1.4 E&O Insurance and the (Repealed) Recovery Account
Key Takeaways
- Montana requires all active licensees to carry continuous E&O insurance; the Board sponsors a RISC group policy
- The current RISC group program runs about $168/year with $100,000 per-claim and $300,000 aggregate limits and a $1,000 damages deductible
- A lapse in E&O coverage moves the license to inactive status — the licensee cannot practice until coverage is restored
- Montana REPEALED its real estate recovery account in 2019 (HB 376); claims had to be filed by January 31, 2021 and remaining funds went to the Housing Montana Fund
- With the recovery account gone, mandatory E&O insurance is now the primary financial protection for harmed consumers
Montana's consumer-protection design is unusual, and recent law changed it significantly. Two topics belong together: the mandatory E&O insurance every active licensee must carry, and the real estate recovery account — which Montana repealed in 2019. Get the current state of the law right; older study guides describe a recovery account that no longer exists.
Mandatory E&O Insurance
Montana requires every active broker and salesperson to maintain continuous Errors & Omissions (E&O) insurance. E&O is professional-liability coverage that responds to claims of negligence, errors, or omissions in the licensee's real estate services. It is required before a license is activated and must stay in force the entire time the license is active.
The Board's RISC group program
The Board sponsors a group E&O policy administered by Rice Insurance Services Center (RISC). Licensees may enroll in this group policy or obtain a private policy that meets Board standards.
| Feature | Current group program |
|---|---|
| Administrator | Rice Insurance Services Center (RISC) |
| Approximate premium | $168 per licensee per year |
| Limits | $100,000 per claim / $300,000 aggregate |
| Deductible | $1,000 damages deductible (no separate defense-cost deductible) |
| Coverage period | Aligns with the November 1 license-year cycle |
| Carrier | An A-rated insurer (CNA/Continental) |
Exam tip: Know that coverage must be continuous. The per-claim limit ($100,000) and aggregate ($300,000) are testable specifics, as is the requirement that coverage exist before activation.
What happens if E&O lapses
E&O coverage is tied to license status. If a licensee's coverage lapses:
- The license is moved to inactive status.
- The licensee cannot practice real estate until coverage is restored.
- Renewal on active status requires proof of current E&O.
Because the group policy renews around November 1 (the start of the license year), licensees must coordinate E&O renewal with license renewal. A gap of even a few days can render the license inactive and any practice during the gap a violation.
Why this matters more now: Since Montana repealed its recovery account (below), E&O insurance is the primary financial remedy available to a consumer harmed by a licensee's negligence. The Board treats coverage as essential consumer protection, not a formality.
The Real Estate Recovery Account — REPEALED (2019)
For decades Montana, like many states, maintained a real estate recovery account: a fund (built from licensee fees) that could pay consumers who won a court judgment against a licensee for fraud or misconduct but could not collect it.
That account was repealed by the 2019 Legislature (House Bill 376). Under the repeal:
| Item | Outcome |
|---|---|
| Status | The recovery account (former MCA Title 37, Ch. 51, Part 5) is repealed |
| Final claims deadline | Claims had to be completed by January 31, 2021 |
| Remaining funds | Transferred to the Housing Montana Fund |
| Replacement protection | Mandatory E&O insurance now serves the consumer-protection role |
So if an exam question asks about a current Montana recovery account paying $15,000 or $50,000 per transaction, the modern correct answer is that Montana no longer operates a real estate recovery account — those former dollar limits are historical.
How Consumers Are Protected Today
With the recovery account gone, a consumer harmed by a licensee's conduct has these avenues:
- File a complaint with the Board, which can investigate and discipline the licensee (fines, suspension, revocation). Discipline punishes the licensee but does not, by itself, repay the consumer.
- Pursue a civil claim against the licensee for damages.
- Reach the licensee's E&O coverage when the claim involves covered negligence/errors — this is the principal financial recovery route today.
Key distinction: E&O insurance covers negligence and mistakes, not intentional fraud or criminal conversion of funds. For intentional wrongdoing, the consumer relies on civil judgments and the Board's disciplinary powers — there is no state fund to backfill an uncollectible judgment anymore.
Exam Strategy
Expect at least one question probing whether you know the recovery account still exists. The defensible, current answers: (1) all active licensees must carry continuous E&O insurance; (2) the RISC group program is about $168/year with $100k/$300k limits; (3) Montana repealed its recovery account in 2019, leaving E&O as the main financial protection.
What E&O Covers — and What It Does Not
Drawing the coverage line precisely is testable. E&O is a claims-made professional-liability policy that responds when a client or third party alleges the licensee made a negligent error or omission in real estate services.
| Typically covered | Typically excluded |
|---|---|
| Negligent misstatement of square footage | Intentional fraud or misrepresentation |
| Failure to convey an offer through oversight | Conversion/theft of trust funds |
| Missed deadline causing a client loss | Criminal acts, fines, and penalties |
| Inaccurate but good-faith advice | Punitive damages (often excluded) |
| Clerical/paperwork errors | Liability assumed under another contract |
The $1,000 deductible is the licensee's per-claim share; the carrier defends and indemnifies up to the $100,000 per-claim limit, capped at $300,000 aggregate for the policy period. Because the policy is claims-made, coverage must be in force when the claim is made — another reason Montana mandates continuous coverage, since a gap can leave a later claim uninsured.
Exam contrast: A salesperson who negligently states the wrong lot size likely has an E&O-covered claim; a broker who steals earnest money does not — that is conversion, excluded from E&O, and handled through civil suit, restitution, and Board revocation.
What is the current status of Montana's real estate recovery account?
What are the per-claim and aggregate limits of the Board's RISC group E&O policy?
E&O insurance generally covers which type of licensee conduct?
If a Montana licensee's E&O coverage lapses, what happens to the license?