Friday, April 8, 2011

A Serious Warning for Appraisers about E&O Insurance

Excerpted from this article by Peter Christensen

"… No one can deny that appraisers, and the AMCs and lenders who hire them, are the subject of record levels of appraisal liability claims. The most frequent source of claims as a group continues to be financially troubled borrowers, who collectively account for more than 50% of appraisal-related claims, and the single biggest source of claims continues to be the FDIC. Most claims also continue to relate to appraisals delivered between 2004-2008.

"The reaction to this crisis by some E&O insurance providers has been to pull back from the risk faced by appraisers and severely limit appraisers' insurance coverage. This reaction is exposing many appraisers and the parties who hire them to risks for which the appraisers have no coverage. In the most extreme example, the Five Star Appraisers E&O program and certain underwriters at Lloyd's of London decided in late 2010 that they would not renew any insurance policies for appraisers who needed coverage for appraisal work they did in the past (aka "prior acts") and discontinued their existing policy. Instead, appraisers were offered the chance to purchase a new "no frills" policy which does not cover any of the appraisers' "prior acts" before the date of the new policy. This means that appraisers who choose this policy have no coverage under that policy for any appraisal work they have done in the past.

"…The new Five Star/Lloyd's is cheap -- and can be cheap -- because it provides no coverage for most of the claims that appraisers are now experiencing…"

The article includes a list of some of the most worrisome exclusions in the new Five Star coverage.

1 comment: