E & O Insurance - Wholesaling Real Estate?

18 Replies

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

E & O will cover you if you do anything wrong.

Joe Gore

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.

@Michael Giorgianni,

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


My 2cents,


Joe Gore

Originally posted by @Account Closed :
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.

@K. Marie Poe

I believe you are right again lol. I have called a few companies, all in which say they only have policies for agents/brokers., not for real estate investors.

When I had the other issue of a brokerage company wanting a percentage of my wholesaling profits(DISCUSSION: How are Fees Handled), would E & O insurance cover buying/selling then?

Originally posted by @Joe Gore:
@Michael Giorgianni,

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


My 2cents,


Joe Gore

@Joe Gore : I will look into them.

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

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.

Originally posted by @Michael Giorgianni :

@K. Marie Poe

I believe you are right again lol. I have called a few companies, all in which say they only have policies for agents/brokers., not for real estate investors.

When I had the other issue of a brokerage company wanting a percentage of my wholesaling profits(DISCUSSION: How are Fees Handled), would E & O insurance cover buying/selling then?

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.

Originally posted by @Eric Belgau :

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

This is a very good point. IMO, the purpose of legal advice and insurance isn't just to bullet proof yourself against liability. Use it to inform and guide the business plan to minimize the need for lawyers and insurance claims.

I am in the note business and I have E & O insurance.

Joe Gore

@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.

Originally posted by @Joe Gore:
I am in the note business and I have E & O insurance.

Joe Gore

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.

@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

Originally posted by @Joe Gore:
@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

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?

It is loyyd of London

Joe Gore