E & O Insurance - Wholesaling Real Estate?

Question

Has anybody here looked into having E & O Insurance when they are buying/selling (Wholesaling) Real Estate?

Andrew Bosworth · Answer

Michael,

I am an insurance agent in PA.  I would recommend calling a few local agencies and see what they can offer in the way of E&O insurance.  This is fairly common insurance coverage, which most agencies should be able to quote for you.  Lloyd's of London is probably not your best option as they tend to be on the higher end price wise.

Andrew

Eric Belgau · Answer

Kristine Marie Poe is spot on.  It's not that you can't insure yourself.  An Errors & Omissions policy just isn't the right place to do it in most cases.  In addition, E&O policies can be extremely narrow.

For example, even if you're a licensed agent, the E&O policy for your agency might easily exclude wholesaling-type deals.

Regardless of whether your licensed or not, if you talk to your insurance broker about the specific exposures you're concerned about, you should be able to cover most of them with other casualty products.

Perhaps more importantly, that conversation can help to highlight the exposures you can't insure, which may help you to avoid bad situations.

Account Closed · Answer

@K. Marie Poe,

I buy notes, and I am not a broker and not licensed. My E & O insurance is based on if I sell a note and mislead or not inform the buyer or not disclose everything.

Joe Gore

Account Closed · Answer

I'm assuming E&O policies issued for the purpose of covering mistakes when giving advice or providing services will never cover a real estate deal where you are a principal and not an agent.

Account Closed · Answer

@Michael Giorgianni,

Check with Lloyd of London, they will write a policy on anything.

My 2cents,

Joe Gore

Account Closed · Answer

E&O insurance is typically for professionals providing advice or services to clients.  As a wholesaler you are not providing advice or a service and you don't have clients. At least you shouldn't be.  Supposedly you're a principal in the buying and selling transactions. It's this kind of thinking that gets wholesalers into trouble. Providing services and having clients in RE transactions crosses over into licensed activity.

Agents typically buy E&O policies because they are providing services to clients who might sue them for damages because of mistakes made. I can't imagine there is an insurance company that is going to write a policy to cover a real estate investor for making mistakes. And I wouldn't expect an agent E&O policy to cover the agent in a wholesale deal.

Account Closed · Answer

It is loyyd of London

Joe Gore

Account Closed · Answer

Are you sure your policy is called E&O?  Or is it some kind of liability policy?   If it's actually an E&O policy, can you share the insurer?

Account Closed · Answer

How are you in the note business?  Are you brokering, are you licensed? If so, that's a typical service for which E&O policies are issued.

Eric Belgau · Answer

@Joe Gore I was just going to add the caveat "you can never say never" in reply to @K. Marie Poe but exceptions don't make very good rules.

Generally, in order to have Errors and Omissions insurance there has to be a standard by which the service you're providing can be judged.  Where there's a license, trade organization, or some other governing entity involved, that standard can exist.  The insurance basically covers a practitioner's failure to live up to that standard, except when that failure is intentional or illegal.

For the most part.

Realtors, financial advisers, doctors, lawyers, property managers, architects, and a host of other professionals work within systems defined by licensing boards, professional associations, etc., establishing a standard.  That creates a marketplace for E&O coverage for those professionals, and there are good policies that are worth buying.

Policies differ from state to state, and exclusions tighten and loosen over time.  It's not impossible to find an E&O policy that would cover a Realtor when that Realtor is a participant in the transaction.  But it's a terrible idea for a Realtor to assume that because the office has E&O coverage it is in force when he/she is a participant in the deal.

It is possible to go to the E&S market and find insurance for just about anything.  However, that doesn't mean the insurance will be worth anything, once the policy requirements and exclusions have been taken into account.

Joe - that's not an indictment of or comment on your policy.  Just a clarification of the generality.

E & O Insurance - Wholesaling Real Estate?

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