Sunday, February 9, 2014

"Fake" Appraiser E&O Insurance

For many appraisers and also some AMCs (appraisal management companies), the only reason they purchase professional liability insurance (E&O) is because a client requires them to show coverage in order to receive work.  The fact that some appraisers and AMCs only look at insurance as an "E&O ticket" leads to some unfortunate examples of fraud, which appraisers, firms, AMCs and clients should be aware of.

Before I get to the fakery, however, I'll explain that our purpose in providing E&O, and also the reason that most of our insureds purchase it, is because E&O first serves the insured by providing a defense for covered professional negligence claims against the insured and, then, if legal damages are established or resolved against the insured, paying those damages for which the insured is liable.  A big part of the value in this equation is providing access to knowledgeable, experienced legal counsel in connection with appraisal claims.  In other words, E&O insurance exists for the primary benefit of the insured appraiser or AMC.

Outright "Fake" E&O

Nevertheless, the reality is that because an "E&O ticket" is required just to get work from many clients, every year hundreds of appraisers and even a few AMCs fake their E&O coverage.  We see the evidence of this fact when clients, regulators or law enforcement contact us to inquire about an appraiser's or AMC's supposed coverage.  Most of this fraud, however, goes undetected because most lenders (and also most AMCs) perform no upfront diligence of E&O coverage, either regarding its actual existence or what a particular policy covers.  Thus, the fakery is usually not discovered until a claim situation arises -- unless the lender has had another reason to be suspicious.

The regular situations of fakery that we see are:

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Monday, February 3, 2014

General Liability Insurance for Real Estate Appraisers

Many appraisers are now being asked to carry general liability insurance by their clients -- in addition to the professional liability insurance that has been a standard requirement for many years.  This is partly the result of the OCC's new Risk Management Guidance for banks under its jurisdiction. The OCC's Risk Management Guidance was issued as a bulletin on October 30, 2013 and applies to the "third party relationships" that banks have with outside parties to whom they outsource services or functions.  This includes appraisers and AMCs.  As a result, we are seeing new insurance requirements appear for appraisers and appraisal management companies in service or contractor agreements with banks

As for appraisers, the most common change that we are seeing is that banks (or their AMCs) are often now requiring that appraisers carry CGL (commercial general liability) insurance as well as the E&O (professional liability) coverage that is almost a current universal requirement.  The typical limit required for CGL is $1 million per claim/occurrence.    

What is the typical additional cost of coverage to an appraiser for general liability insurance?

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