Editor’s Note: The following story about E&O insurance is excerpted from the current issue of Working RE Magazine, mailing January 30. Also in the new issue, find the related story: “Having your Day in Court and Winning!” 

Cost of Not Having E&O
As much as we all complain about the rising cost of insurance, one thing is certain: we sure are glad to have it in place when we need it! While there is no hard evidence supporting the belief held by some that carrying E&O makes you a target, there are plenty of cases of appraisers and inspectors being sued - who don’t have it. (And you think you have trouble sleeping at night.)

“I think the notion that having E&O insurance will cause someone to sue you is absurd,” said appraiser Jo Anne Glantz. “It is very expensive and time consuming to sue, and in our field, there is simply not enough money involved to encourage people to bring frivolous lawsuits about appraisals. On the other hand, I believe that if we are in this business long enough there is a chance that some (**!!!!**) will sue. It is simply the odds of doing volume. If that day comes you have no protection at all without insurance. We are professionals, we should protect ourselves like professionals.” (Continued below.)

Doing the Numbers
According to appraiser Doug Smith, IFAS the arithmetic is simple. Smith is being sued for not reporting in a FHA appraisal that the insulation in a home was vermiculite that turned out to have asbestos. The case is headed for trial. The estimated cost to defend is $28,000.

“I can assure you that it mattered little whether I had insurance or not. This is a routine, everyday case but according to my attorney, even the simplest cases can wind up costing at least $28,000 to defend. If insurance costs $1,000 per year and you have only one case in all the years you are practicing, E&O insurance will pay for itself. When you look at the cost of defense, you can easily see why so many cases are settled quickly, even though the appraiser may be in the right.” (Bonus story below)

(For low rates and same day coverage (appraisers), visit http://www.orep.org/. Minimum premium for one appraiser is $455 annually (most states). Beginning appraisers are accepted into the program when they pass their state-licensing exam.)

Bonus Story: Trainees - Proceed with Caution!
The following is excerpted from the Liability Reporter, a risk management newsletter published by OREP for policyholders.

Many appraisers and inspectors have taken on or are thinking about adding a trainee to their firm to help meet the surge in demand. While taking on trainees is good for your business and good for the profession, the work product of your trainee can adversely affect your career and your reputation if you aren’t careful. This story illustrates why if you take on a trainee, it’s important to play it safe and properly oversee their work.

(OREP is able to provide E&O coverage to beginning appraisers who pass their state exam. For information, call or visit OREP.)

This particular case involves an appraiser. The problem appraisal occurred in the spring of 2000, with the case being resolved by the state appraisal board just recently, nearly one year after the complaint was first filed. The trainee in question is now certified and no longer works for the supervising appraiser. The initial complaint was filed against the trainee but it’s his/her ex-supervisor who is paying the cost.

According to the supervising appraiser, who wishes to remain anonymous (let’s call him Jim), the trainee took the photos and completed the research and measurements. There were some typos in the report and a mistake made by the trainee on the square footage, none of which the supervisor caught.

“There were also some red flags regarding the comps, so I asked (the trainee) if he/she had verified the sales data with the seller or buyer,” Jim said. “They said they had. I did not check myself. They had been working for me for years so I trusted them.”

According to Jim, the mistake did not affect the other comparables but the bank claimed it led to an overvaluation of the property. When the bank foreclosed it filed a complaint with the state Board. As is often the case with complaints against trainees, the supervising appraiser was dragged in.

“Apparently (the trainee) blamed me for the mistake. When I first responded, I was unfamiliar with the process and made some mistakes. To make matters worse, the attorney I hired stepped on a few toes at the Board, which made everything harder.”

In the end, Joe agreed to a consent order, which is now part of his permanent record. He also paid a fine and completed coursework. The trainee was given an essay to write, according to Joe.

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