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This story shows how to avoid inadvertently losing your appraisal insurance
coverage for past work and being left unprotected, should a claim arise; the
consequences to your business and personal life could be disastrous.
Fortunately, this is one problem you can avoid in 2012. If have no appraisal
insurance, the story brings you up-to-speed on current market conditions
that make having E&O worth considering.
Appraisal Insurance: Why Canceling
Your E&O Can Really Cost You!
by David Brauner, Editor
is what you ought to consider before canceling or non-renewing the insurance
for your appraisal business for any reason.
Most appraisal insurance policies are written on a Claims Made basis. A
claims-made policy protects an insured against covered claims or incidents
that occur and are reported during the policy period. What does this mean?
It means that if you face a covered claim today on a report you completed
while insured in the past, you should have protection as long as the
appraisal insurance policy is in force.
Switching insurance companies typically is not a problem because most issue
"prior acts" coverage to qualified applicants. As the name implies, prior
acts maintains coverage back to the start of the original policy. The key is
maintaining continuous coverage, which means having no lapse in coverage. If
you make the switch before your current policy expires and can provide
acceptable proof of coverage to the new carrier, in most cases, the carrier
you are moving coverage to will provide "prior acts." It’s always best to
ask your agent.
let your claims made policy lapse, however, it no longer covers past work,
even if you were covered at the time. Think of yourself in this scenario:
you receive a threatening letter from an attorney regarding an appraisal you
completed two years ago while insured. A year ago, however, you dropped your
appraisal insurance thinking you didn’t need it and because you didn't want
the expense. Now the claim is no longer covered and you are on your own.
Continuous Coverage is Key
Again, switching carriers is not typically a problem, as most insurers such
as those that OREP works with, provide coverage for "prior acts" to
qualified applicants. However, if you let your current policy lapse before
binding with a new insurer, prior acts is not guaranteed. Each carrier has
its own guidelines regarding the issuance of prior acts to new insureds but
most allow only a short window in which to bind new coverage after the
original policy has expired. If you wait too long, you'll be out of luck.
same rules apply when renewing your appraisal insurance with the same
insurer. If you let your policy lapse by not renewing on time, you run the
risk of losing all back coverage when your policy expires.
Dos and Don'ts for E&O Insurance
1. If you're renewing your appraisal insurance, make sure you do so before
your current policy lapses. It is not a good idea to wait until the last
minute to renew for the reasons stated.
Companies such as OREP mail renewal notices months in advance and make
repeated attempts prior to expiration to verify that members who have not
renewed are doing so intentionally.
Most times clients simply misplace or forget their paperwork and are
grateful for the follow up call. If a member is intending to renew, the
message to them is loud and clear: get the renewal paperwork in ASAP before
the policy expires!
2. If you are changing carriers, give yourself enough time to do so before
your current policy expires and make sure that your new carrier is aware you
have appraisal insurance. Most applications ask whether you have current
coverage for this reason.
3. When corresponding with your appraisal insurance company, always follow
up to make sure your fax, email or letter has arrived. It is OREP's policy
to issue same-day confirmation to clients. But it's always smart to confirm
that your application/renewal has arrived. It's just too important not to.
Covering Your Tail
Several factors make carrying E&O insurance more important than ever. Unlike
other professions, claims for appraisers typically arise years after the
date of the report. This is because claims often result from the subject
property going into default- which usually takes at least a year or two. For
this reason, it is vital to maintain appraisal insurance coverage for all
the work completed in the boom years, even if business is slow today.
If you are not working and don't want to continue your appraisal insurance
policy into the future, another way to keep coverage for past work is to
purchase "tail" or "extended reporting period" coverage. This covers past
work for a specified period of time into the future. It is usually offered
for a limited time after the policy expires, so don’t delay if you want
don't have appraisal insurance, today's climate should give you pause to
consider it. Appraisers are coming under greater scrutiny by lenders and
regulators in the wake of the fraud epidemic and the rising number of
defaults due to changing market conditions. When a loan goes bad, the
appraisal is always examined.
Home inspectors don't need to be coached about the wisdom of carrying E&O
appraisal insurance. Claims for them typically happen soon after the date of
If your business is slowing, think twice about canceling your insurance to
cut expenses. It may be a penny wise and a pound foolish should you face a
claim and have to bear the burden of your own defense costs. If you don't
have appraisal insurance, the current climate makes it worth considering.
The cost for insurance for appraisers is lower than nearly any other
profession. OREP’s minimum premium is only $455.
If you decide to cancel or not renew, ask your agent about "tail" coverage-
to cover your tail. If you are retiring, purchasing tail or ERP coverage
makes excellent sense.
If you're looking for great rates and fast, professional service, give OREP
a call! It pays to shop OREP.
Disclaimer: This article is written from an insurance perspective and is
meant to be used for informational purposes only. It is not the intent of
this article to provide legal advice, or advice for any specific fact,
situation or circumstance. Contact legal counsel for specific advice.
David Brauner is Editor of Working RE magazine and Senior Broker atOREP.org,
a leading provider of E&O Insurance for appraisers, inspectors and other
real estate professionals in 49 states. He has covered the appraisal
profession for over 20 years. He can be contacted at
email@example.com or (888) 347-5273. Calif. Insurance Lic. #0C89873.
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