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 of a client’s home may not require the precision of a surgeon, even a simple property deal can potentially be fraught with pitfalls that can land even the most diligent real estate professional in a legal conundrum.
The Estate Agency Affairs Board (EAAB) has arranged professional indemnity cover for all registered estate agents, brokered through Aon South Africa, insurance brokerage and risk advisors. The cover is based on an ‘each and every’ claim basis and responds to the legal liability of all registered agents in the course and scope of their business as a result of an error, negligence and/or omissions.
It is important to note that a claim is only valid if a complaint is lodged by an independent third party, which means that the intention of the cover is to protect consumers at large. 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, for misrepresentation or for a breach of contract, to name a few.
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.
According to Jenny Jooste of insurance brokers and risk advisors 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. “Indemnity cover will include the professional’s own legal costs as well as any compensation and legal costs that are due to the claimant, up to the value of R1-million; with an excess payment of up to a maximum of R25 000 per claim, which is the responsibility of the agent, board or company involved,” explains Jooste.
While cover of R1-million may sound excessive, it is a drop in the ocean in comparison to South Africa’s climbing property values. “Many estate agents may never see a claim filed against them, but litigation can become expensive and protracted. This is especially true when a professional estate agent is dealing with properties in the upper end of the property market that are valued from R5-million and upwards,” says Jooste.
Estate agents will greatly benefit from topping up their professional indemnity cover in accordance with the property market values that they operate in. “Many estate agents who enquire about a professional indemnity policy are sceptical 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 defence costs of which can be onerous,” explains Jooste.
“A practitioner without PI protection would be personally liable for these costs and would run the risk of having all their assets attached and facing financial and reputational ruin. It is therefore 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,” says Jooste.
The services of a professional broker could well prove to be invaluable in evaluating your exposure to risk as an estate agent. “A professional broker will be able to advise whether your professional indemnity cover is adequate to cover your exposure of risk. Your broker will also be able to confirm what exactly you are covered for under the EAAB’s professional indemnity scheme and advise you of any exclusions and conditions that may exist on your policy,” concludes Jooste.