A Real-Life Situation on Promptly Reporting Incidents to Your Insurance Carrier
Following the sale of a commercial building, a real estate broker received a letter from the buyer’s attorney alleging that she failed to disclose water intrusion issues. The broker was adamant that the seller outlined the problems on the property condition disclosure statement, and immediately responded by providing concrete evidence that the disclosure statement was not only received by the buyer, but acknowledged receipt with his signature.
Believing the response to the claim letter would solve the problem, the broker decided not to submit a claim to her Real Estate Errors & Omissions insurance carrier.
Several months passed without a response from the buyer’s attorney, and when it was time for the broker to renew the E&O policy, she decided not to do so—despite several written and verbal requests by the insurer’s agent.
Not long thereafter, the buyer’s attorney sued the real estate broker adding new allegations that it was not his client’s signature on the property disclosure statement. Unfortunately, however, when the broker tendered the claim to the insurance carrier, it denied coverage because the original claim notice—which would have triggered coverage—was not reported during the policy period as required.
Most E&O insurance policies are written on a “claims-made” basis, meaning that the claim must be made within the specified policy period in order for coverage to be afforded. It is extremely important to make sure that all claims are promptly tendered to the insurance carrier—even if it’s believed to be meritless. Many real estate errors & omissions policies also have “awareness provisions” for reporting potential claims. If the notice complies with the policy terms, then any future claims made will be covered under the policy in effect at the time the circumstance was reported. In this example, coverage would have been afforded if the broker timely submitted the claim letter to the insurance carrier. Secondly, assuring that coverage is continued from policy year to policy year will avoid the possibility of gaps in coverage. Otherwise, if the broker purchased a new policy, any alleged wrongful acts—and transactions—occurring prior to the inception date of that policy would likely be excluded automatically.
The recommendations in this article may differ from state and local practices. Greenwich Insurance Company and Indian Harbor Insurance Company Coverage is not available in all jurisdictions.
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