E&O Insurance

[KYLECODY]

Just heard it from a real estate lawyer today. A LLC is supposed to completety protect you as they can only sue the business if its business related.. The lawyer did recommend both LLC and E and O as he states a really good attorney can get around the LLC and prove your finances are mingled and go after your personal stuff also. So the bottm line as others have said is do both, hedge your bets...This is in Colorado but he said an LLC is the same regardless of state.

 

[Travis McGee]

Kyle,

Thanks this forum has turned out to be a very good source of info and support.

 

[Larboard]

Found this in the discussion of LLCs at the nolo law site:

- Only licensed professionals in one profession -- or in a group of related professions -- may own a membership interest in a professional LLC.
- The LLC must use a special LLC designator in its name -- typically the words "Professional Limited Liability Company" or the abbreviation "PLLC."
- Each member must carry a specified amount of malpractice insurance -- the LLC's shield of limited liability does not protect a professional from personal liability for his own malpractice. This is the rule in all states.

You need to research your states laws to see what professions may have special requirements for formation of LLCs.

The nolo law site

Also found the following at the Michigan Legislature site:

MICHIGAN LIMITED LIABILITY COMPANY ACT (EXCERPT)


Act 23 of 1993

450.4905 Professional limited liability company; license required; “employee” explained; effect of act on laws applicable to professional relationship and liabilities; liability for negligent or wrongful acts.
Sec. 905.

(1) A professional limited liability company shall not render professional services within this state except through its members, managers, employees, and agents who are licensed or otherwise legally authorized to render the professional services within this state. The term employee does not include secretaries, bookkeepers, technicians, and other assistants who are not usually and ordinarily considered by custom and practice to be rendering professional services to the public for which a license or other legal authorization is required.

(2) This act shall not be construed to abolish, repeal, modify, restrict, or limit the law now in effect applicable to the professional relationship and liabilities between the person furnishing the professional services and the person receiving such professional services and to the standards for professional conduct. A member, manager, employee, or agent of a professional limited liability company shall remain personally and fully liable and accountable for any negligent or wrongful acts or misconduct committed by him or her, or by any person under his or her direct supervision and control, while rendering professional services on behalf of the company to the person for whom the professional services were being rendered.

(3) The limited liability company shall be liable up to the full value of its property for any negligent or wrongful acts or misconduct committed by any of its members, managers, employees, or agents while they are engaged on behalf of the company in the rendering of professional services.


History: 1993, Act 23, Eff. June 1, 1993 .

(Bolding by me for emphasis.)

But again, the law may be different in your state.

Bruce

 

[Pam Wyant]

E & O saved me a bundle this year. Along with the homeowner and the realtor (both as a company and individually, even though they are a corporation) I was sued over a basement foundation. (First time I was ever sued) Totally unfounded since the buyer stated in the Summons that it was "not readily observable during a reasonably diligent inspection of the property". Even though I had disclaimers in my report, which eventually ended up in my obtaining summary judgement (being dismissed from the suit), the attorney fees alone would have been substantial. And believe me, you don't want to try to defend yourself without an attorney - the legal paperwork involved in a suit is mind-boggling. The attorney participated in 8 depositions, wrote numerous legal responses, filed required papers and motions. I'm not sure what the defense cost, but I didn't pay a dime - my E&O company paid it all. I do know that the homeowners, being without E&O, settled for $5,000, because it was cheaper than going to trial. Definitely a good investment on my $400 or so a year for a $300,000 policy. Since home values are fairly low around here, that amount seemed to be adequate, but I am considering increasing it, since the suit against me & the others was for $550,000 to cover "punitive damages". With the great aggravation just caused by being sued, it was a great comfort not to be forking over $$$ to an attorney to defend myself against a suit that should never have been filed to start with.

Don't kid yourself that without E&O you won't be sued. The homeowner didn't have E&O and they are the only ones that ended up paying anything.

Pam

 

[Larboard]

If you are going to speak to an attorney about the best business structure for your business make sure he is knowledgeable in that subject. Talking to a divorce, real estate, criminal, etc. lawyer is like going to a proctologist for an earache, they just aren’t versed in the subject area.

Make sure he knows that you are licensed/certified by the state as a real estate appraiser. In Michigan personal property appraisers do not have to be licensed. It is only a requirement of real estate appraisers. The lawyer may not even be aware of the licensing requirement.

Ask the lawyer how being licensed may affect your choice of business structure for your appraisal business. What do you need to consider?

Ask the lawyer how E&O, liability, and other insurance should be used for your business.

Find a good insurance agent. Ask him about E&O, liability, auto, and any other insurance you may need. If you were to injure someone during the course of going to, performing, or returning from an inspection having the right auto and liability coverage could be very useful.

Many times you will find it cheaper to get E&O from a company that specializes in it, rather than from your local insurance agent. So check with the specialty insurance companies too . If you have found a good agent he will tell you this.

Talk to your accountant and tax advisor about the business structure you intend to use and determine how to make it most advantageous to you from a tax and finance standpoint.

Ask all of them about the effect of hiring employees. In case you are or want to become more than a one man shop.

Call me paranoid, but I think that as long as you are in business there is someone out there who will see you as a target. You need to do as much as you can to get your defenses in place before they strike.

You now have a business advisory team made up of the lawyer, insurance agent, accountant, and tax advisor. Take them all out to dinner together and have a discussion about what is best for your business. Having a discussion with them all present will cause new ideas to be triggered. For example your accountant may say something that triggers an idea with your lawyer.

Add other resources to your team as you need them. You may want to add a financial planner at some point to help set up retirement programs for you and your employees for example.

Appraise well and prosper.

Bruce