A Look at Errors and Omissions (E&O) Policies

As Auctioneers, we know not to ever promise how much money an item being sold at auction will bring (unless we are willing to purchase it ourselves). All we know is that if it’s being auctioned absolute, it will sell to the highest bidder, and if it’s a reserve auction, then the item will sell to the highest bidder if the reserve price is reached. But what happens when we follow all the rules and everyone, including the seller is happy and on the same page, expectations have all been met and then after the auction, someone becomes unhappy with your services?

In this real-life claim situation, an elderly gentleman (we’ll call him Jim) entered into a written auction contract with the local Auctioneer to sell some of his and his deceased wife’s personal property. At the ripe old age of 86, Jim did not need or want all of these possessions anymore so he decided to dispose of them.

The auction was held on site, at Jim’s home. It was a beautiful day, and the auction was well attended by the public including neighbors, friends and even Jim’s family. After the last item was auctioned, Jim told the auctioneer what a good job he and his staff had done and how happy he was with the event.

The auctioneer reminded Jim that he would have his check and the final statement papers in a few weeks as stated in their contract.

However, not everyone felt the way Jim did. As it turned out, Jim’s children were not happy campers. The family thought that some items that were auctioned should not have been sold; as it turns out they wanted them, but they did not bid on them. In addition, when Jim disclosed to them how much the auction raised, his children became ever more furious with the auctioneer stating that “he sold items for less than they’re valued”. They discussed this with their father and soon convinced him that the auctioneer had taken advantage of him.

Although the contract was between Jim and the Auctioneer, now Jim’s children were involved. Therefore, they did what any good American family would do, they sued the auctioneer! How can they sue you might ask; the contract was between Jim and the Auctioneer. The family sued the Auctioneer claiming that their dad was not of sound mind and was not mentally competent to make decisions on his own or sign a contract. After all he is 86 years old and recently a widower.

As an Auctioneer, have you ever found yourself in this situation? Jim is a local guy whom you have seen around town for years. You know each other by sight, but you really don’t know him or his family, but when he contacted you to do his auction, you jumped at the opportunity. Jim lives alone, still drives and takes care of himself since his wife passed away and seemed very capable to you. But now, his family is claiming that the contract should not have been signed by Jim because he is not “mentally competent”.

The family says that “Jim’s mind is starting to go and that he wasn’t able to decide what to sell.” In the eyes of both Jim and the Auctioneer, the auction was a success, but now Jim’s children are unhappy and have decided to bring suit against the Auctioneer.

So…Where is the coverage?

In this situation, right or wrong is not going to matter; you are going to have to defend yourself against this type of suit, if one is brought against you or your company. The coverage for this type of claim is going to be in your Professional Liability or an Errors and Omissions policy. Both a Professional Liability policy and an Errors and Omissions policy provides coverage for the “professional services” you provide. However, only the services listed on the policy’s declaration pages are covered.

We like to say that an Errors and Omissions policy for an Auctioneer is similar to a medical malpractice policy for a doctor. It will cover you or your company when a third party claims that you were negligent, or made an error or omission in providing professional services as defined in the policy. The trigger for this type of claim is the law suit and coverage provided can be for both defense expenses and damages up to the limits of the policy. Therefore, it is very important to purchase adequate limits of coverage.

Similarly, if you provide other professional services in addition to auctioneering, such as a licensed real estate agent or as a personal property appraiser, you should also be covered for these services. You want to make sure that the definition of services on the declaration page lists all professional services that you or your business provides; otherwise you can assume that you DON’T have coverage for these services.

Jim’s auction raised about $35,000, but this law suit is going to cost upwards of $75,000 in both defense expenses and damages. Therefore, your Errors and Omissions policy is one of the most important policies that an auctioneer can purchase. This is coverage that you can’t afford to be without! It is the one policy that gets used the least, but when you do have a claim it will usually be for a large dollar amount.

2014-07-03T16:58:15+00:00