Every real estate brokerage pays for Errors & Omissions insurance hoping they’ll never need it. But when a claim lands on your desk and you forward it to your carrier expecting backup, few things sting worse than receiving a multi-page letter that ends with two words: Coverage Denied.
We recently reviewed a real-world denial letter issued by a carrier on a Palomar Specialty E&O policy — and it’s a masterclass in why agents and brokers need to understand what their policy actually covers before a claim arrives.
What Happened
A real estate agent affiliated with a brokerage posted a statement on their personal Facebook page commenting on immigration enforcement activity in their area and its potential impact on construction timelines and new home sales. Another agent filed an ethics complaint with the local real estate board, alleging the post violated multiple Articles of the Code of Ethics — including provisions related to Fair Housing, truthfulness in advertising, and conduct harmful to public trust.
The brokerage’s designated broker promptly reported the ethics complaint to the E&O carrier. The carrier’s third-party claims administrator reviewed the complaint against the policy language and issued a formal declination.
Why Coverage Was Denied
The denial hinged on two critical policy definitions that every real estate professional should understand.
First, the policy’s Disciplinary Action supplementary payment benefit — which under the PBI Group Endorsement provides up to $100,000 for attorney’s fees and costs in responding to board proceedings — requires that the disciplinary action arise from a “Wrongful Act in the performance of Real Estate Professional Services.” The carrier determined that a personal social media post was not made in the performance of real estate professional services. The agent wasn’t showing property, writing an offer, or advising a client when the post was published.
Second, the ethics complaint did not allege a “Wrongful Act” as the policy defines it — meaning negligence, or a Personal Injury offense like defamation or invasion of privacy committed in connection with rendering real estate services. The complainant alleged the post was unprofessional and potentially discriminatory, but the policy’s specific enumerated offenses weren’t triggered.
The Takeaway for Brokerages
This case illustrates a truth that too many brokerages learn the hard way: E&O insurance is not a blanket shield for everything a licensee does. It is a precision instrument tied to specific definitions, and the words “in the performance of Real Estate Professional Services” act as a gatekeeper for nearly every coverage trigger in the policy.
Here’s what you should be doing right now:
Know your policy’s Professional Services definition. Under the PBI Group/Palomar policy, this definition is intentionally broad — covering agents, brokers, leasing agents, property managers, BPO services, business brokers, and more. But it still requires a nexus to actual professional service delivery. Personal social media activity, no matter how closely tied to the industry, may fall outside that boundary.
Understand the Disciplinary Action benefit. Many commodity E&O policies cap disciplinary proceeding coverage at $10,000 per action and $50,000 aggregate — and some don’t offer it at all. The PBI Group Endorsement raises this to $100,000 aggregate. But regardless of the dollar amount, the same “Wrongful Act in professional services” requirement applies. The benefit is powerful, but it has boundaries.
Train your agents on social media risk. This is arguably the most actionable lesson. The brokerage in this case did everything right — they reported the claim promptly, they had a quality policy in place. But no E&O policy is designed to cover the reputational and regulatory fallout from an agent’s personal social media activity. That’s a risk management issue, not an insurance issue.
Read denial letters carefully. A well-written denial letter is essentially a roadmap of your policy. It quotes the insuring agreement, the relevant definitions, and explains exactly where the factual allegations fail to meet the coverage requirements. If you ever receive one, don’t just file it away — study it. And if you believe the denial is incorrect, the letter itself will typically direct you to your state’s Department of Insurance.
The Bottom Line
Coverage denials aren’t always about having a “bad” policy. Sometimes the facts simply don’t fit the coverage grant, no matter how broad the policy language is. The real question is whether your policy gives you the widest possible coverage for the risks that do fall within professional services — things like Fair Housing claims, property management disputes, lock-box and open house incidents, and the defense costs that come with them.
That’s the conversation we have with every brokerage we work with. Not just “are you insured?” but “do you understand exactly when your insurance shows up for you — and when it doesn’t?”
If you’d like a complimentary review of your current E&O policy, reach out to us at PBI Group. We’ll show you exactly where your coverage stands — and where the gaps might be hiding.
