ERRORS AND OMISSIONS INSURANCE

Among the many issues now being studied by the Real Estate Commission is the question of whether North Carolina real estate brokers and salesmen should maintain errors and omissions insurance coverage as a condition for active license status. The Commission has noted that five states (Kentucky, Tennessee, Louisiana, Iowa, and Rhode Island) have enacted legislation requiring real. estate licensees to maintain errors and omissions (E&O) insurance to indemnify consumers for losses sustained as a result of their careless or negligent acts. Other states are considering similar legislation.

Generally, the legislation requires the real estate licensing agency to contract with an insurance carrier for a group policy to cover all licensees; however, licensees may obtain insurance independently so long as it is comparable to the agency's policy. The policy normally provides for $100,000 coverage, a $2,500 deductible, and premiums not exceeding $100 per year [Note: If the agency is unable to obtain insurance at premiums of $100 or less, licensees are not required to be insured that year.] Persons whose licenses are on inactive license status are not required to obtain insurance, and licensees on active status who fail to obtain such coverage are placed on inactive status.

The North Carolina Real Estate Commission recognizes that there are both advantages and disadvantages to requiring errors and omissions insurance. It would be advantageous to persons who buy, sell, or lease real estate using the services of a real estate broker or salesman because it would give them recourse to the broker or salesman's insurance provider in the event the consumer is damaged by the negligent acts of the agent. Likewise, brokers and salesmen could also benefit by such a requirement. Licensees who currently purchase E&O insurance would probably realize a savings in premiums if the Commission were to arrange for a group policy for all licensees, and licensees who have not previously purchased E&O insurance would be better protected against losses sustained as a result of lawsuits alleging negligent or careless acts.

The obvious disadvantage would be the in

creased cost to those licensees who have chosen not to purchase E&O coverage but who want to maintain their licenses on active status. While this requirement would not affect persons whose licenses are on inactive status, the additional cost would impact most on "part time" brokers and salesmen who derive little income from their real estate activities. The Commission also acknowledges that by concentrating its efforts and energies towards implementing this program, it may be unable to simultaneously undertake other ambitious projects or programs which would require a substantial amount of staff time or funds.

To assist the Real Estate Commission in studying this issue, real estate brokers and salesmen are asked to complete and return the following questionnaire to the Commission office as soon as possible.