201 KAR 11:220. Errors and omissions insurance requirements.
RELATES TO: KRS 324.010, 324.020, 324.395
STATUTORY AUTHORITY: KRS 324.282,
324.395(4), (5)
NECESSITY, FUNCTION, AND CONFORMITY: KRS
324.282 requires the Kentucky Real Estate Commission to promulgate administrative
regulations to carry out and enforce the provisions of KRS Chapter 324. KRS
324.395(4) allows licensees the option of obtaining errors and omissions
insurance independently, and KRS 324.395(5) requires the commission to
determine the terms and conditions of errors and omissions insurance coverage.
This administrative regulation sets forth procedures and standards for
obtaining insurance independently.
Section 1. (1) An insurance company
providing real estate errors and omissions insurance for real estate licensees
shall provide a signed certification to the insured licensee which shall
confirm that the obligations of the insurance company meet the minimum requirements
set forth in this administrative regulation.
(2) A licensee who chooses to be insured
by other than the group insurance policy obtained by the commission shall file
the private carrier certification of coverage with the license renewal application
in accordance with KRS 324.395(6). This certification shall be available on the
commission's Web site, www.krec.ky.gov, and shall be included in the yearly
renewal package mailed to all principal brokers.
Section 2. The insurance for which the
certification has been executed shall not be terminated, cancelled, lapsed, or
nonrenewed unless the insurance company has provided the commission with prior
written notice.
Section 3. The minimum requirements for
the coverage contained in the insurance policy for which the certification has
been executed shall provide that: (1) Coverage shall be that known as real
estate agents errors and omissions insurance or real estate agents professional
liability insurance.
(2) The limit of liability shall not be
less than $100,000 for any one (1) claim, excluding the cost of investigation
and defense, nor less than $1,000,000 annual aggregate limit of liability, excluding
the cost of investigation and defense. A principal broker who decides to
purchase independent errors and omissions "firm coverage" insurance
shall have the following aggregate amounts:
(a) One (1) to forty (40) licensees shall
carry a $1,000,000 annual aggregate; or
(b) Forty-one (41) or more licensees
shall carry a $2,000,000 annual aggregate.
(3) The maximum deductibles, which may be
separate deductibles, shall not exceed $2,500 for judgment or settlement and
$1,000 for the cost of investigation and defense.
(4) Coverage shall apply for any covered
claim resulting from a licensed activity that occurred subsequent to April 1,
1987, unless the claim had been made against the licensee before the present
insurance policy's inception or is insured by a previous insurance policy.
Section 4. Except as provided in Section
5 of this administrative regulation, coverage shall not exclude claims brought
against the insured arising out of an act or failure to act by the insured licensee
when performing a professional service for which a license is required by the
Commonwealth of Kentucky under KRS 324.020.
Section 5. Coverage may exclude claims
brought against the insured, regardless of whether the professional service
involves an activity for which a license is required by the Commonwealth of Kentucky:
(1) Arising out of a dishonest,
fraudulent, criminal or malicious act, error, or omission, if committed by, at
the direction of, or with the knowledge of the insured;
(2) Arising as a result of the insolvency
of the insured;
(3) Brought about or contributed to by
any inability or failure to pay or collect premium, escrow, or tax money;
(4) Brought about by any employee, or
former employee arising out of the contract of employment with the insured and
alleging breach thereof;
(5) Arising out of any injury or damage
which the insured either expected or intended;
(6) Brought about by bodily injury,
sickness, disease, or death of any person or physical injury to, or destruction
of, or loss of use of tangible property;
(7) Arising out of libel, slander,
defamation of character, false arrest or imprisonment, wrongful entry or
eviction or other invasion of the right of private occupancy, publications or
utterances in violation of an individual's right of privacy, or malicious
prosecution;
(8) Arising out of services performed by
the insured which are subject to the Employee Retirement Income Security Act of
1974, 29 U.S.C. 1001, as amended;
(9) Arising out of any violation of the
Securities Act of 1933, 15 U.S.C. 77a, as amended or the Securities Exchange
Act of 1934, 15 U.S.C. 78a, as amended or any state blue sky or securities law,
or similar state or federal statutes;
(10) Arising out of the conversion,
misappropriation, commingling, or defalcation of funds or other property;
(11) Brought against a real estate
property manager for failure to effect or maintain adequate levels or types of
insurance;
(12) Arising out of unlawful discrimination;
(13) Arising out of liability assumed by
the insured under any indemnity, hold harmless, or similar provisions or
agreements, except this exclusion shall not apply to liability the insured
would have in the absence of these agreements;
(14)(a) Arising:
1. Out of the insured's business; and
2. By or on behalf of an investor,
shareholder, or partner in any corporation, limited or general partnership,
real estate trust, or venture in which the insured has or had a participating
interest, directly or indirectly, in the profits or losses; or
(b) In connection with the insured's
activities as an underwriter, sponsor, partner, joint or coventurer, or member
in any real estate partnership, venture, or syndicate;
(15) Arising out of, relating to, or based
upon the dispersal, discharge, escape, release, or saturation of smoke, vapors,
soot, fumes, acids, alkalies, toxic chemicals, liquids, gases, or other materials,
irritants, contaminants, or pollutants. Pollutants shall include any solid,
liquid, gaseous, thermal, biological, or radioactive substance, material,
matter, toxin, irritant or contaminant, including radon, asbestos, chemicals
and waste. Waste shall include materials to be recycled, reconditioned, or reclaimed;
(16) Excluded by the Nuclear Energy
Liability Exclusion Endorsement (broad form) filed by the Insurance Services
Office, Inc. with the Kentucky Department of Insurance and identified as form
#IL 00 21 11 85;
(17)(a) Arising from the sale or property
management of property developed, constructed, or owned by:
1. The insured;
2. Any firm or corporation in which the
insured has a financial interest; or
3. Any firm coming under the same
financial control as the insured.
(b) This exclusion shall not apply and
coverage shall be extended to claims arising from the sale of real property, if
all three (3) of the following conditions are met:
1. The property was acquired by the
insured under a guaranteed sale listing contract;
2. The title to the property was only
temporarily held by the insured during the transit period, not to exceed one
(1) year, from acquisition to resale; and
3. The property is listed for sale during
the entire transit period; or
(18) Arising out of the interests,
operations, or activities of the insured as a mortgage banker or correspondent,
escrow agent, construction manager, or property developer. An insured shall not
be considered engaging in the activities of an escrow agent merely because the
insured holds earnest money deposits, rental deposits, or similar items. (14
Ky.R. 1021; eff. 12-11-87; Am. 1579; eff. 3-10-88; 33 Ky.R. 449; 720; eff.
10-6-2006; 33 Ky.R. 3434; eff. 8-31-07; 40 Ky.R. 365; 787; eff. 365; 787; eff.
11-1-2013.)
