As a realtor, you have a lot of time and energy invested in your success. You’ve spent years learning your trade and building a reputation for reliable service, and now you’re being rewarded with referrals for new business from clients you’ve helped. But you could still lose everything very quickly if you fail to include a solid risk management program in your overall business plan.
From an insurance perspective, real estate is considered a low-risk business. Nonetheless, you need to be prepared for certain types of risks. Here we review the most common types of claims you might encounter in your realty business and the type of coverage you need to keep your assets safe.
General Liability Insurance
As a real estate professional, you deal with the public every day. Clients are in and out of your office regularly to ask questions, sign documents, or make plans to preview a home they want to buy or rent. And any time you have visitors in your office, you are at risk for a bodily injury or property damage claim.
Bodily Injury and Property Damage
Suppose, for example, a client comes to your office to review disclosures, trips on an electrical cord and falls and breaks his hip. The customer will expect you to pay his medical expenses, and might even file a lawsuit against you for negligence. Even if you ultimately prevail in court, the cost of defending such a case could be very high.
Fortunately, General Liability Insurance protects your assets in the event of just such a claim. It will pay for your client’s immediate medical care (such as an ambulance to take him to the Emergency Room) as well as any subsequent hospital or medical bills. And if the client sues you, it will also pick up your legal fees, defense costs and the cost of any monetary settlement or award determined by the court.
General liability insurance will also pay for damaged property. So if the client who tripped happened to be carrying his $3,000 laptop when he fell, your insurance would pay to have the computer replaced or repaired.
Personal and Advertising Injury
If you advertise your business or maintain an online presence, you run the risk of being sued by a competitor for misappropriating copyrighted material, such as a logo or content from a website. Even if the copyright infringement was inadvertent — for example, you accidentally designed a logo that looks eerily similar to the one that World’s Best Reality has been using for 15 years — you may still be sued. While many of these claims can be settled amicably out of court, those that are litigated can cost thousands of dollars to defend.
Similarly, your business may be sued for slander or libel if you or an employee make damaging, defamatory statements about a competitor that are not true. For example, your office manager might remark on social media that your competitor, Home Guard Realty, takes kickbacks for referring customers to a certain company for repairs. If that allegation is untrue and causes Home Guard to lose business, you could be hit with a very costly defamation suit.
Fortunately for your business, in both of these cases, General Liability Insurance will cover your legal expenses and the cost of any damages awarded by the court,. It also covers similar, less commonly encountered claims, such as invasion of privacy, false imprisonment, wrongful eviction and malicious prosecution.
Commercial Umbrella Insurance
Also called excess liability coverage, commercial umbrella insurance extends your existing liability coverage, usually in increments of $1 million, at very affordable rates. However, unlike other liability insurance it is not “stand-alone” coverage: To purchase umbrella insurance, you must have a General Liability policy in force.
Umbrella insurance can provide your real estate business with greater coverage and greater peace of mind. Although the likelihood of your being the plaintiff in a lengthy and expensive lawsuit might be low, accidents happen all the time. Imagine, for example, that a client came to your office, took a wrong turn looking for the restroom, and fell down a flight of stairs, breaking his back. His medical expenses alone could be hundreds of thousands of dollars, and he might sue you for pain and suffering as well. Even if you prevailed in court, your legal fees could be astronomically high.
Commercial umbrella insurance may also increase the limits of your Employment Liability insurance, which is included in the Worker’s Compensation policy that protects your employees. So if an employee who is injured on the job were to sue you for negligence, you would have additional coverage for that claim as well.
Tip: Umbrella insurance does not apply to Professional Liability insurance, and will not raise the limits on that policy.
Whether you own or rent your business premises, your realty business undoubtedly owns a great deal of property. From furniture and files to business machines and computers, your business’s physical assets are essential to your business, and you would need to be replaced quickly if they were damaged or destroyed.
Commercial property insurance protects your business property in the event it is damaged due to a covered event, such as fire, vandalism or theft. It also provides coverage for many types of natural disasters, such as tornadoes and hurricanes.
If you own your business premises, your property insurance will pay to repair the physical structure and its contents, including items such as:
- Furniture and furnishings
- Business machines
- Cameras and camcorders
- Landline telephones and smartphones
- Your personal property and that of your employees
- Client’s property left in your care
Even if you don’t own the premises, all of your property in the building will be repaired or replaced.
Electronic Data Processing Coverage
Many commercial property insurance policies cover physical property only: That is, they will pay to replace or repair machines and equipment such as computers and smartphones, but not the programs and data they contain. To obtain coverage for data loss, you need Electronic Data Processing, or EDP, insurance.
EDP policies cover a variety of scenarios involving computers, computer programs and data, including power surges and mechanical failures that cause physical damage or data loss. A typical policy may include coverage for:
- Equipment: Servers, computers, monitors, laptops
- Media: Hard drives, disks and flash drives on which data is stored
- Data: Information stored on the media,programs, concepts, and facts.
- The cost of data recovery
EDP policies vary greatly as to what’s covered and to what extent. Some questions to ask your Carmoon Group agent include:
- Does the policy provide coverage for losses caused by computer viruses or hacking?
- Does the policy cover denial of access attacks?
- Does the policy cover the cost of hiring a forensic IT specialist if you are hacked?
- Does the policy cover business interruption insurance and extra expense coverage?
Business Interruption Insurance
If your business premises and all of your equipment were destroyed in a fire, it’s unlikely that you could resume business operations quickly, even with property insurance in place. It takes time to repair or rebuild premises after they have been heavily damaged in a disaster, so you would need to set up shop somewhere else. You would also need to get your business equipment replaced, restore your files and get new office furnishings in place.
Business interruption insurance is coverage that compensates you for lost revenue while you get your business up and running again. It will typically pay your relocation costs, and help you meet operational expenses, such payroll, rent and utilities, until your business is back on its feet.