disciplinary proceedings such as the Real Estate Council

No

 

Thefts, trust shortages caused by frauds, and losses caused by dishonest employees

No

What activities

 

Providing real estate services to the public

Yes

 

Acting as a director or officer of a company

No

 

Activities as an insurance agent or insurance broker, builder, property developer, mortgagee, notary public, property appraiser

No

 

Giving a guarantee of future value or income of a property

No

 

Obtaining a profit or benefit to which you are not entitled, e.g. secret flips

No

 

Failing to insure property

No

 

Transactions where you or your spouse have greater than a 10% direct or indirect interest in the property (although the brokerage may be covered in such transactions)

No

When

 

Mistakes made while a real estate licensee, even if not discovered until after you cease being a licensee

Yes

Who

 

You, employees you supervise and the brokerage which is vicariously liable for your mistakes

Yes

Caveat

The terms of the Indemnity Plan may be amended to some extent from one year to the next and so it is necessary to rely on up to date information as to the  current terms of the Indemnity Plan and as to the terms of various additional kinds of insurance available in the marketplace. The advice in this article is current as at July 2020.

Acknowledgements

I am indebted to Margrett George, of the Lawyers Insurance Fund, for the idea of providing a summary of this kind, and to Rob McLeod of Metrix Professional Insurance Brokers for advice on the current commercial insurance market.

Filed Under: Risk Report

e-AnD-o-94

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