i forgot why i had my limits set so high so im wondering, . . . what about 500k/1mil? i thought 1M was the magic number to be at and a 2M i was just doing overkill...
Based on reviewing approximately 1,000 civil claims for damages against appraisers, I feel that professional liability limits of either $300,000 per claim and $600,000 aggregate for all claims, or $500,000 per claim and $1,000,000 aggregate for all claims, are sufficient for 95% of the appraisers I see. The reason I feel comfortable with these limits is that, even in cases of clear negligence or mistake by the appraiser, we are able to defend 99% of claims under these limits. The appraisers, I think, who need higher limits are those who regularly appraise properties with values over $1.5 million.
My problem is most AMC customers now want you to have $500k or more. Nowadays most of the properties I appraise are in the $40k-$100k range.
Your high limit might still be relevant to you if you formerly appraised properties with much higher values (say, over $850k), but obviously is nonsensical for the properties you are currently appraising. And, it probably won't surprise you that about half of AMCs, as far as I can tell, carry no insurance at all themselves; these AMCs usually wrongly rationalize "we don't need it because we require appraisers to be insured." That plan doesn't work out so well when the first claim rolls in. On the other hand, some upstart AMCs run into a lender like JP Morgan, which requires that their AMCs carry $10 million for E&O and a quiver of other coverages.
Again, Why does anyone need e and o..other than it being a cost of doing business.
No state requires that an appraiser carry E&O insurance, though it's being proposed in Colorado -- by the way, I don't think mandatory E&O is a good idea for appraisers (as opposed to real estate agents). So, mandatory E&O is not a reason to need the insurance.
If the only reason an appraiser carries E&O is to satisfy a lender or AMC requirement, then it probably is just "a cost of doing business" for that appraiser as you state and the appraiser might then just shop for the cheapest piece of paper that satisfies the requirement, regardless of whether the policy covers anything. There are policies that are very cheap and which will not cover prior acts, economic losses, opinions, FDIC claims, etc.
For other appraisers, the reasons to carry insurance are pretty much equivalent to the reasons I carry it as a lawyer: (a) mistakes really do happen even to good appraisers (a good appraiser might actually get square footage or zoning wrong, might make a critical typo or math error, might get sued over wrong information provided by a third party, might even miss the right comparables, or might fail to discover something that should have been observed on a site visit); and (2) no one can reliably control whether an irate lender, investor, borrower or the FDIC is going to choose to sue over even a supportable appraisal. However, if an appraiser doesn't have any income or assets to protect and is not likely to have anything to protect in the future, then that appraiser might not want insurance either.
Whether you have or don't have insurance, this is what you don't want:
FDIC Judgment.
-- Peter Christensen, LIA's general counsel
