Should I Attach my E&O?
Should I attach my E&O Declarations Page to My Appraisal Report?
Because some AMCs still wrongheadedly insist that appraisers do it, we are asked this question a lot: “should I attach my E&O declarations page to my appraisal report?” The answer is always the same: it’s a bad idea. It’s bad for both the appraiser and the client/AMC. It is perfectly reasonable for a client or an AMC to ask for proof of E&O insurance and ask to receive updated insurance information each year. That’s common to many professions, but there is no good reason to require that the information be included within or attached to appraisal reports. (Lawyers like myself certainly don’t attach proof of insurance to our opinion letters or legal briefs.)
Why is it a wrongheaded practice?
Let’s start with this basic fact: the insurance policy that the appraiser has at the time of performing an appraisal and thus the policy that the appraiser would attach to a report will most likely be irrelevant to any insurance that the appraiser may have if a claim later arises. The reason for this is that all appraiser E&O insurance — like almost all other professional liability insurance — is issued on a claims made basis. This means that the policy that will cover the appraiser is not the policy that the appraiser had in place on the date of the appraisal but rather the policy that the appraiser has in place years later when the lawsuit is filed or the claim asserted. Since almost all claims relating to appraisals arise years after delivery of the report, whatever policy may be attached to the report is usually irrelevant. (Note: for AMCs, the more critical issue for them to look out for regarding an appraiser’s E&O insurance coverage is to make sure that their panel appraisers are not losing coverage for prior appraisal work by moving to policies which will not cover prior acts. See “A Serious Warning for Appraisers and AMCs About Some Risky E&O Insurance.”)
So that makes the practice wrongheaded. Why is it a bad idea from a risk point of view?
The main reason why we advise against attaching E&O information to reports is that to some degree it does result in more claims being asserted against both appraisers and AMCs. A majority of claims these days are filed by property owners and borrowers. These parties are neither clients nor intended users. Attaching E&O information to an appraisal report simply invites a few more of these parties to threaten or bring claims. I don’t want to overstate the problem because the existence of insurance does not have anything to do with most claims — lenders and borrowers will generally sue regardless. But for a few people, seeing insurance information attached to a report will spark the idea of making a claim. We’ve seen claims from homeowners who’ve alleged things as petty as square footage being off by 2% and then expect a payment as if your E&O were a manufacturer’s warranty. (Claims like this, of course, are defended and rarely result in any recovery to the claimant.)
We realize that some AMCs and lenders nevertheless require appraisers to attach their E&O to reports. There’s no law or regulation against that, but we suggest that the appraiser try to reason with them and explain:
- You are happy to supply the AMC or lender with a copy of your E&O declarations page that they can keep on file.
- Attaching your E&O to your report not only exposes you to unnecessary risk of claims by third parties but it also makes it more likely that the AMC or lender will be dragged into a case filed by a homeowner or borrower. (Yes, we’ve seen AMCs themselves dragged into lawsuits as a result of problems that arose in connection with E&O being attached to a report.)
If those lines of reasoning don’t work, we suggest attaching your E&O information only when required for a specific client. Don’t make it a general practice.
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AMC’s are not accepting reports w/ the E&O. It’s become a standard condition on the engagment letters.
Just tell them NO and send it separately. I do and the liability is greater when you do attach it. Besides it is because they are too lazy to send the copy you already sent them. The lender already has a file on the loan and adding a separate document to that file is not that difficult. I worked for an appraisal company that always sent it and he was always getting sued by borrower or homeowner for some minor item that did not change the value of the property. (More hassles, You can please some of the people some of the time and some of the people all of the time but you can’t please all of the people all of the time) You want hassles keep adding it. Besides like the attorney said it probably isn’t going to be the same policy. What if you change to a different insurance company. The new company with prior acts will be the one insuring you. Once all appraisers refuse then the AMC’s will get off this kick. Many of them think your insurance policy protects them. I have even been ask by some of them to add their name to my policy. BS. They are not my staff or employee.
I have included the language below into my reports. I work exclusively with AMC’s and none have pushed back. You all should do likewise. If an AMC refuses to give you work, get it in writing and sue them into oblivion.
Errors and Omissions Coverage:
At the advice of counsel, the appraiser has not included a copy of the E&O Declarations page within this report. This practice has been adopted primarily to protect the appraisers right to privacy. Appraisal Management Companies are required under Federal lending guidelines to monitor, vet and approve appraisers, which includes requiring appraisers to supply necessary documents, such as E&O binders to the AMC in advance of receiving assignments. There is no requirement under Federal lending guidelines for the appraiser to include a copy of E&O coverage within the appraisal report. Requiring the appraiser to accept terms of engagement, whereby the appraiser is required to include a copy of E&O coverage, makes the terms of engagement conditional upon waiver of privacy rights. If, the Lender has need of a copy of the Appraisers E&O coverage, it may be obtained outside of the appraisal assignment from the AMC or the third party facilitating the appraisal engagement on behalf of the Lender.
Interesting discussion!