201 KAR 11:220. Errors and omissions insurance requirements

Link to law: http://www.lrc.ky.gov/kar/201/011/220.htm
Published: 2015

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      201 KAR 11:220. Errors and omissions insurance requirements.


      RELATES TO: KRS 324.010, 324.020, 324.395


324.395(4), (5)


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


      (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


      (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.