Errors and Omissions Coverage Implications When Listing or Selling Your Own Property Prepared by Rice Insurance Services Company, LLC June 19, 2013 Many real estate errors and omissions (E&O) policies exclude coverage for claims involving property owned by the insured or someone connected to the insured. Historically, the Tennessee Real Estate Commission’s (TREC’s) E&O group policy excluded coverage for claims relating to property in which any of the following had more than a 25% ownership interest: an insured; insured’s spouse; or any entity, partnership, or trust in which the insured or insured’s spouse owned or controlled more than a 25% ownership or financial interest. The reason for this fairly standard exclusion is that the owner of the property may benefit from any negligence in the property’s listing and sale. For example, a claim was made under the TREC’s group policy against a licensee who sold property she owned. The buyers alleged misrepresentation of the condition of the fireplace, plumbing, and electrical system. As the seller of the property, the licensee benefited by receiving a higher purchase price than the buyer believed was justified, given the true condition of the property. However, because many licensee list and sell their own homes, the TREC’s group policy now automatically includes an endorsement that makes the policy apply to the sale or listing of the licensee’s primary residence (a residential property of 2 units or less, which serves as the licensee’s principal residence), provided the following conditions are met: i. prior to closing, a written home inspection was ordered and a copy provided to the buyer; ii. prior to closing, if required by law, a seller disclosure form was signed by the licensee and the buyer; iii. prior to closing, the licensee’s ownership interest was disclosed and acknowledged by the buyer; iv. a state or local board approved sales contract was used; and v. the sale or listing is performed under and subject to the real estate license laws of Tennessee. Additionally, licensees who purchase insurance through the TREC’s group policy can also purchase an optional endorsement that makes the policy apply to the sale or listing of residential property (a single family residence or multi-family residences with 4 units of less) owned by the licensee; the licensee’s spouse; or an entity, corporation, partnership or trust owned or controlled by the licensee or his/her spouse. The following conditions must be satisfied for the optional personal interest endorsement to apply: i. the residential property was owned for at least one hundred eighty (180) days by the licensee, the licensee’s spouse, or any entity, corporation, partnership, or trust in which the licensee or licensee’s spouse has or had a financial or ownership interest; ii. the property was not constructed or developed by the licensee; the licensee’s spouse; or any entity, corporation, partnership, or trust in which the licensee or licensee’s spouse has or had a financial or ownership interest; iii. prior to closing, a home warranty was purchased by or for the buyer; iv. prior to closing, if required by law, a seller disclosure form was signed by the buyer; v. prior to closing, the ownership or financial interest of the licensee and licensee’s spouse in the residential property was disclosed to and acknowledged by the buyer; vi. a licensed inspector who was not related to or affiliated with the licensee issued a written home inspection report that the buyer acknowledged prior to closing; vii. a state or local board approved standard sales contract was used; viii. the sale or listing was performed under and subject to applicable real estate license law; and ix. prior to the effective date of this endorsement, no insured had a basis to believe that any negligent act, error or omission, or related negligent act, error, or omission might reasonably be expected to be the basis of a claim against the insured. The TREC’s group policy does not provide coverage for property developed or constructed by any of the following: an insured; insured’s spouse; or any entity, partnership, or trust in which the insured or insured’s spouse owned or controlled more than 15% financial interest. This exclusion is not impacted by the automatic primary residence endorsement or the optional residential personal interest endorsement. Licensees who develop or construct property (or who have a spouse or entity that develops or constructs property), may be interested in purchasing insurance that applies to their development and construction activities, as these are unlikely to be covered under their real estate licensee E&O insurance. If you have questions about whether your insurance applies to transactions involving property in which you, your spouse, or your entity has an ownership interest, you may want to contact your insurance provider for additional information. If you are insured under the TREC’s group policy issued by Continental Casualty Company, questions may be directed to the group policy administrator, Rice Insurance Services Company, LLC at 800-637-7319, extension 2, or policyadministrator@risceo. Nothing in this article changes the terms or conditions of the TREC’s group policy or any other insurance policy.
Posted on: Mon, 22 Jul 2013 23:17:45 +0000
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