Errors and Omissions insurers are experiencing shock waves of change. One of the largest carriers, Legion, went into receivership, while mold lawsuits and other disclosure-related suits are pressuring the companies that are left. Dozens of carriers are discontinuing their E&O products because the risk of exposure simply outweighs the profits generated by current pricing levels.

What's putting pressure on the insurers? Rising claims stemming in large part from accusations by buyers that mold found in their homes is a preexisting condition and therefore not covered under their homeowner's policies. So they shift the liability to the seller and As homeowner's insurers bail out of mold coverage, buyers have one place left to turn for financial relief in worst-case infestations - real estate brokers.

Yet, one company sees opportunity where others see disaster. Fidelity National Insurance Company, (FNIC) a subsidiary of Fidelity National Financial, is getting into the E&O business just as others are bailing out. Why take the chance?

"Some recent market activity has led to a hardening of pricing and withdrawal of several carriers," explains Mark Davey, president and CEO of Fidelity National Insurance Company, "the expertise of Fidelity in the real estate transaction arena and the availability of our carrier to agents, makes it a good time to introduce the product."

Mold will continue to spook the market, believes Davey. "One of the driving factors is the exposure to mold, and agents and brokers are being held liable," he continues. "In traditional markets, the big Property and Casualty insurers have had a difficult time managing mold exposure. Mold wasn't contemplated in traditional homeowners' policies. Let's say the homeowner discovers a pipe leaking under a vanity. They open up the wall to fix the leak and find that the whole wall and attic and subfloor is covered with mold. What is the next place to seek coverage? We are in a disclosure question. As one side tightens up, they will seek coverage from the prior owner and the brokers' E&O."

Why make agents responsible? Because they can't prove they didn't know. It's a vicious Catch 22 - you pay insurance to be covered for liability on things you can't possibly know because you can say you didn't know if you did know. Clear as mud?

It is buyers, many unrepresented by a Realtor at the closing table, who are the most enthusiastic to bring suits against brokers.

"It's common sense," says Davey. "I've disposed of property through a sale, and the incidence of seller's remorse is less frequent than buyer's remorse. A buyer buys a property and looks for a way to get out."

What can brokers do to reduce their liability and rising E&O premiums?

"Your common business practices," says Davey. "Diligence in disclosure and the documentation of the process. If you are disclosing throughout the process, and do better paperwork over time, the more diligent you are, the less E&O claims you should have. Less E&O claims will lead to better premiums over time."

Are certain business models more subject to E&O claims than others? Like single agency? "We are not thinking of segregating pricing," replies Davey. "Most brokers will represent buyers and sellers, and I'm not familiar with any agencies that represent one side or the other. Putting together the program we are looking to insure the entity. That may change a couple of years down the road."

While waiting for approval of their filing in California, Fidelity won't be ready to present its E&O products to brokers and agents for several more months.

If you are having trouble getting E&O insurance, check with your local Realtor association to find out if there are carriers endorsed by the association, or check with insurance carriers in your area.

Published: June 4, 2002

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Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. For more articles by Blanche, click here.