Property professionals operate today in an environment of ever-increasing requirements for better transparency, disclosure, accountability and governance. Professional indemnity cover in the real-estate world is very similar to medical malpractice cover for doctors. While the sale or rental management of a client’s home may not require the precision of a surgeon, even a simple property deal or rental management can potentially be fraught with pitfalls that can land even the most diligent real-estate professional in a legal and financial conundrum.
PI cover for estate agents responds to the legal liability of all registered agents in the course and scope of their professional duties as a result of an error, negligence and/or omissions.
The cover typically comes in handy when a dissatisfied buyer or seller lodges a claim against an agent for giving the wrong advice; for an incorrect property evaluation; listing the property incorrectly; failing to disclose defects in a property or for misrepresentation. As the name suggests, professional indemnity cover does not cover claims of outright fraud or criminal acts. The only loss that may be recovered in the event of a claim is the actual financial loss that the claimant may have suffered as a result, and legal defence costs.
According to Clarissa Rizzo, Business Unit Manager of Professional Risks at Aon South Africa, professional indemnity insurance essentially provides an estate agent with indemnity in respect of legal liability arising out of the practice of their profession.
“Professional liability doesn’t just arise from a contract to do work for someone, but exists in common law and as such liability for damages can arise out of Errors, Omissions or Negligent Acts while rendering – or failing to render – a professional service. Any person who suffers harm as a result can have a claim against you,” explains Clarissa.
PI cover will include the professional’s own legal costs, as well as any damages and legal costs that are due to the claimant, up to a defined limit – which is why the limit purchased should always be considered carefully. Professional indemnity cover should be in accordance with the property market values that you operate in as an absolute minimum.
“Many estate agents that enquire about a professional indemnity policy are skeptical about its merit, assuming that only careless professionals have to worry about a claim being lodged against them. This is not always the case, and even if an agent has acted in full accordance with the law and professional standards, if a claim is lodged against them they will need to defend their position and actions in a legal process, the defense costs of which can be onerous. Considering that a day in a high court could be in excess of R150k per day and that claims are typically long tailed by nature, taking years and huge legal costs before being finalised, the need for PI insurance to protect your reputation and ability to work as a professional is crucial,” explains Clarissa.
A practitioner without PI protection could be liable for these costs, facing financial and reputational ruin. It is essential to take the best possible precautions when it comes to your legal exposure in the property market, as it simply is not worth putting your reputation and livelihood at risk.
The following PI claims examples illustrate the need for PI cover for estate agents:
- The owner of a property brought a claim against the real estate agency for damages caused by the building contractor that had attended to repairs to the property.
- In another matter, the owner claimed that due to the negligence of the agent, the owner lost out on a prospective tenant.
- An owner made a claim where the agent was supposed to collect the rental and failed to do so.
- Another claim alleges that the agent failed to conduct proper inspections when the tenant vacated.
“This is one market where ‘trusted and well-established’ expertise is critical when it comes to choosing an insurer to place your PI cover with. The services of an expert broker are vital in evaluating your unique exposure to risk as a professional. A broker with sector specific experience is invaluable in ensuring that your cover is adequate to cover your exposure to risk, complying with any professional body or legislated requirements, and that you are not exposed under any exclusions and conditions that may exist on your policy,” concludes Clarissa.