Foreclosure Cleanup - E&O Insurance vs Liability & How to Determine Which You Need in Your Business
Some foreclosure cleanup companies are saying they are being asked for proof of Errors & Omissions insurance by larger contractors before they can act as a subcontractor.
Here is a query received from a foreclosure cleanup business colleague just recently:
QUESTION: I have talked to my insurance agent, and if I am only doing trashouts, interior cleaning, and lawn maintenance, why are some of these large asset management companies requiring me to have errors and omissions insurance?
E&O Insurance vs. General Liability
Below is a detailed explanation of E&O versus General Liability Insurance so you are knowledgeable about insurance as it relates to the industry as you prepare to grow your business. You'll be
surprised at how often you'll know more than the person on the other end of the phone line seeking to give you work orders. This knowledge can help you land foreclosure cleanup jobs going forward because the person will immediately form a positive impression of your company.
Gist of E&O Insurance
Errors & Omissions insurance ("E&O"), also referred to as professional liability, is a form of business liability insurance for professionals such as Realtors, brokers, insurance agents, architects, third
party-type administrators and other business professionals. (Think malpractice insurance.) Its premise? To cover errors (mistakes) or omissions that lead to financial harm to another, which can really occur on almost any transaction in any profession.
E&O aids in protecting the professional or company from bearing the full cost of lawsuits (the defense) relating to the error, mistake or omission while providing the professional service. E&O does not
replace liability; it is a separate coverage from a standard general liability insurance policy.
Generally, foreclosure cleanup companies do NOT need Errors and Omissions insurance; but confusion arises (often in-house at property preservation companies) because the exact same vendor
sign-up application used for Realtors, brokers, and similar professionals working for property preservation companies is often used for foreclosure
cleanup service companies working for property preservation companies.
On that vendor application, there is indeed an area for Realtors and brokers to provide proof of E&O insurance -- and the E&O coverage requirement is the industry norm for Realtors and brokers.
What is General Liability Insurance?
Coverage under general liability insurance primarily includes claims against bodily, personal, and advertising injury, as well as property damage. Advertising injury covers damage from slander or false advertising. Liability insurance generally provides asset protection for a business
when it's sued for something that causes injury or property damage. The insurer pays the legal tab of a business in a covered liability claim or lawsuit under a general liability policy.
Just remember that E&O is really insurance to protect you and your business in the event a client alleges they've suffered a financial loss as a result of an error or an omission committed by you in the delivery of your professional services, whereas General Liability is designed to provide coverage to you for primarily
bodily injury, advertising, or property damage liability.
Query the Company Asking You for E&O
If a property preservation company or larger contractor asks you to provide proof of E&O, please query them to be
certain they really want your type of company to produce that type of insurance. Let them know you are a foreclosure cleanup company seeking to work with them on a subcontracting basis as a foreclosure cleaning service provider -- NOT as a Realtor or broker.
Impress upon them that you, of course, have the required general liability coverage and can provide proof so you can move forward registering as a subcontractor with their company.
Continued success with your foreclosure cleanup business.
NOTE: Throughout the internet and in real estate industry literature/publications, you may see the names mortgage field services, property preservation business, foreclosure cleanup, foreclosure cleaning, foreclosure clean-outs, foreclosure clean, clean foreclosures, cleaning foreclosures, REO trashout, REO trashouts, field asset services, property field services, field service, and field services used interchangeable. The main thing to remember is foreclosure cleaning and foreclosure cleanup generally refer to smaller entities; while property preservation generally refers to larger entities.