The Pitfalls of Dual Agency and Bugs

A recent residential transaction resulted is a substantial claim being paid because of an undisclosed termite infestation. Our insured was both the listing and selling agent, so when things went wrong there was no one else to look to for a defense.

When the agent listed the property, the sellers signed a disclosure indicating no past termite damage or active infestation. That being the case, the sellers ordered and received a termite inspection report. The report indicated active termites and the seller took the least costly steps to eliminate the termites. The agent received a copy of the report and reviewed the details provided. Unfortunately the agent did not understand all of the details in the report, or she would have realized the severity of the termite infestation.

After closing the buyers found extensive termite damage and active infestation. Estimates for repair exceed 50% of the value of the home, which meant that according to local ordinance, the house had to be torn down and rebuilt in compliance with current building code. The buyers claim that they received a copy of the invoice for the termite inspection but not a copy of the report. The buyers allege that the report indicated active infestation and that the agent was aware of this fact.

There are a few reasons why this transaction resulted in a substantial E&O claim. First, the agent did not question the details of the termite inspection. If she had, she would have recognized the severity of the termite problem. Second, the agent failed to provide a copy of the termite inspection report to the buyers and document delivery of the report.

The resulting claim ended up costing in excess of $350,000 in damages and attorneys fees.