Is your Neighborhood Garage Sale covered by your E&O?

We have been asked over the years if events such as ice cream socials, holiday toy drives, garage sales, etc, conducted by real estate agents within their communities to market their personal/team brand are covered under their E&O policy. What if someone comes to an event and gets injured or worse, is the real estate agent/agency liability covered by their E&O policy? The short answer is no. Garage sales, come visit Santa, 5k charity races, wine tastings, etc. are communal events which are not “normal” activities performed by an agent providing real estate services.

Understandability many of these events are great ways to keep your name top of mind and create goodwill within your market but they have their own risk exposures. This liability can be address by a special event rider to your existing GL policy. Often these riders are a few hundred dollars and can cover multiple types of events over the yearly term of the policy. Considering most agents don’t carry a GL policy themselves, your agency can obtain a rider and pass through the incremental premium increase/ expense to those agents who conduct these types of community outreach events. Stay safe and covered because sometimes remorse is what you DON’T buy.

What is BI/PD Coverage and why do I need it?

BI/PD stands for Bodily Injury and Property Damage. Most Real Estate E&O policies include some measure of BI/PD coverage, such as limited lockbox coverage or open house coverage, but the broadest E&O policies include BI/PD coverage across the policy form. So in addition to coverage for your use of a lockbox or hosting an open house, the BI/PD coverage extends to property management services, REOs, foreclosures and relocation services, as well as residential sales.

The reason the E&O policy extends to provide coverage for Bodily Injury and Property Damage is that most General Liability insurance policies exclude coverage for claims arising from professional services. That said, most E&O policies do require you to have a General Liability policy in force before your E&O BI/PD coverage will respond to a claim.

So if you are listing a foreclosure and don’t turn off the water, and the pipes freeze, the General Liability policy won’t respond and there is no homeowner’s policy to make a claim under. The same applies if you lease an apartment and the tenants then become sick due to mold in the unit. Everyone is familiar with the nightmare scenario when the agent fails to advise the buyer of the rickety stairs and the buyer ends up injured or the foreclosure cleanout that occurred at the wrong house. The inclusion of BI/PD coverage in your E&O policy addresses these situations before a lawsuit is filed so when you are reviewing your E&O insurance policy be sure to check the coverage terms that apply to the BI/PD coverage.

Conflicts of Interest: Don’t go there.

This should go without saying but we still receive many real estate E&O insurance claims revolving around conflicts of interest. Always be mindful of, and avoid at all costs, actual or potential conflicts of interest. You have a fiduciary duty to your client. Courts have held that a seller’s agent has a fiduciary duty to act with utmost good faith, fidelity, and loyalty in all dealings with the seller. There is no quicker way to embroil yourself in a lawsuit or grievance than acting in your own best interest to the detriment of your client (or in one client’s best interest to the detriment of another client’s interests).

Sometimes, the appearance of a conflict of interest is enough to instigate an adverse action. Thus, it is necessary to be vigilant about any potential conflicts which may arise and tell your client immediately in the event a conflict of interest arises. If the conflict of interest cannot be waived, withdraw promptly in the manner least detrimental to your client.

*McCune, Daniel R., Perdue, Kimberly and Charlton-Perrin, Gawain, “Top Ten Tips for Real Estate Agents to Avoid Getting Sued,” Hanover Insurance Group, August 2016.

Beware of Greedy Buyer Clients Who Want The Furniture

A spotlight on a PBI Group and Hanover Insurance claim against two real estate agents involving greedy buyers who wanted to keep staging furniture used by seller to help sell the house.

Fact Scenario:
An agent representing the seller of a residential real estate property hired a staging agent to place furniture in the house to help make the property look more marketable during the listing period. A buyer couple agreed to purchase the house without any of the staged furniture included in the
sale.The closing was set for 10 a.m. and buyers were to legally gain possession at 2 p.m. the same day. On the day of the closing, the staging agent planned to remove the furniture once the sale closed and prior to buyers taking possession. The buyers’ agent gave the keys to the buyers at
the 10 a.m. closing prior to the buyers legally having the right to possession. The staging agent arrived prior to 2 p.m. to remove the property. However, the buyers had already physically taken possession and refused to let the staging agent enter the property to remove the furniture. The staging agent later filed a lawsuit against the buyers and both real estate agents requesting damages for the value of the furniture retained by the buyers, punitive damages, fees and costs.

Can a real estate agent be legally liable for property at a residence not under the agent’s control? Or does a real estate agent have a duty to
third parties to a transaction?

Result:
First, the buyers did not have a legal right to the furniture. As to the real estate agents, while there were few cases on point, there was a concern that the seller’s agent had contracted with the staging agent and owed a duty to have the property returned to the agent. In addition, the buyers’ agent had a duty not to provide the keys to the residence prior to legal possession. After discovery, the parties went to mediation and settled the matter. The buyer agreed to return the property to the staging agent and pay $10,000. The buyers’ agent agreed to pay $25,000. The seller’s agent agreed to pay $10,000. Both real estate agents also incurred attorney’s fees in their defense of $30-40,000 each.

Best Risk Management Practices to Prevent Claim:
Both agents needed to be more careful in the removal of the staged furniture and the taking of possession by the buyers. They were no doubt
shocked that the buyers would be so greedy as to try to retain property for which they were not entitled. However, it is crucial for agents to strictly adhere to the right to possession language.

*Charlton-Perrin, Gawain, “Real Estate Agent Claim Spotlight: Helping Real Estate Professionals Manage Their Claim Exposures,” Hanover Insurance Group, June 2017.

Be Proactive and Start Filing your Text Messages

Documenting conversations and decisions made during a real estate transaction is an extremely important best practice for E&O compliance. When you find yourself in the middle of a lawsuit, having proper documentation is paramount. Real estate client relationships often start off with email and signed documents which are easy to store. But eventually, in today’s mobile phone world, communication between agents and clients advance into text messaging. Since this medium is designed for limited characters and brevity is the norm, it is even more important to moralize these conversations at the end of a transaction. Furthermore, some day you will get a new phone or mobile phone carrier so it is impractical to think you are going have easy access to all your text messages forever.

There are several software tools on the market to help you export your text conversations into computer files or physical hard copies that can filed per client within their transaction folder. Doing this after each transaction will ensure that you will never be left wondering if that important decision which ultimately lead to an E&O lawsuit was discussed via text.

Here are 2 tools to consider for easy phone to computer exporting of texts Iphone    Andriod

Avoid the Extremely Difficult Client

One of the best ways to avoid having an E&O suit filed against you is to avoid the extremely difficult clients. Yes, that means walking away from someone who wants to pay you for your services. We know how hard you work to earn a chance at a new listing or buy side client but some clients are not worth the hassle.  How does one know who to avoid? Call upon your spidey senses, if something about a client does not feel right trust your instincts.  Consider carefully whether to retain or stay with clients: who make unreasonable demands; who constantly question your analysis or advice; who refuse to communicate effectively; and/or who have fired or speak badly of your peers. Remember, a client prone to angry or irrational behavior may, eventually, direct his or her ire at you, regardless how careful you have been to provide the utmost service.

*McCune, Daniel R., Perdue, Kimberly and Charlton-Perrin, Gawain, “Top Ten Tips for Real Estate Agents to Avoid Getting Sued,” Hanover Insurance Group, August 2016.

I’m Here For You

Trust is paramount, develop it buy showing your clients you are there for them through the exciting and stressful journey of a real estate transaction. Let your clients know they are your top priority by keeping them informed of all significant developments in a bid, contract, or purchase, and responding promptly — within 24 hours — to clients’ messages. In this age of email, social, text and cell phones, there simply is no excuse for not keeping a client informed of all significant developments during the representation. A client, who knows he or she can get in contact with you, and that you are committed to advocating for his or her interests in purchasing or selling real estate, is less likely to pursue a lawsuit or grievance even in the event a problem with the transaction arises.

As you know, real estate is a people business and you should not underestimate the importance of how your client feels about your service. If you don’t show how much you care about them, they will do the same in reverse, especially if they have a grievance that needs a solution.

*McCune, Daniel R., Perdue, Kimberly and Charlton-Perrin, Gawain, “Top Ten Tips for Real Estate Agents to Avoid Getting Sued,” Hanover Insurance Group, August 2016.

Let your Client Make the Tough Decisions


Clients rely on their real estate agents to provide a complete and accurate assessment of all risks and benefits of any transaction, but the client must decide how to proceed in light of your assessment. Do not allow a client to say, “It is up to you,” because if your decision does not yield the result
your client wants or expects, the client may hold you responsible. Tough decisions such as whether to get a home inspection or list at a certain price are best made by the client. You can provide them an assessment of the risks and possible choices, but ultimately, the decision is up to the client. A client who is empowered to direct the deal (with your advice) is less likely to cast blame if things do not go as planned.

* McCune, Daniel R., Perdue, Kimberly and Charlton-Perrin, Gawain, “Top Ten Tips for Real Estate Agents to Avoid Getting Sued,” Hanover Insurance Group, August 2016.

Keep Some Opinions to Yourself

Service oriented real estate professionals can sometimes get themselves into trouble if they feel compelled to give advice on matters that are beyond their professional scope.  You are not hired to be an expert in all things pertaining to home/land/building ownership.  To help avoid a lawsuit…never offer opinions on:

Legal Issues: Encourage your client to retain an attorney early on in the transaction, they can be a valuable resource during the property evaluation phase.
Zoning: Unfortunately your client will have to do some leg work on their own to figure out the specific zoning laws pertaining to their property or they can always hire an attorney.
Property Boundaries: This can be a very detailed and complicated part of a transaction, defer to the surveyors who are the experts and attorneys who are more qualified to interrupt the reports.
Anything not on MLS: Focus your area of expertise around information in the MLS, this can be challenging enough without adding in all of the above.

*McCune, Daniel R., Perdue, Kimberly and Charlton-Perrin, Gawain, “Top Ten Tips for Real Estate Agents to Avoid Getting Sued,” Hanover Insurance Group, August 2016.