Questions about Colorado's Mortgage Broker's Errors and Omissions Insurance

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Why do I need E&O insurance coverage?
Colorado now requires a minimum of $100,000 in E&O professional liability insurance coverage per licensed mortgage broker for each covered claim. The state further mandates an annual aggregate limit of at least $300,000.00 per licensed individual, and a deductible of $5,000 or less. When this policy takes effect in January 2008, Colorado will join the ranks of a dozen other states that require this type of professional liability coverage.

As a mortgage broker practicing in Colorado, it is important to note that new licenses will not be issued, and previously existing licenses will not be renewed without proof of the state-prescribed minimum coverage. In addition, failure to carry Errors and Omissions (E&O) coverage can result in disciplinary action such as license suspension.

Basic pricing:
$500 for mortgage brokers in business 3 years or more.
$600 for mortgage brokers in business for less than 3 years.
Limits of Liability:
$100,000 per Claim / $300,000 Annual Aggregate Limit of Liability and a $1000 Deductible.

What is Errors and Omissions (E&O) Insurance coverage?

For mortgage brokers, E&O insurance functions much like "malpractice" insurance does for professionals in fields such as medicine and law. This form of professional liability insurance helps to bridge gaps in coverage most general liability insurance policies fail to cover. E&O policies can shield brokers from allegations of negligence directed toward their work, even when the complaint stems from a mistake made by an employee.

As the rules and regulations governing lending become more complex, taking reasonable care may not adequately protect you or your business from financially catastrophic losses through litigation. Below is a a partial list of common causes of litigation reported by the Georgia Association of Mortgage Brokers (GAMB):

  • Inadequate client credit or reference checks;
  • The inability to deliver a guaranteed interest rate due to market fluctuations;
  • Time delays on loan closures that result in excess customer costs;
  • Lost or misplaced paperwork;
  • Failure to properly follow instructions for escrow.

Since 1967, Richards, Seeley and Schaefer have provided specialized business coverage in Colorado. If you have any questions about E & O Insurance that isn't covered here we would invite you to contact us ».

What are the benefits of E&O coverage?

Because E&O insurance generally covers a broker's legal defense costs and indemnity payments ordered based on the losses of another party, it helps mortgage brokers to protect their businesses and their assets from many of the hardships associated with litigation.

Beyond the legal protections a good E&O policy can offer mortgage brokers, it also can help build business. E&O coverage can inspire greater trust in confidence among clients who may be daunted by the publicity the lending industry recently has received. Mortgage industry insiders, such as GAMB, say that professional liability insurance in the form of a good E&O policy helps to solidify the professional reputation of the policy holder.

Perhaps most importantly, in Colorado, E&O coverage is mandatory for mortgage brokers under state law.

What should I look for in E&O insurance coverage?

Eighty percent of lawsuits against real estate licensees are initiated by buyers, and the vast majority of those involve the condition of a purchased property, according to Realty Times on-line magazine. The publication also suggests that in an increasingly litigious world, E&O coverage is essential for real estate professionals who are concerned with protecting their assets, reputations and careers. Here are some tips for first-time and budget-conscious E&O policy shoppers:

  • Be prepared to meet the challenges associated with Colorado's E&O mandate; don't wait until the last moment to seek compliance with the law.
  • Look for experienced carriers that can handle your individual needs, or the needs of your firm.
  • Know the exclusions of your policy as well as what it covers.
  • Don’t buy a policy based solely on price; consider "the big picture" of what you're getting for your money.
  • Learn how frivolous complaints are handled by your carrier.
  • Take the time to learn about the policies and procedures used for claims resolution.
  • Ask about the prior-acts date, or the the retroactive date, to learn about the time elements that are a critical part of your coverage.
  • Know the basics about who in your office should be covered, your per-claim and aggregate limits, deductible amounts, and to what extent legal defense costs are covered in your policy.
  • Never let your policy lapse, as this could jeopardize your license, compromise your "prior acts" coverage and possibly expose you to state disciplinary action.
  • If you’re a broker, ask if your policy covers all of the professional services offered through your company.
  • Take the time to review independent contractor agreements and similar documents and ensure that the contracts require workers to cooperate and defend against claims or lawsuits, even after they have left the company.
  • Be aware of exclusions or limitations your policy may have regarding environmental hazards and charges of discrimination.

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How much does E&O insurance cost?

The cost of E&O insurance may vary based on a broker's revenue, loss history, and the extent to which businesses through which he or she offers services are covered. Though the cost of E&O coverage generally is inexpensive relative to coverage, the submission of an application is required for a price quote.

Basic pricing and coverage details:

Pricing: $500 for mortgage brokers in business 3 years or more; and $600 for mortgage brokers in business for less than 3 years.

Limits of Liability: $100,000 per Claim / $300,000 Annual Aggregate Limit of Liability and a $1000 Deductible.

What can I do to minimize my E&O insurance premiums?

Many risk-management practices can increase your chances for E&O coverage discounts, or premium credits, suggests Realtor Online magazine. Some of the following activities,in addition to maintaining appropriate and timely documentation of your work, can help to demonstrate your, or your firm's commitment to risk-reduction.

  • Attendance of loss-mitigation or risk-management seminars and state-required continuing education courses;
  • Use of industry-standard contracts and disclosure forms;
  • Demonstrate your professionalism with an absence of claims or complaints for an extended period of time (five years is considered by some, to be a benchmark reflecting an ongoing commitment to minimizing additional claims);
  • When home buyers purchase home warranty policies, some risks to brokers may be minimized. As a result, your E&O policy carrier may consider items such as these when calculating your premium amount.

What carrier can I trust to protect my license, my business and my future?

Since 1967, Richards, Seeley and Schaefer have provided specialized business coverage in Colorado. Richards, Seeley & Schaefer, Inc. is a company built on combining the traditional values of integrity, service and professionalism.

As independent insurance professionals we can help you find the coverage that best suits your particular needs and provides you with the greatest value. We invite you to call or visit our office and let us introduce ourselves. We are always ready to help, regardless of how large or small your insurance needs may be. If you have any questions about E & O Insurance that isn't covered here we would invite you to contact us ».

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