Questions & Answers, 2003 Insurance Policy Year, Page 8 of 11
Q U E S T I O N S A N D A N S W E R S
Insurance Policy Period January 1, 2003 through January 1, 2004
ANSWERS TO QUESTIONS MOST FREQUENTLY ASKED ABOUT THE
NATIONAL ASSOCIATION OF REALTORS®
PROFESSIONAL LIABILITY INSURANCE
PROGRAM FOR ASSOCIATIONS OF REALTORS®
Quick Reference - What’s New?
How does the 2003 NAR Professional Liability Policy differ from the 2002 policy?
The changes below were made this year or in recent years. The insurance carrier remains Illinois National, which is a wholly-owned subsidiary of American International Group (AIG). The administrator of the program is Aon Risk Services.
Changes Made in 2003
¨ Exclusion for Patent Infringement and Misappropriation of Trade Secrets: Previously, patent infringement and misappropriation of trade secrets was not specifically excluded from the policy. Due to a corporate
decision made by our insurer, the exclusion for patent infringement and misappropriation of trade secrets has been added.
¨ Employment Practices Flex Option: Associations now have the option to purchase liability coverage* for costs relating to settlements or judgments for employment practices claims against the Association, Directors, Officers or staff arising from:
· hiring
· firing
· compensation
· employee privileges
· other terms of employment
*Please note that the Defense portion of this coverage is already offered under Insuring Clause IB of the policy. This is an enhancement to the coverage currently provided.
¨ Trademark Infringement:
· Previously, Insuring Clause IA provided coverage for claims resulting from Wrongful Acts, Personal Injury or Publisher’s Liability. This year, the definition of publisher’s liability has been expanded to include trademark infringement.
· Previously, Insuring Clause IB 6 provided coverage for copyright infringement of an MLS. It has been expanded to include both trademark and copyright infringement coverage for MLSs.
Changes Made in 2002
¨ Coverage Exclusion for Insured v. Insured Cross-Claims: Any claim brought about by one Insured against another Insured is excluded.
¨ Coverage for Antitrust Claims: The limit of liability for any covered antitrust claim is $500,000 under Insuring Clause IB. Associations may increase their limit of liability by purchasing additional coverage (see blue application).
¨ Increased Deductibles: All deductibles increased in 2002 at the request of the carrier in order to maintain the insurance program.
Administrative Changes
¨ Compliance with NAR policy: Mandatory policy changes effective January 1 must be in place by October 31 in order to be considered in compliance for insurance coverage purposes. Compliance with NAR policy is a pre-condition for coverage. An exception to this rule is granted if an association’s annual meeting is in November or December. In that case, mandatory changes must be adopted at that meeting. Please see the enclosed insert “Is Your Association in Compliance with NAR Policy?” for more information.
¨ Exclusion K: Associations are responsible for ensuring that any insurance program they endorse meets the requirements for a waiver of Exclusion K. It is not necessary to send in materials and obtain a waiver from NAR’s insurance company before endorsement. In the event of a claim involving the endorsement, the insurance company will request verification that the endorsed program met the requirements to waive Exclusion K at the time of the allegation made in the claim. Please see Question 16 for the criteria.
¨ Employee Handbooks: Associations no longer need to send employee handbooks to NAR for review in connection with employment practices coverage. A condition of coverage for employment practices claims is adherence to NAR’s Employer/Employee Guidelines. Associations must still follow these guidelines, and if a claim is filed involving employment practices, an association may be required to present verification to NAR’s insurance company that the guidelines were followed before coverage will be extended for the claim. Please see Question 15 for more information.
Please read the insurance packet carefully to understand the 2003 policy and contact Gayle Andrews, Aon Risk Services, at 312/381-7049 (via e-mail to ) if you have questions or need clarification. If she is not available, please contact Kelly Herget, NAR, at 312/329-8543 (via e-mail to ) or Mary Stark-Hood, NAR, at 312/329-8374 (via e-mail to )
PLEASE NOTE: IF THERE IS A CONFLICT BETWEEN POLICY LANGUAGE AND ANY INFORMATION PROVIDED IN THE FOLLOWING QUESTIONS AND ANSWERS, THE POLICY LANGUAGE SHALL CONTROL.
1. Q: What types of insurance does the NATIONAL ASSOCIATION OF REALTORS® provide under its insurance program?
A: Professional Liability (Errors & Omissions and Directors & Officers) Insurance.
2. Q: What is the objective in providing this insurance policy?
A: The objective is to provide the National Association and its constituent Associations with coverage against losses and/or claims expenses arising out of claims challenging the procedures or operations of the NATIONAL ASSOCIATION OF REALTORS® and Associations of REALTORS® when functioning as real estate trade associations.
3. Q: Is there coverage for Directors and Officers? For Association staff?
A: YES! Coverage is provided for Directors and Officers, volunteers and staff of Associations, if acting within their scope of authority on behalf of the Association. Please note that individuals performing work for the Association who are leased to the Association by a leasing company or employed by another company but working at the Association on a contract basis are not covered by this policy. The leasing or other company should provide those individuals with an errors and omissions policy while they perform work for the Association. Associations also are able to purchase coverage for leased employees through the flex plan relating to additional coverages. Please see Question 21 for additional information.
4. Q: Does the National Association's Professional Liability Insurance Policy automatically cover all state and local Associations?
A: NO! Coverage is extended only to those Associations that have a letter on file from the Member Policy Department indicating that their governing documents and operations conform to the Constitution and Bylaws of the National Association and the policies adopted, and amended from time to time, by the Board of Directors of the National Association.
Documents to be reviewed and approved by the Member Policy Department when mandatory changes are made to NAR policy include:
Ÿ Association Bylaws
Ÿ MLS Rules and Regulations
Ÿ MLS Bylaws (if the MLS is a separate corporation)
Ÿ Confirmation that the Association has adopted NAR’s Code of Ethics and Arbitration Manual and that Association counsel has certified that it is consistent with state law. If State Association counsel has certified that NAR’s Code of Ethics and Arbitration Manual is consistent with state law, or if the Association has adopted NAR’s Code of Ethics and Arbitration Manual as revised by the State Association to conform with state law, written notification of this fact will suffice. If the Association adopts procedures contrary to NAR’s Code of Ethics and Arbitration Manual, these differences must be identified and the Association must indicate which (if any) of these differences are mandated by state law.
As a condition for any coverage under this insurance program, the Member Policy Department must review any rules, regulations or policies of the Association that affect determination of Association membership or that impact on NAR's Constitution, Bylaws, Code of Ethics, Standards of Practice or policies as adopted by the Board of Directors. The above documents must all be in compliance for there to be any coverage under the Professional Liability Insurance Program.
In addition, further affirmative steps must be taken by an Association before coverage is available in two sections under Insuring Clause IB:
Ÿ Associations must implement and adhere to the lock box security requirements promulgated by NAR for Association-operated lock box systems in order to have claims expense coverage for lock box claims.
Ÿ Associations must adopt and follow NAR's Employer/Employee Guidelines in order to have claims expense coverage for employer/employee lawsuits. It is not necessary for an association to send its employment handbook to NAR for examination. In the event a claim is filed, the insurance company may request verification that the guidelines were followed when disciplining or terminating an employee.
Failure of the Association to take the necessary steps to invoke coverage in the above two sections (lock
box and employer/employee claims) will not jeopardize other coverage under the policy.
5. Q: Where should governing documents be sent to ensure that they are in compliance?
A: Your Association’s Bylaws, MLS Rules and Regulations and MLS Bylaws should be sent to Member Policy, NATIONAL ASSOCIATION OF REALTORS®, 430 N. Michigan Ave., Chicago, IL 60611.
6. Q: What is the cost of this insurance coverage to an Association?
A: The annual premium is paid by the National Association out of dues received from Associations. There is an extra charge if an Association elects to purchase excess insurance or to participate in the flex plan program. Please see Questions 19 through 22 for more information on excess insurance and the flex plan program.
7. Q: What kinds of claims are covered under the Professional Liability Insurance Policy?
A: Insuring Clause IA provides coverage for wrongful acts, personal injury or publisher’s liability (which includes trademark infringement) for claims resulting from providing membership services and the carrying on of other activities usual to a real estate trade association. Insuring Clause IA should be consulted for specific coverage questions. For example, certain claims arising out of the providing of professional services to members (e.g. Professional Standards enforcement, arbitration, new membership processing, Multiple Listing Services, etc.) are covered (subject to policy deductibles and limits), as are claims for libel or slander.
Insuring Clause IB provides coverage in eight areas for only attorney fees and costs (not liability) of the Association. The eight areas are: (1) lock box claims, if the lock box security requirements are followed; (2) antitrust and restraint of trade; (3) civil rights and fair housing; (4) sexual harassment claims; (5) employment practices claims if the Employer/Employee Guidelines are followed; (6) claims relating to trademark and copyright infringement of a MLS system; (7) claims arising out of the NAR Dispute Resolution System or the Counselors of Real Estate Dispute Resolution System when an insured Association functions as the mediation/arbitration service provider rather than referring cases to a third party mediation/arbitration provider; and (8) breach of contract claims.
8. Q: Are regional Multiple Listing Services covered under the policy?
A: YES! Claims arising out of the operation of a Multiple Listing Service which is jointly owned and operated by two (2) or more Associations are covered. This means that MLSs are insureds, and that coverage no longer flows through the shareholder association. When a claim is filed against a regional multiple listing service, the governing documents of the regional MLS must be in compliance with NAR policy. This is a pre-condition to coverage for the MLS. The compliance status of the shareholder associations will not impact the MLS’ coverage.
9. Q: Is there coverage for state or regional entities functioning in a multi-Association management/service capacity?
A: YES! Coverage is provided to state or regional entities that undertake management/service activities for a number of local Associations as long as the entity's governing documents comply with the National Association's policies and procedures.
10. Q: Are members of a Professional Standards Committee who are named as defendants in a lawsuit based on actions taken by the Professional Standards Committee covered?
A: YES! The coverage provided under the policy extends to those who serve in the capacity of committee chairmen or committee members, officers, directors and employees of the Association if acting within their scope of authority on behalf of the Association.
11. Q: Does the insurance provided to committee chairmen and committee members extend to their own real estate brokerage activities?
A: NO! The insurance policy does not provide coverage for a member's brokerage activities or real estate firm operations.
12. Q: If an Association is found to have violated antitrust laws and is required to pay damages, will this insurance cover the damages?
A: NO! There is no coverage under the policy for antitrust damages. The coverage is only for the costs incurred by the Association in defending itself, and then only up to the stated limits. The actual defense costs paid will be limited to costs incurred by the attorney or law firm appointed by the insurance company to defend the case and other claims expense which have been authorized or approved in advance by the insurance company.
Please note that the sub-limit for antitrust claims is $500,000.
13. Q: Is there any coverage provided for civil rights violation claims?
A: YES! However, the coverage provided is only for the cost of defense, as in the case of antitrust coverage.
14. Q: Is there any coverage for lawsuits brought against an Association arising out of the Association's operation of a lock box system?
A: YES! Specific provision is made for coverage of defense costs of the Association, but not keyholders, up to the applicable limit. This coverage is only available to Associations that have implemented and are adhering to the lock box security requirements promulgated by the National Association for Association operated lock box systems. Please note that if an Association chooses to sell lock boxes to its members, it could affect lock box coverage, depending on the Association's continuing role in administering the system and its ability to comply with the lock box security requirements.
15. Q: Is any coverage provided for employer/employee claims?
A: YES! Defense costs coverage is available for lawsuits against the Association and its Directors or Officers arising from hiring, firing, compensation, employee privileges or other terms of employment, up to the applicable limit, if the Association has adopted and follows the Employer/Employee Guidelines promulgated by the National Association. In the event a lawsuit is brought against an Association which alleges both discrimination and wrongful termination, only one limit will apply. NEW for 2003- Liability Coverage Available for Employment Practices Claims. See Question 22 for further detail.
16. Q: Does Exclusion K mean that if an Association endorses or promotes any professional liability, medical or life insurance program for its members that there is no insurance for claims arising because of the endorsement?