$1M Professional Liability (E&O) for Real Estate Service Firms

For property managers, inspectors and other real estate service firms: a $1M Professional Liability requirement usually means the policy pays up to $1M for each claim.

What does a $1M requirement mean for real estate service firms?

Professional Liability (E&O, short for Errors and Omissions) covers claims that a mistake in your work caused a client a financial loss. An example is a missed defect in an inspection report. A typical clause reads:

• Per claim: the most the policy pays for any one claim. Here, $1M.
• Aggregate: the most the policy pays for all claims in one policy year. Here, $2M. A $1M/$1M policy would not meet this clause. A $1M/$2M policy usually meets the limits in this clause.
• Claims-made: the retroactive date is the earliest work date the policy covers. Problems may surface years later, so clauses ask you to keep coverage afterward.
• "Covering the services": the policy's covered professional services must include everything you do for that client, such as owner's representative work, and not exclude it.

Who asks real estate service firms for $1M?

$1M is a common ask for property managers, community association managers and commercial inspection firms. Requirements vary by client and project, so read each contract's insurance section. You will often see $1M from:

• Property owners and real estate investment trusts (REITs) hiring a property manager for a building or portfolio.
• Condo and homeowners associations hiring a community manager.
• Lenders and buyers ordering commercial building inspections, environmental reviews or energy audits.
• Developers bringing in a construction manager or owner's representative to oversee a project.

Large owners or bigger projects may ask for $2M Professional Liability for real estate service firms, which doubles the per claim amount and often comes with a higher aggregate. If you mainly inspect buildings, see $1M Professional Liability (E&O) for home inspectors. If you mainly manage buildings, see $1M Professional Liability (E&O) for property managers.

How is $1M built?

At $1M, you usually need one primary policy (the policy that pays first). Excess layers (extra policies stacked above it) are rarely needed.

The form depends on your work. Property and community association managers often buy real estate E&O. Home inspectors often buy inspector E&O. Construction managers and owner's representatives often need construction manager professional liability or architects and engineers (A&E) coverage. Other services may fit a Miscellaneous Professional Liability form.

A commercial umbrella almost never covers Professional Liability (see Does a commercial umbrella cover Professional Liability?). Clients usually cannot be added as an additional insured (a named party with rights under your policy). Ask what the policy excludes (losses it does not cover), such as mold, asbestos or pollution.

What will underwriters ask for?

An underwriter is the insurer's reviewer who decides whether to offer coverage and on what terms. At $1M, they usually ask for:

• Each service you offer, with revenue from each, property types, and units managed or inspections done each year.
• Whether you collect rent, hold security deposits or manage reserve or trust accounts.
• Licenses, certifications and a sample report or management agreement.
• Prior claims, possible claims, and your current policy and retroactive date.

What affects the cost?

• Type of work. Higher-stakes work, such as construction management, may cost more.
• Revenue and property values. Larger portfolios mean bigger losses.
• Handling of funds. Control over rent, deposits or reserves usually raises the risk.
• Claims history. Prior claims can raise the price or narrow your options.
• Aggregate and retention. $1M/$2M usually costs more than $1M/$1M. A higher retention (the amount you pay on each claim before the policy pays, similar to a deductible) usually lowers the premium.

Frequently asked questions

Do I need $1M Professional Liability as a property manager or inspector?

Yes, if your contract or client requires it. Many owners, lenders and associations write $1M into the agreement, so read the insurance section before you sign. Whether a different limit fits depends on your services and risk.

Is $1M/$1M enough if my contract says $1M/$2M?

No. A $1M/$1M policy does not meet a $2M aggregate. Request new quotes for a $1M/$2M policy. Morrow can request them for you and ask carriers to keep your retroactive date and prior acts coverage (coverage for work you did before the new policy starts) where the market allows. In many cases it makes sense to keep your current policy in force until a new one is confirmed, so ask Morrow about timing before you change anything. Report anything that could become a claim to your current carrier before that policy ends.

Does Professional Liability cover a tenant's injury at a building I manage?

Usually not. Injuries and property damage at the building usually fall under General Liability (the policy for bodily injury and property damage claims). Professional Liability is for financial loss tied to your services, such as a missed lease deadline.

This article is general information, not legal advice or a coverage determination. Coverage depends on the actual policy wording, carrier underwriting and your contract terms.