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Who Needs Prior Acts Coverage?

Who Needs Prior Acts Coverage?

Don’t be fooled by marketing gibberish that might imply that you don’t need to maintain your
prior acts coverage in your Real Estate Errors and Omissions Insurance policy.


I realize that these are tough economic times and with the downturn of the real estate
market many Real Estate Appraisers are struggling to survive. However, one of the most
important business decisions you can make is to continue your Errors and Omissions
insurance coverage. No one ever thinks they are going to have a claim. However as long
as homeowners continue to struggle to meet mortgage payments and fall short of refinance
requirements due to lowered property values, Real Estate Appraisals will be scrutinized and

Many Real Estate Appraisers assume that if they paid for an insurance policy then they
have coverage under that policy forever. This is not true and this not how claims-made
policies works.

If your policy is written on a claims- made basis (most professional liability policies are), then
your prior acts date is typically the date of the first policy you purchased. Some carriers will
offer what is called “full prior acts”. This means that there is no specific date in the past that
your prior acts are limited by. Your prior acts date is carried forward each year if you renew
your policy without a lapse in coverage. You are then covered back to your prior acts date in
the event of a claim subject to your policy terms, conditions and exclusions.

Let’s demonstrate how a claims-made policy works.

John Smith purchased a Real Estate Appraiser policy on 2/1/2000. He renewed his policy
each year by 2/1 to avoid having a lapse in his coverage. His current policy will have a
prior acts date on it of 2/1/2000. Mr. Smith’s policy would respond to a claim that is reported
during his current policy period for work he performed between 2/1/2000 and 2/1/2011
subject to the terms, conditions and exclusions of the policy form.

If Mr. Smith were to switch insurance companies before his current policy expired on
2/1/2011, his new carrier should pick up his prior acts coverage back to 2/1/2000 and the
new insurance company would respond to a new claim that was reported during the policy
period for work done between 2/1/2000 and 2/1/2012.

If Mr. Smith let his policy lapse and did not renew it on 2/1/2011 or went with an insurance
company that did not offer prior acts – should he have a claim for work he did between
2/1/2000 and 2/1/2011- he would have no coverage unless he purchased an Extended
Reporting Period Endorsement.

Most claims or complaints are reported several years after the actual appraisal was
performed. There are statutes of limitations which typically vary by state and by allegation
that may protect a Real Estate Appraiser from being held responsible for damages.
However there is still the cost of defense which can far exceed the cost of your insurance

An Extended Reporting Period is an Endorsement you can purchase from your current
carrier during a specified time period if you do not renew your policy, retire, switch to
another carrier who does not provide you with prior acts coverage or let your policy lapse. It
is an extension of time you can purchase from the carrier to respond to a claim for work
done between your prior acts date and your policy expiration date. Costs vary depending
on your insurance company. Some may offer free options for Retirees and Death and
Disability as well as options you can purchase for a one, two or three year period of time.
An Extended Reporting Period does not cover any services performed in the future.
It only provides an extension of time in which to report a claim for work done in the past. It is
a onetime option available to an Insured and once the Extended Reporting Period expires
it cannot be renewed.

The long and the short of it is – giving up your prior acts coverage may be one of the worst
business decisions a professional could make. All those years of maintaining adequate
protection by renewing each year and keeping your prior acts coverage would be gone- just
when you need the coverage the most. Maintain your prior acts coverage until you no
longer are performing any professional services then review your policy options and/or
discuss with an Insurance professional your Extended Reporting Period options.

Betsy A. Magnuson is the President of the Herbert H. Landy Insurance Agency and has
been involved in Errors & Omissions Insurance for over 25 years. She can be reached at
betsy@landy.com or 781-292-5408.

The Herbert H. Landy Insurance Agency, founded in 1949, is a national leader in providing
Errors & Omissions and Professional Liability Insurance to Real Estate Appraisers, Real
Estate Agents and many other professionals. Visit our website at www.landy.com

The terms, definitions and examples of insurance coverage are used here for demonstration
only. Insurance policies and coverage can vary widely amongst insurance companies and
you should consult an insurance professional and your policy for more information

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