Real Estate E&O Claims Spotlight: Agent Home Purchase

In legal claims against real estate agencies and their agents, plaintiffs often focus on issues with the selling of the home, such as failing to disclose damage to the property in question or misrepresenting material facts during the transaction.

In legal claims against real estate agencies and their agents, plaintiffs often focus on issues with the selling of the home, such as failing to disclose damage to the property in question or misrepresenting material facts during the transaction. It is far less common for agents to be sued for buying a home, yet this is a risk for agents to be aware of.

The Claim

Real estate agents are also entrepreneurs. If a property appears to be a good investment, many agents will facilitate the purchase of a home or property for their own uses. In a case that occurred in California this March, a real estate agent was representing a client to sell his home. However, the agent was also in the market for an investment property to purchase. The agent indicated that the property owner could make more money if they listed the property, but the agent was willing to purchase it himself immediately, but at a lower price. The owner accepted the agent’s offer.

In June, the agent turned around and sold the investment property for a substantial premium over his initial purchase price. The original seller was upset about the lost potential profit and sued the agent for the difference of the price of the original March sale and the June investment sale.

Prior to the March sale, the agent also in the legal claim made assertions that interest rates would skyrocket at some point during or after the pandemic. Faced with these predictions, and fearing a missed sales opportunity, the homeowner took the agent’s offer even though it was lower than his original asking price. These two factors – the quick flip for profit and the agent’s assertions — ultimately led to the homeowner’s decision to file a legal claim. The homeowner sued the real estate agent and his agency for $185,000, arguing that he was misled by the agent in terms of market conditions.

What Went Wrong

The COVID-19 pandemic has created numerous challenges for businesses, including those in the real estate sector. No one could have accurately predicted the pandemic’s effects on the market, especially regarding both home pricing and potential fluctuations in availability and interest rates. In the above case, the agent’s attempt to provide a professional opinion became a binding contract when the homeowner agreed to the home sale. By then selling the home on the open market for a higher margin, the agent and his real estate firm appeared to have taken advantage of their knowledge for personal profit in the eyes of the original property owner.

Agents must be aware that their words and actions can be held against them in the future. Even with knowledge of market conditions, agents should steer clear of making predictions about interest rates and market fluctuations. In this case, a simple prediction resulted in an expensive lawsuit and a claim against E&O insurance.

Interested in PBI Group generating an E&O insurance quote for your real estate agency? Click here.

Real Estate E&O Claims Spotlight: Duty of Care


Real estate transactions rarely go exactly as planned. When the property in question has been owned and renovated by the real estate agent, and the buyer is a close friend, the transaction could be expected to proceed smoothly. In every real estate transaction, the agent’s duty of care is paramount to ensuring a legal and equitable outcome. Unfortunately, this wasn’t the case for a transaction in Pennsylvania; the property purchase was fraught with issues and has resulted in a lawsuit filed by the buyer against the real estate agency and the agent behind the home sale.

The Claim

In 2018, a real estate agent/home renovation contractor purchased a residence in Pennsylvania. Significant renovation work commenced, including adding a new bedroom, a first-floor addition with a bathroom, and a section of new roofing. The following year, this individual put the renovated home on the market. The agent was contacted by a longtime friend – a friend who had in fact served as the agent’s maid of honor at her wedding. The friend (the plaintiff in the lawsuit) was interested in buying the home, and the two parties entered into an agreement of sale in May 2019.

Not long after purchasing the home, the plaintiff began to discover a host of issues with the home. Some of the problems represented potential health risks for the plaintiff, and included:

  • Poor materials and construction of exterior and interior walls, subflooring, chimney, and roofing.
  • Plumbing problems such as broken sewer lines and inadequate piping runs for the new addition.
  • Pervasive growth of black mold due to moisture leaking into the structure.
  • Crumbling and dampness of interior walls on the first floor.
  • Water damage to chimney, leading to dangerous deterioration of the brick lining.

The plaintiff believed she has been misled during the transaction and that the agent’s renovation was done poorly and without permitting. She filed suit in a Pennsylvania court. The lawsuit alleges five counts against the defendants (the real estate agent/renovator and a realty agency, to which the agent was affiliated). The five counts are:

  • Count 1: Fraudulent and intentional misrepresentation
  • Count 2: Negligent misrepresentation
  • Count 3: Negligent construction
  • Count 4: Violation of Real Estate Disclosure Law
  • Count 5: Violation of unfair trade practices and consumer protection laws

The lawsuit seeks to recover substantial assets from the defendants, including an award in excess of $80,000 plus pre-judgement interest, damages, attorney fees, and court costs.

What Went Wrong

As stated at the beginning of this case review, a real estate agent is bound by a duty of care to provide adequate representation of the factors behind a property transaction. In this Pennsylvania case, the agent is alleged to have not honored this duty. From the initial “lipstick on pig” renovation performed by the agent, which was allegedly done without permitting, quality materials, or competent workmanship to disclosures during and after the sale, the agent failed in his duties. Under limited circumstances, a real estate agent could claim that they were not aware of deficiencies in a structure, as they were not responsible for completing renovations. However, in this case, the agent was also the person directly and personally responsible for alleged shoddy workmanship and materials. In other words, the agent cannot claim ignorance of issues. This duty of care was further breached when the agent allegedly concealed certain facts, such as water intrusion in the chimney and walls, refusal to install a protective rain cap on the chimney, and the continual complaints from a rental tenant prior to sale about a strong odor of mildew inside the structure. This lawsuit is a cautionary tale for agents who also renovate homes: it is imperative to not only disclose material facts to buyers but to represent the property and its issues accurately throughout a real estate transaction.

Interested in PBI Group generating an E&O insurance quote for your real estate agency? Click here.

Real Estate E&O Claims Spotlight: Dual Agency


Real estate professionals are bound by a range of duties, including certain obligations when those professionals sell agent-owned property or serve as dual agents and sellers of a property. Failure to uphold professional standards, such as in cases of breach of duty or breach of fiduciary duty, can result in expensive legal action and subsequent Errors & Omissions (E&O) insurance claims.

The Claim

On its face, the following claim example seems straightforward. Dissecting the particulars of the claim, however, reveal a complex set of circumstances, all revolving around the “hierarchy of risk” a real estate agent faces when selling agent-owned property and also serving in a dual owner/agent capacity.

A property in New Jersey was listed for sale in 2019. At the time, an interested party attended an open house of the home. The owner of the property was also a licensed real estate agent, and was listed as the agent of record for the home sale. As the owner of the property, the agent in the claim was also the individual who was responsible for renovations and repairs on the home prior to sale.

At the time of the open house, the owner stated to the interested buyers that the home was completely renovated. The interested buyers made an offer on the home, which was accepted by the owner. The property closed in the first month of January 2020. Upon taking possession of the home, the new buyers discovered a number of deficiencies, including significant damage to the roof, windows, and supporting structures of the home. The home buyers spent thousands of dollars and countless hours correcting the damage to the home.

After discovering the problems with the home, the new home buyers attempted to contact the owner/agent. There was no response. As a recourse, the buyers filed a legal claim for $20,000 plus punitive damages against the owner/agent and the agent’s real estate firm. In the claim, the plaintiffs allege:

  1. Breach of duty on the part of the agent.
  2. Breach of fiduciary duty on the part of the agent and real estate agency.
  3. Violations of the New Jersey Consumer Fraud Act.

The Hierarchy of Risk in Real Estate Transactions

Every real estate transaction comes with its own share of risks. Certain transactions, particularly those where a real estate agent is also the owner of the property, face ever-increasing risks – layered or hierarchical risks. In the case above, the hierarchy of risks for this case is as follows:

  1. Risk associated with selling a property to a third-party when the agent has no financial or personal connection to the property in question.
  2. Risk associated with selling a property, owned in whole or in part by an agent, where the owner is expected to know more about the property itself and any potential defects or damage present.
  3. Risk associated with “flipping” a property for profit after the agent-owner completes renovation; in this case, the agent/owner renovated the home and therefore is expected to have thorough knowledge of the condition and defects of the home. There exists a great potential for a buyer to allege that the property owner/renovator cut corners in order to maximize profits.
  4. Risk associated with selling a property when an agent or their spouse built the home from the ground up (called Construction/Development coverage in the E&O insurance space), suggesting deep and complete knowledge of every aspect of the home’s condition and defects.

In the case above, another risk presents itself within the hierarchy. The dual agent/owner was eligible to collect a commission on both sides of the real estate transaction, and was alleged to have neglected to disclose certain aspects in order to both close the deal and to collect the hefty commission.

What Went Wrong

The legal claim’s allegations go to the agent’s failure to adequately and honestly disclose issues with the home. As the agent was solely responsible for maintenance and renovation of the property before the sale, the agent clearly had knowledge of deficiencies, yet did not disclose them at any point during the sale transaction. In simple terms, failure to disclose issues was meant to keep the sale on track for the sole purpose of the agent obtaining a commission on the sale.

For E&O insurance claims purposes, a real estate professional selling agent-owned and acting in a dual agency capacity is always risky; such dual agency owned properties and acts by agents potentially open the door to claims of fraudulent activity. In this case, the agent knew about problems with the home, yet failed to disclose that information to the buyers. The claim is still working its way through a New Jersey court.

Interested in PBI Group generating an E&O insurance quote for your real estate agency? Click here.

Real Estate E&O Claims Spotlight: Infringing on Image Copyrights


Advertising is a critical component of the real estate industry. Promoting a home sale through the use of professionally-shot images is a common practice; such images are often used in brochures, property listings, and on websites. Copyright of images has long been a source of confusion, especially as such images are easily obtained with a quick web search. Realtors need to be careful in using and managing the images in advertising initiatives, as failure to do so can result in significant and wholly avoidable expenses.

The Claim

In 2009, a professional photographer created a series of images for use by real estate associates and brokerages throughout the United States. The images created are copyrighted by the photographer and licensed for use in promotional materials such as real estate listings and advertising brochures. Each image created by the photographer is copyrighted through the use of a prominent digital “watermark” and camera symbol on the lower right corner of the work. The photographer then registers each work with the Register of Copyrights and obtains a registration number. The work in question was copyrighted in 2015, and is an image of a portion of the Miami skyline.

At some point after copyright was registered by the photographer, a real estate firm and one of its associates obtained the image from the Web or from prior property listings. This was done without the photographer’s permission, license, or consent. The photographer alleges that the firm and/or the associate removed the watermarked copyright management information applied by the photographer. The firm and/or its associate then used the image on multiple property listing services and in promotional materials, again without the express permission or licensing of the photographer. The photographer filed suit in a Florida court.

What Went Wrong

Although complex, U.S. copyright law is very clear in that registered works are protected from unauthorized use or infringement. A plaintiff in an infringement case may be entitled to significant statutory damages; damages of up to $150,000 are possible if a claim is successful. Willful removal of copyright registration information by an unauthorized user can drive damages even higher.

The photographer in the claim is seeking unspecified damages. The real estate agency and its associate still face significant monetary risks, even if the claim against them is unsuccessful. To protect against legal expenses and insurance claims, it is imperative that realtors and their agents obtain licenses to use or permission by the creator of photographic works before repurposing those images in promotional materials. In simple terms, one simply cannot find a picture on the Internet and use it. Explicit permission from the creator is required.

Real estate professionals must also ensure that their Errors & Omissions and liability insurance policies are up to date and adequate in protecting against legal claims of this nature.

Interested in PBI Group generating an E&O insurance quote for your real estate agency? Click here.

Real Estate E&O Claims Spotlight: Estate Sales


Real estate agents face numerous challenges in their profession, and transactions rarely go as planned. When it comes to estate sales, especially in the wake of the COVID-19 pandemic, the challenges faced by realtors and property sellers have only increased.

When exploring an insurance claim from a recent estate sale in Virginia, the difficulties inherent in estate sales become all too clear. These difficulties can result in expensive E&O insurance claims.

The Claim

An individual working for a prominent realtor in Virginia was selected as the sales agent for a family home (the estate) located in Arlington. Between April and July 2020, the four property co-owners (the claimant and her three siblings) allege that the sales agent violated both the letter and spirit of ethics laws regarding the sale of the estate. There were four major areas of concern:

  1. Failure to Notify & In-House Transaction

Four co-owners comprised the sellers of the estate. The sales agent worked with primarily with one of the co-owners – in this case, the estate trustee — and other members felt as if they did not receive proper guidance or notification during all phases of the sales transaction. In particular, one of the siblings believed the sales agent misrepresented her role as seller AND buyer agent, which they deemed a potential conflict of interest.

  1. Dereliction of Duty

Owners of properties may not always be close enough to the property’s location to be familiar with potential condition issues, and this sometimes results in disclosure issues with the property itself or its contents. In this case, the co-owners were unable to verify the condition of the estate and its contents prior to sale. The sales agent arranged for repairs and handling of family belongings; during this process, some belongings were damaged. The agent also was alleged to have arranged for repairs in excess of the co-owners’ wishes.

  1. Self-Promotion

The sales agent used the estate property to produce a promotional video of her services, and did so without the consent and authorization of the sellers. The costs of video production were passed to the sellers as well, again without consent or authorization.

  1. Improper Representation

The sellers believed that they were misled by the sales agent during the transaction. In particular, potential buyers were represented as a family, when in fact, the brokerless buyer was a property rental professional who intended to make the estate a rental property. This fact was not disclosed to the sellers until closing. Prior knowledge of the true nature of the buyer may have influenced the sellers to not accept a sales offer.

What Went Wrong

 In the case of the Virginia estate sale, the four sibling co-owners believed they were not adequately informed of all the transaction details. They also had legitimate concerns about unethical practices on the part of the sales agent, particularly that of the agent’s nondisclosure of a brokerless buyer and by misrepresenting the nature of the actual buyers. Estate sales are always complicated affairs, as family members are often emotional when it comes to parting ways with the family home. It can be easy for sellers to feel as if they are being taken advantage of, and those feelings in this case were compounded by the travel restrictions imposed by COVID-19.

Interested in PBI Group generating an E&O insurance quote for your real estate agency? Click here.

Real Estate E&O Claims Spotlight: The Costs of Copyright Infringement


The world’s information is at our fingertips, thanks to the Internet. On the web, it is possible to find literally millions of images, and sometimes these images are used to illustrate websites, business brochures, and advertisements, just to name a few of the many potential uses. Unfortunately, a poor understanding of copyright law has led to problems; unauthorized use of a copyrighted image can lead to legal claims by the artist, potentially costing the copyright violator thousands or even millions of dollars in damages.

Let’s explore an ongoing copyright claim to learn more about how using an image without the artist’s consent or permission can result in an expensive E&O insurance claim.

The Claim

In 2017, a professional photographer and artist created a photographic image of the Columbus, Ohio skyline. When the image was created, the artist applied Copyright Management Information to the image itself via watermark. He also successfully registered the image with the Register of Copyrights, receiving a registration number.

At some point in early January, 2020, a real estate agency in the Columbus, Ohio region used the artist’s copyrighted image without his permission, license, or consent. This unauthorized use runs afoul of The United States Copyright Act as well as the United States Code, Title 17. There is also evidence that the real estate agency removed the watermarked Copyright Management Information applied by the artist prior to their unauthorized use of the image in marketing materials.

What Went Wrong

Under existing copyright law, the artist may be entitled to significant damages, including additional profits from the copyright infringer that is permitted by law depending on the case itself. For example, statutory damages between $30,000 and $150,000 per work infringed are possible if legal action is successful. The higher damage number is possible if the infringement is shown to be willful; in this case, removal of watermarked copyright management information added to the image by the artist suggests the infringement was willful. According to 17 USC 1203(c)(3)(B), the artist is able to recover statutory damages of not less than $2500 or more than $25,000 per violation of the prohibition against alteration or removal of copyright management information. These specific statutory damages may be in addition to the damages discussed above.

The lawsuit is still ongoing. It is expected that the artist will be successful in his claim against the real estate agency.

To protect against the potentially damaging expenses associated with common lawsuits, such as copyright violation or similar, it is imperative that business owners check their insurance carefully. Ensuring that adequate protection and coverage limits under Errors & Omissions (E&O), Commercial Package Policy (CPP), or Cyber Liability policies make sound financial sense, especially in light of the high costs in defense and settlements/judgments associated with legal claims against a business. Real estate agencies and agents manage many moving parts associated with advertising their services, creating websites, showing properties, and conducting sales, which is why agents and agencies alike should review their insurance coverage for adequate protection prior to an incident like this occurring.

Interested in PBI Group generating an E&O insurance quote for your real estate agency? Click here.

Real Estate E&O Claims Spotlight: How Prior Knowledge Can Derail a Claim

Someone filling out Notice of Lawsuit Form.

When property is in your care, custody, and control, agents are duty-bound to maintain property premises in a safe and hazard-free manner. Failure to do so, such as in cases of neglect, deferred maintenance, or negligence, may result in the property manager/custodian being liable for any injuries caused by hazardous conditions. Typically, insurance covers injury claims resulting from property hazards, but certain exclusions and limitations may apply – especially if the property manager/custodian knew of a hazard and did nothing to mitigate it before an injury occurred. Let’s take a closer look at a situation that resulted in a denial of an E&O claim.

The Claim

In May 2018, a person – the eventual plaintiff in a lawsuit — was visiting a property managed by a real estate brokerage in New Jersey. While on the premises, the woman fell through a hole in a deck structure on the property, severely injuring her foot, back, and neck. Despite medical care and rehabilitation, the injuries eventually resulted in a loss of earning ability, permanent partial disability and disfigurement, and pain and suffering that is expected to continue indefinitely. In October 2018, the injured woman filed a civil action against the real estate brokerage and the property owner. Together, these two entities are the defendants. In the lawsuit, the plaintiff and her attorneys allege that the defendants:

  • Was owner, lessor, lessee, and/or otherwise legally responsible for the care and safety of the property on which the plaintiff received injuries;
  • Were aware of the unsafe condition of the deck structure, and;
  • Failed to inspect the premises for hazards and/or provide barriers to prevent visitors from becoming injured.

The plaintiff sought a judgment of $50,000 plus costs and other financial relief the court deems just. The lawsuit is still pending in New Jersey court.

What Went Wrong

To protect business interests against losses due to the possibility of legal action against it, the defendants in the lawsuit filed an E&O claim with their insurer. Ultimately, the claim was denied by the insurer for two reasons.

First, the claim was denied for a simple technicality, but one that had significant ramifications for the insured brokerage. In November 2018, a process server delivered notice of the lawsuit to the insured’s office. A receptionist at the firm signed for the delivery but neglected to let anyone else at the brokerage know about the service of suit. One year later, service of suit was once again delivered to the insured’s office; it was only then that they tried to report the civil suit to their insurer. The denial was simple; the E&O policy required any insured with knowledge of legal action to report a claim as soon as practicable. The initial delivery by the process server should have triggered a report to the E&O carrier from the insured, and because the insured waited a year – only after the second service of suit – the insurer ruled that this constituted “prior knowledge” of legal action.

Second, the insured had set up an Arch insurance policy sometime after the initial process server delivery. An advantage of the Arch policy is that only claim managers – in this case, executive officers of an insured company – must have knowledge of a legal claim in order to trigger a report to the insurer. In other words, not just any employee of an insured company has a duty to report, only executives. Unfortunately for the insured, the Arch policy was set up after the initial civil action was delivered, and was therefore not covered by the policy. In this case, the retroactive exclusion applies to any insured having knowledge, and no just an executive officer or claim manager having knowledge of the process service.

The major takeaway from this case is that insureds have a duty to report any claims or potential claims to their insurance company promptly. Failure to do so in a timely manner may result in an E&O claim being denied – even one that may have otherwise been covered under insurance policy language.

Interested in PBI Group generating an E&O insurance quote for your real estate agency? Click here.

Real Estate E&O Claims Spotlight: Shady Agent


In real estate transactions, both buyer and seller have a reasonable expectation of propriety. In other words, both parties expect that the transaction will be free of fraudulent practices. Unfortunately, this is not always the case – greed often compels one of the parties in a transaction to commit fraudulent activity. 

Let’s explore a claim from April, 2019 to learn more about how fraud can result in an expensive E&O insurance claim against those responsible.

The Claim

In February 2019, a real estate agency contracted with an exclusive listing agent for a residential property located in North Carolina. The listing agent was the agent of record and was authorized to serve in a dual agent capacity, representing both seller and buyer. After a short period of time on the market, the agent advised the owner (potential claimant) that he had an interested buyer, but that the asking price of the home needed to be reduced in order to secure a deal. The owner accepted and went under contract with the buyer.

In March 2019, the property closed and was conveyed to the buyer. One day later, a quit claim deeded to another entity, this time a rental company owned by the listing agent and the buyer, who is claimed in the legal dispute as a straw buyer. The discovery of fraud was made by the subsidy program advocate for the tenant currently residing in the property. At no time did the listing agent indicate verbally or in writing that the property was going to be purchased by him and his business partner. 

The potential claimant went on to file a complaint with the North Carolina Real Estate Board as well as initiating an investigation into more than 20 similar transactions conducted/completed with the listing agent. 

What Went Wrong 

The insurer of record to the real estate agency denied the claim filed by the claimant. The reasons for the denial are of several parts, including the reporting period of the policy, the definitions in the policy, the fraud exclusion contained in the policy, and the financial interest exclusion contained within the policy. 

In the claim, the alleged wrongful act occurred outside of the policy period or automatic extended reporting period. Secondly, the policy only applies to wrongful acts arising solely out of professional services rendered by the covered party for others. In the policy definition, wrongful acts are defined as alleged or actual negligent acts or errors or omissions. In this claim, the policy does not respond to intentional acts.

Thirdly, the policy’s fraud exclusion only applies if an insured had direct knowledge or participation in fraudulent conduct. In the claim, the claimant alleged a pattern of fraud, but this has not been supported by third-party investigations at the time of the denial.

Finally, the financial interest exclusion of the insurance policy was not applicable to the case, as the property owner alleged that the agent in question did not disclose to the owner his role as dual agent for both seller and buyer. In fact, this dual agent role was disclosed and is on record. 

It is clear from this claim that all parties in a real estate transaction must carefully understand applicable insurance coverage. An error or omission in a transaction may or may not be covered, depending on the policy language. If an incident should occur – including fraudulent transaction activity, you will want to ensure you have a valid insurance claim.  

The Resolution

Due to the above-mentioned issues, the agent will be liable for his own damages and have to hire his own attorney out of pocket. Whatever damages are awarded after the claim is settled, he will also be responsible for paying out of pocket. While the agent is the one who the claim is being brought against, the realty group must address it as they are the company that is named in the lawsuit. However, if they can prove they were unaware of the misconduct, their insurance policy will cover any involvement they are found liable for. This case is still ongoing, but will most likely be settled out of court as there is no definitive defense for the agent.

Interested in PBI Group generating an E&O insurance quote for your real estate agency? Click here.

Real Estate E&O Claims Spotlight: When the Showing Goes to the Dogs


There are many cases of bodily injury or property damage occurring during property showings, but most people don’t consider the potential danger of pets during a showing. With over half of all American households having a pet of some kind, it’s important to understand the potential E&O hazards they can present during real estate showings.

Let’s take a look at a claim from earlier this year to see how one miscommunication before a showing can lead to a costly E&O claim.

The Claim

On May 1, 2019, the Realtor entered the Property with a Prospective Buyer, which had been listed for sale. Prior to this visit, the Listing Agent had provided the Realtor with the combination to a lock at the Property and stated that it was ready to be shown. When they entered, they were surprised by a husky dog roaming free throughout the Property, as neither the Seller nor the Listing Agent had communicated that there would be a dog present in the house. The energetic dog jumped at the Realtor, striking her in the head and face and causing a number of injuries including a fractured nose, chipped teeth, and a concussion. The Prospective Buyer recorded a video of this incident.

The Realtor finished the showing and notified the Listing Agent about the incident, but started to exhibit worsening symptoms as time went on, including headache, facial pain, nausea, dizziness, difficulty breathing, and memory loss. A hospital visit on May 3, 2019 diagnosed her with facial contusion and a closed head injury. A second visit to a different hospital on June 3, 2019 found her diagnosed with a concussion as well as a number of additional conditions. Per the physician’s recommendation, the Realtor underwent a septoplasty and nasal fracture repair at another facility on August 6, 2019.

The Realtor’s most recent visit to her doctor occurred on September 5, 2019. Though she had recovered from her surgeries without any major complications, she still experienced issues including pain, numbness, and memory loss.

The Realtor’s medical costs totaled $50,824.71. On November 19, 2019, her attorney filed a claim with the Brokerage, requesting a $95,000 settlement.

What Went Wrong

The Property Owner, the Listing Agent, and the Supervising Broker all had a responsibility to maintain the premises while providing safe access to the Realtor and potential buyers. The Listing Agent communicated that the Property was “ready to show” and provided the lock combination, but did not communicate that a potentially aggressive dog was on the premises. The Property Owner also failed to control and restrain the dog, despite knowing that the Property would be shown.

This may not be the type of claim that immediately comes to mind when you think of potential E&O claims in real estate, but they absolutely can happen, and they can be very costly. Because a realtor was injured while working, you may expect this to be considered a workers’ compensation claim. However, because this injury arose from negligence on the part of the Listing Agent, Property Owner, and Supervising Broker, this falls under E&O, not workers’ compensation. Make sure to carefully check and understand your insurance coverage. If an incident happens, you will want to be covered.

Interested in PBI Group generating an E&O insurance quote for your real estate agency? Click here.

Real Estate E&O Claims Spotlight: Be Aware of Fair Housing Testers


Potential renters and buyers are not always what they appear to be. Fair Housing Testers are individuals who pose as prospective clients in order to investigate potential discrimination in housing, particularly as it pertains to the Fair Housing Act, which prohibits denying housing based on race, color, national origin, ancestry, religion, sex, sexual orientation, disability, family status, or use of public assistance.

If a Fair Housing Tester uncovers evidence of discrimination, this could lead to a very costly claim for the property manager or brokerage. Let’s take a look at one of our recent claims relating to this subject.

The Claim

In May 2019, a fair housing tester (referred to as “Tester”) and father of two found an advertisement for a rental of one of the Properties. One key statement in the advertisement was: “…great for a single person or a couple… This property has a restriction of no one under 18.”

Because this statement was indicative of a violation of the Fair Housing Act, the Tester started investigating further. He confirmed that the Property was not located in a community that was listed as a 55-and-over community.

The Tester then posed as a potential renter and inquired over the phone about whether the Property was available. After the Listing Agent confirmed that the property was available, the Tester brought up the listing and asked whether families with children could rent the Property. The Listing Agent stated that:

  1. The Property is not in a 55-and-over-community,
  2. The Association does not allow residents under the age of 18, and
  3. Children were permitted to visit for up to seven days at a time.

The Listing Agent then mentioned that another residence in the same building was available for rent, with different lease terms. However, when prompted, he confirmed that children could not reside at this second property because of the Association’s policies.

As a result of this exchange, the Tester filed a lawsuit against the Real Estate Agency on August 27, 2019, citing a violation of the Fair Housing Act as well as emotional distress and other damages. He asks that the Agency award punitive and compensatory damages for the emotional distress and insult injury caused by the discrimination, as well as the Tester’s costs, attorney fees, and any further relief the Court deems just and proper.

Lessons to Learn from This Claim

Unfortunately, every real estate agent and broker does need to be prepared for the fact that their client could be a fair housing or another form of tester. Though this is not a common occurrence, it is something that can and does happen, and being found guilty of violations could lead to expensive claims on your end. It is absolutely crucial that you do not engage in discriminatory housing practices, or use language in listings, postings, or other communications that could be indicative of discrimination.

Interested in PBI Group generating an E&O insurance quote for your real estate agency? Click here.

Real Estate E&O Claims Spotlight: Beware of HOA Bylaw Changes Not Allowing Short-Term Rentals


In the age of Airbnb and other home sharing services, it’s now easier (and more appealing) than ever for homeowners to rent out their property for an additional income. However, no homeowner should assume that they can rent their property out with no strings attached, and no real estate agent should provide information to potential buyers that they cannot guarantee is factual.

Let’s take a look at a recent claim, in which poor communication between a homeowners association officer and a listing agent led to an unfortunate situation.

The Claim

This claim started off as a simple real estate transaction. The Listing Agent listed the Property and represented the Sellers, while the Buyers had their own representation. During the contract period, the Buyers clearly stated that they had plans to use the Property as a short-term rental, asked for assurance that this would be permitted before closing. The Seller did not know the answer to this inquiry, so the Listing Agent and her team reached out to the Property’s homeowners association (HOA) via email, phone, and website research.

On May 20, 2019, an officer at the HOA, provided and written and signed statement that the HOA community did not have any restrictions on short-term rentals. On May 22, the officer clarified that there were no restrictions on long and short-term rentals, and provided a link to the HOA’s governing documents. The Listing Agent and her team subsequently shared this with the Buyers and their agents, who closed on the Property.

However, after closing, a neighbor informed the Buyers (now owners of the Property) that there had been a recent amendment passed in the association’s bylaws that prohibited short-term rentals. Shortly afterward, the HOA officer reached out to the Buyers’ Agents by phone and left a voicemail stating that he had made a mistake in informing them that short-term rentals were permitted in the community.

As a result of this circumstance, the Buyers are not happy and seek to take action against the HOA, and potentially the listing real estate brokerage as well.

Lessons to Take from the Claim

In this claim, the HOA representative was at fault for failing to disclose this amendment to the bylaws. However, the Buyers are also looking to take action against the Listing Agent and her brokerage, even though the Listing Agent only passed along information from the HOA. This is an example of a claims scenario for listing agents and brokerages to be aware of. We are seeing a trend of more claims around HOA and COA assessments and rules. Real Estate agents can be brought into these claims even if they were not directly at fault.  Never pass along information regarding a property and its requirements that you are not completely sure is factually accurate, and continue to communicate with all involved parties to stay aware of changes.

Interested in PBI Group generating an E&O insurance quote for your real estate agency? Click here.

E&O Claim or Potential Claim Reporting Advisory


What you SHOULD be reporting to your Real Estate E&O Policy ?

Your E&O policy  has a reporting requirement for both claims and potential claims.  Please refer to your actual policy for complete terms and conditions regarding both the definition of a claim and what the reporting requirements are for claims and potential claims.  The #1 reason for claim denials in real estate E&O is prior knowledge.  i.e. an Insured had knowledge of a claim or potential claim and did not report it to the carrier within the time parameters specified in the policy.  

So what should you report?

  1. Actual lawsuits
  2. Demands received
  3. Threats received regarding a potential claim
  4. Disciplinary proceedings, commission complaints, or complaints brought to any other regulatory body
  5. Knowledge of something that may reasonably be expected to give rise to a claim

It is much better to err on the side of caution than to have a claim denied.  If you ever have a question as to whether something should be reported, please reach out to Paul Bondy at PBI Group 443.502.5645 to discuss it.  

I encourage you to discuss claim & potential claim reporting requirements with all of your agents/brokers so that everyone is on the same page.

Real Estate E&O Claims Spotlight: Lost, Stolen, or Damaged Items


It’s not uncommon for the owner of a property to not be around when their home is shown to potential buyers. Under the supervision of a real estate agent (or several), potential buyers can look around the home and get a good feel for the floor plan, and the agent will be there to answer any questions about the property.

Many property owners choose to put away personal items for open houses and home viewings. However, even with precautions in place, opening a home to the public does have its risks, and it is also not uncommon for personal items to disappear during or after viewings. Some of the most commonly taken items include jewelry, prescription medications, small electronics, decorative pieces, designer accessories, and money.

We recently saw a claim in which many valuable personal items disappeared after a showing took place at a property. Let’s take a look at the claim, and what real estate agents should know about their liability in these situations.

The Claim, Explained

On May 3, 2019, a showing took place at the Seller’s home (“The Property”), in which both the Listing Agent and the Buyer’s Agent showed it to the Client. After the showing, the Seller noticed that several of his personal items had gone missing, with a combined value of over $10,000.

The Seller filed a report with his county’s police department, and requested that they pull the street video to see if anyone other than the Listing Agent and the Potential Buyer were present at the Property that day. The Seller did have video cameras in his home, but his surveillance was not able to turn up any footage of the items being taken or any evidence other than still images that established the presence of the Listing Agent and the Potential Buyer in his home on that date. The Seller did not have receipts for his missing items, but did have boxes for the majority of them.

No conclusion has been formed about the objects’ whereabouts; it is unclear whether they were taken by the agents, the potential buyers, or if there is another, alternate explanation. However, regardless of what happened, the objects did disappear and the Seller did file an E&O claim against the Firm involved, along with a police report.

Key Takeaways from this Claim

It goes without saying that agents should not take sellers’ personal belongings during showings. However, it is important to understand that agents are liable for any lost or damaged property during showings. It does not matter how it happened. Even if the agent is in no way personally responsible, they will be held liable in the claims process.

At the end of the day, potential buyers are free to roam throughout the property during their showing, to get a feel for the floor plan and to take a closer look at the features that have interested them. No real estate agent should have to closely tail their clients; this is only likely to create an unpleasant experience for the potential buyers. However, there is a middle ground between watching buyers like a hawk and leaving them completely free to their own devices. It is important for agents to be aware of who is in the home with them and what they are doing, and to keep a lookout for what is happening. Odds are, the buyers are just taking a second look around, but if something does go missing, the agent is the one who will be liable. If this happens during one of your showings, talk to a lawyer and your insurance agent.

If a property is damaged during a showing, this would be considered an E&O “lockbox” claim. Keep in mind that not every errors & omissions policy contains this language, so this is not a guaranteed coverage. Check your policy carefully; don’t just assume you will be covered.

Interested in PBI Group generating an E&O insurance quote for your real estate agency? Click here.

Real Estate E&O Claims Spotlight: Disclosures in Real Estate Transactions


While real estate agents have many responsibilities, there are some things that should not be addressed by agents during the buying and selling process, as they can lead to costly claims and lawsuits. Disclosures or representations made by the agent based on their own experience or knowledge of a property, and not taken directly from the seller is a particularly important example.

Let’s take a look at one of our recent claims for an example of improperly-handled disclosures in real estate transactions.

The Claim

In the late spring of 2017, the Buyers purchased their first home (“the Property”) from the Listing Agent (a longtime friend of the Seller and her family), located in South Carolina. Prior to the purchase, the Listing Agent informed the Buyers that the Property, based on her own personal knowledge, had never been affected by flood waters in the past. The Buyers and the Buyer’s Agent further asked through their agent whether the home had ever been flooded, and the Listing Agent stated that the home had never been flooded, even during notable storms such as Hurricane Hugo and the 1,000-year flood.

In September of 2017, Hurricane Irma struck. The Property experienced significant damage; in addition to flooding, the Property’s HVAC unit was destroyed, mold and sewage affected the residence, and the Property’s crawlspace received additional damage.

Since Hurricane Irma, the Buyers have learned from neighbors who have resided near the Property for years that the Property had been significantly affected by water damage in the past. The Property was damaged during Hurricane Hugo, Hurricane Matthew, and the 1,000-year flood of 2016.

In addition, the Listing Agent, who acknowledged during the selling process that she has had a close and long-lasting personal relationship with the Seller and her family and a considerable knowledge about the Property, represented that the Property was built in 1969 by the Seller’s family and had been cared for and maintained in its original condition until the Buyers purchased it. However, the Property underwent extensive renovations in 1990 after the aforementioned flood damage, to the point of nearly being rebuilt altogether. The Buyers were told that the Property had never experienced flood damage, and did not expect that the Property would have undergone this level of reconstruction.

The Buyers’ total damages from the situation exceeded $100,000, but they have offered to settle for $75,000.

Lessons from the Claim

In this claim, the Listing Agent knew the Seller and her family well, and felt that she could make certain representations about the property from her own personal knowledge/experience. Failure to disclose water damage is indeed one of the most frequent causes of errors & omissions (E&O) claims in the real estate process, but though water damage had occurred and rebuilding had been done, the agent should not have been the one to provide any affirmations to the Buyers.  Even if a listing agent knows the property and the seller well, as in this claim, it’s important that agents not make their own representations about the condition or history of the property that aren’t directly provided by the seller.

Interested in PBI Group generating an E&O insurance quote for your real estate agency? Click here.

Real Estate E&O Claims Spotlight: Wholesaling: What Can Go Wrong?


Purchasing homes for the purpose of increasing their value and reselling them at a profit, also referred to as wholesale, is a popular practice that can be beneficial for both the buyer and the real estate agent involved in the transaction. However, if it is not done properly, with complete communication and transparency between all the involved parties, it could lead to incredibly costly and time-consuming claims for real estate agents and their companies. Let’s take a look at one of our recent claims to see what can go wrong in this process and what agents should be mindful of.

The Claim

In May of 2018, an individual (“The Buyer”) began communicating with a real estate agent and property manager (“The Selling Agent”) in an effort to find homes to renovate and resell. After viewing several homes, the Investor opted to purchase a single-family home (“the Property”) for $52,000 on June 13, 2018, after being informed by the Selling Agent that purchasing, renovating, and reselling this Property would yield a potential profit margin of $60,000.

On June 19, 2018, the Buyer and the Selling Agent entered into a contract surrounding their plans for the home. This contract stated that:

  • The Buyer would be responsible for providing money to purchase the Property, to provide $61,500 in “rehabilitation money” to renovate the Property, and to sign an exclusive listing agreement with the Selling Agent for the home’s future sale.
  • The Project Manager would assist in purchasing the Property,  handle all rehabilitation work to prepare the property for resale, to have the Property ready for sale in no more than 100 days from the date of purchase, to provide the Buyer with receipts for bookkeeping purposes, and to market and sell the Property for a flat commission of $1,000.
  • Upon sale of the Property, the Buyer agreed to provide the Selling Agent 50% of the net profit within 2 business days of closing.

Though the home was purchased and the Buyer provided the Selling Agent with installment payments totalling $58,545 for property renovations (upon Selling Agent’s request), no rehabilitation was performed at the Property, and the Selling Agent did not pull any permits for future renovations. As a result of this, the Selling Agent did not have the property ready for sale in 100 days or under, and did not market and list the property. The Selling Agent also did not produce any receipts for the Buyer.

In addition, though the Buyer provided the Selling Agent with money to renovate the Property, it was not used for that purpose. The Selling Agent converted the money for her own use, and has not refunded the Buyer for the expense, even though the money was not used for its intended purpose.

As a result of this situation, the Buyer has filed a complaint against the Selling Agent as well as her real estate brokerage firm (“The Firm”) and its two brokers-in-charge (“The Brokers”) for failing to adequately supervise the Selling Agent in her transactions.

What Went Wrong?

The Buyer and the Selling Agent had a legally binding agreement. While the Buyer followed through with what was required of him, the Selling Agent did not. The Buyer provided the Selling Agent with money, but she did not get the permits for renovations, did not handle any rehabilitation of the Property, and did not list it and sell it within the agreed-upon period. As a result, the Buyer has lost money, resources, and time, and is now seeking damages from the Selling Agent as well as The Firm and The Brokers.

When engaging with clients in the wholesale process, it is crucial that agents communicate with their clients and are completely informed on what is expected of them and when it is expected to be completed. It was never made clear what happened to make the Selling Agent fail to obtain permits, initiate renovations, and re-sell the Property, but because the Selling Agent had a legally binding contract with the Buyer, the Selling Agent and her company are now on the bad side of a claim.

Interested in PBI Group generating an E&O insurance quote for your real estate agency? Click here.

Real Estate E&O Claims Spotlight: Misrepresentation in the Buying Process

Real Estate E&O Insurance

What does a misrepresentation claim look like in the real world, and what kind of consequences does it have for an agent? Let’s take a look at one of our recent claims.

The buyer, represented by a real estate agent, entered into a Residential Condo Real Estate Agreement with the seller to purchase a property. This property was purchased for $241,000, with the understanding that it would not undergo any special HOA assessments.

However, just four months after the transaction, the buyers were notified of an impending $32,867.14 special assessment, and were informed that payments were to begin in two weeks. The association had taken out a $1.38 million loan for renovations, and this assessment and its associated payments were a pro-rata share.

The buyer’s agent had a duty to disclose these imminent assessments and what they would entail for the buyers. The agent failed to inform them of these planned assessments and renovations, one of which being repairs to property sidings. Specifically, he had an affirmative duty to disclose “material facts known by the buyers’ agent and not apparent or readily ascertainable to a party.” The buyer’s agent instead represented that the siding repairs had been paid for already.

The sellers also did not disclose the planned renovations and assessments. They represented, “Seller has no notice of any liens or assessments to be levied against the Property, including but not limited to liens or assessments to be levied by the HOA.” In the Seller’s Property Disclosure statement, they stated that the status of any pending or proposed assessments was “unknown”.

Neither the sellers nor the buyer’s agent made any attempt to correct this misrepresentation, though the sellers were contractually obligated to notify the buyers in a timely manner if they received notice of any forthcoming event or condition that would make previously disclosed information misleading or factually incorrect.

As a result of this situation, the buyers filed claims for misrepresentation against both the sellers and the agent. The buyers have requested a settlement of $35,000. If they do not accept, the buyer’s attorney will file a formal claim for damages.

Interested in PBI Group generating an E&O insurance quote for your real estate agency? Click here.

Real Estate E&O Claims Spotlight: Disclosure Disaster


The Facts:

Mrs. Johnson, an agent with ABC Realty, was hired to list a bank-owned, commercial property. She heard the previous owners, a mechanic shop, had abandoned the property and left it in bad shape. When she arrived at
the property, she could clearly see used motor oil had been dumped inside the structure and in several areas outside. Concerned about the potential environmental impact, she requested a copy of a recent assessment report conducted by the bank that owned the property. The bank agreed to send her the report only after she signed a non-disclosure agreement and agreed that the information contained in the report could not be relied on as fact. Upon receiving the report, Mrs. Johnson, worried about her own E&O regarding disclosing the condition of the property to potential buyers, sent the report to the local municipality to get their opinion. The municipality
inspected the property and determined there was no significant environmental impact regarding the spilled motor oil. However, what Mrs. Johnson did not anticipate was her act of sharing the report with the
municipality would also trigger a letter to the bank with the findings of the municipality’s assessment.

The Result:
The bank filed suit against Mrs. Johnson claiming she wrongfully disclosed their assessment report to a third party; clearly violating her signed non-disclosure agreement. Mrs. Johnson and her E&O insurance company mutually agreed to settle out of court ultimately paying a total of $50,000 in damages to the bank.

Risk Factor #1:

Mrs. Johnson should have advised potential buyers that since the property
was previously used as a mechanic shop, they should obtain an environmental impact assessment report for the property.

Risk Factor #2 :

Because Mrs. Johnson signed a non-disclosure agreement with the bank,
she should not have sent a copy of the report to the local municipality which violated the terms of the non-disclosure agreement.

Interested in PBI Group generating an E&O insurance quote for your real estate agency? Click here.

* Based on risk management information provided by: Victor O. Schinnerer & Company, Inc.

Real Estate E&O Claims Spotlight: Beware of Representing Your Family Members


A spotlight on a claim against a real estate agent who represented his sister in the sale of the sister’s house where the buyer claimed the sister and the agent conspired to not disclose flooding events.

Fact Scenario:
An agent represented his sister as the seller of a residential real estate property. The sister filled out a residential real property disclosure form that was required in the jurisdiction. The purpose of the form was to provide prospective buyers with information about material defects in the property. The agent did not help the sister fill out the form other than to say “answer all of the questions on the form and disclose all material defects that you are aware of.” The sister answered “yes” that she was aware of flooding problems in the basement and specifically disclosed that there had been “one flooding event in the basement two years ago”in the ten years she lived in the home. The buyer did not hire a home inspector. The buyer experienced three flooding events within six months of purchasing the home. A neighbor told the buyer and later testified that in the past few years it floods a lot in the area due to increased development of homes and structures. Buyer filed a lawsuit against the agent and the sister alleging in part that the agent and his sister fraudulently conspired to not disclose additional flooding events. The buyer alleged $100,000 in damages for repairs to protect the property from future flooding events.

Litigation & Result:
The sister testified that she was only aware of one flooding event. The agent testified that he was not aware of any flooding events and relied upon his sister to fill out the form correctly. The agent filed a motion for summary judgment on the issue that there is no proof that the agent had any knowledge of the additional flooding events. The judge denied the motion for summary judgment on the basis that there were facts in dispute on whether there might have been additional flooding events and that it is possible to impute knowledge to the agent due to the brother/sister relationship. Worried about a jury finding that a brother and sister may have conspired based upon their family relationship, the agent went to mediation and settled the matter. The agent agreed to pay $40,000. The sister agreed to pay $5,000 as she had no insurance coverage and very few assets. The real estate agent also incurred $45,000 in attorney’s fees for his defense.

Best Risk Management Practices to Prevent Claim:
Agents need to be extremely careful representing family members in that knowledge can be imputed to the agent. It is best to refer the matter to another agent to take the lead on the transaction.

Interested in PBI Group generating an E&O insurance quote for your real estate agency? Click here.

*Hanover Insurance

Lead Paint Exposure: Errors And Omissions Risk For Real Estate Agents


When a family with a two-year-old boy moved into a house that was more than 100 years old, they had no idea that the house was covered in lead-based paint. The reason they were unaware of this was because the real estate agent never informed them of the contamination when they purchased the house.

Seventeen months after moving in, the child was diagnosed with lead poisoning.

The home’s seller had notified the agent of the presence of lead paint when the house first went on the market. The agent disclosed the information to a previous potential buyer, who later backed out of the sale after reviewing the lead paint inspection results. When the second buyers, the family with the little boy, made an offer on the house, the agent withheld the lead paint report from the new buyers, who bought the home in 2014.

Recently, the 73-year-old Niagara County, New York, real estate agent pled guilty in U.S. District Court to failing to disclose an inspection report, which disclosed the lead paint. She was fined $1,000 and ordered to pay restitution of $53,326.

The buyers have also sued for civil damages, naming the agent and the seller for damages equaling the $132,000 sale price, plus triple damages for violating the law, and general negligence. Thomas J. Prohaska “Lockport couple sues real estate agent, home seller over lead poisoning” (Apr. 13, 2018).

Interested in PBI Group generating an E&O insurance quote for your real estate agency? Click here.

Hanover Insurance Group

Insurance Coverage for Sexual Misconduct (Spoiler Alert- It is not your E&O)

sexual harassment insurance policies

Sexual misconduct by a company executive or employee can result in a wide variety of legal claims against the company itself. If the victim is an employee, a supervisor’s unwanted sexual advances or other conduct of a sexual nature can form the basis for a sexual harassment claim against the employer under Title VII of the Civil Rights Act. If the accuser is not an employee, the company may be subject to liability for the bad actor’s conduct under negligent hiring or supervisions theories.

Sexual misconduct allegations can spawn litigation beyond claims by the alleged victim as well. For example, former Uber CEO Travis Kalanick was sued by an early investor in the company following widely-publicized allegations of sexual harassment and gender discrimination. The investor asserted that Kalanick’s failure to disclose the alleged misconduct gave rise to claims for fraud, breach of contract and breach of fiduciary duty.

It is also not uncommon for the alleged perpetrator to file a suit claiming defamation following public allegations of sexual misconduct. For example, Dov Charney, former CEO of American Apparel, sued his former company and a hedge fund for defamation, alleging that both sought to damage his personal and professional reputation by suggesting to third parties that he had engaged in criminal misconduct of a sexual nature.

Because no single insurance policy will provide coverage for every type of claim that may result from misconduct allegations, policyholders should look carefully at the following coverages:

Employment Practices Liability Insurance

Employment practices liability insurance (EPLI) is the most likely source of coverage for sexual misconduct claims asserted by employees. EPLI generally covers claims made by employees based on employment-related misconduct of their superiors or co-workers. Most policies expressly cover claims for sexual harassment, wrongful termination, discrimination and retaliation and some provide coverage for additional employment-related claims such as defamation or negligent retention and supervision. Some EPLI policies also cover claims that are made by non-employees, such as customers or vendors, in addition to claims by employees.

A significant limitation is the common EPLI exclusion for claims alleging bodily injury. Thus, while claims for verbal sexual harassment may be covered under an EPLI policy, claims for physical sexual assault typically are not. If a claimant alleges both verbal and physical harassment or assault, an EPLI policy may provide at least partial coverage.

General Liability

Some claims arising out of alleged sexual misconduct may be covered under a general liability (GL) policy. Most GL policies provide coverage for claims alleging “personal injury,” which typically is defined to include defamation. Thus, a defamation suit by an accused harasser, like the American Apparel lawsuit, could be covered under a GL policy.

Unlike EPLI policies, GL policies also cover claims for “bodily injury.” Although a direct claim for physical assault would likely be subject to the standard policy exclusion for injuries that are “expected or intended,” some courts have found that this exclusion does not apply to a claim against a company for the negligent hiring or supervision of an individual who commits a sexual assault. Another limitation on coverage under GL policies is the standard exclusion for claims made by employees of the policyholder. Some courts, however, have found that such claims are covered where the alleged misconduct occurred outside the workplace or were otherwise unrelated to employment.

Directors and Officers

D&O insurance is another potential source of coverage for some sexual misconduct-related claims. D&O insurance generally provides indemnification coverage for the “wrongful acts” of a company’s directors and officers and, frequently, its general employees. Many policies also cover claims against the entity itself, but such coverage is generally narrower than the coverage for insured individuals.

D&O policies typically cover claims for fraud or breach of ­fiduciary duty, such as in the Uber lawsuit. Coverage for sexual misconduct claims is ­limited by standard exclusions for bodily injury, which may extend to claims for mental anguish, humiliation and emotional distress, and exclusions for “willful or intentional” misconduct. D&O policies also typically contain an “insured vs. insured” ­exclusion, which may bar coverage for claims made by employees against the company.

Crisis Management or Reputation Risk

The reputation damage caused by sexual misconduct allegations may be more costly to a business than any other litigation expenses it will incur. Crisis management insurance and reputation risk insurance are two newer forms of coverage that seek to address the risk negative publicity poses to a company’s bottom line. When a triggering event occurs, crisis management insurance typically pays for the hiring of a public relations firm to respond to the issue. Reputation risk insurance generally provides coverage for actual business loss sustained as the result of a negative publicity event. Coverages and policy forms for the two types of insurance vary widely, and sexual misconduct-related events may or may not be covered, depending on the coverage purchased.

Pursuit of Coverage

When a sexual misconduct claim is made against a company or one of its executives or employees, the company should immediately report the claim to all of its liability carriers, even if it is unclear whether there may be coverage under a given policy. When tendering claims and engaging in negotiations with insurers, policyholders and risk managers should not accept at face value any conventional wisdom on what types of liability are covered. If an insurance carrier initially denies coverage, a company should not accept this response without testing its basis and, if necessary, consulting insurance recovery counsel.


* Written February 1, 2018 by Cameron Argetsinger is special counsel at Kelley Drye & Warren LLP  Reprinted with permission from Risk Management Magazine. Copyright 2018 Risk and Insurance Management Society, Inc. All rights reserved.

Property Management Services – Bodily Injury and Property Damage Exposures


Whether you explicitly perform Property Management services, or you provide property management services as part of a transaction, there are significant exposures to E&O claims resulting from bodily injury or property damage. Keep in mind that if you are working with REO properties, Foreclosures or Short Sales, you are performing property management services.

Most Real Estate E&O insurance policies include some coverage for bodily injury and property damage claims, but the scope of that coverage varies from policy to policy. Some E&O policies only cover bodily injury and property damage claims resulting from an open house or bodily injury and property damage resulting from the use of a lockbox. The broadest of policies provides bodily injury and property damage coverage that applies to all covered services.

Examples of bodily injury and property damage claims are frozen pipes in a foreclosure property. The bank asked you to turn off the water and now you must replace the floor. Items that a former tenant says that you threw away during a trash out that are now incredibly valuable. Bodily injury claims can result from a rental property with mold infestation or a client that falls through the rotten deck.

In many instances, these types of claims will be covered under the property owner’s insurance policy, but in the absence of the homeowner’s policy, you will be held responsible for the claim. Your General Liability policy excludes coverage for claims arising from the performance of professional services, so coverage for bodily injury and property damage claims is a very important part of your E&O policy.

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.

Interested in PBI Group generating an E&O insurance quote for your real estate agency? Click here.

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.

Interested in PBI Group generating an E&O insurance quote for your real estate agency? Click here.

Convicted Sex Offender: To Rent or Not to Rent, that is the Question (Part 1)


What should you do if a convicted sex offender, out of jail for 10 years, applies to rent one of your listings? Ask the owner of the property?… but what if he/she does not give you a clear decision To Rent or Not to Rent? Does approving this application create additional liability for yourself and your agency?

We know that the Civil Rights Act (Fair Housing Act) of 1968, Sec. 804. [42 U.S.C. 3604], and all subsequent amendments, does not identify sex offenders as a protected class like race, color, religion, age, gender, but does that mean you are cleared to disqualify the candidate? Does the public registration requirement of sex offenders provide adequate notice to the community to obviate any liability? All 50 states require convicted sex offenders to register their residency. Many states have laws that restrict residency within a certain distance of a school or daycare based on their conviction tier. Here are the 3 levels:

  1.  Tier 1 offenders: Must update their whereabouts every year with 15 years of registration
  2.  Tier 2 offenders: Must update their whereabouts every six months with 25 years of registration
  3. Tier 3 offenders: Must update their whereabouts every three months with lifetime registration requirements.

Stay tuned for the conclusions on this topic…we are working to figure out an E&O insurance coverage position on this topic but in the meantime here are some links to educate yourself on this topic:

Sex Offender Registration
Adam Walsh Child Protection and Safety Act
Sex Offender Registration and Notification Act
National Sex Offender Public Website
State-specific Registry Sites
Guide to Fair Housing
The Fair Housing Act
“Megan’s Law”

Real Estate Fraud And The Fiduciary Responsibilities Of Real Estate Agents

blankA Hazleton, Pennsylvania realtor could serve up to ten years in prison after pleading guilty to conspiracy to commit wire fraud. The realtor was arrested in Florida after fleeing there to avoid prosecution.

The realtor preyed on mostly Spanish-speaking, first-time homebuyers, telling them he was authorized to sell to them homes that were vacant or were in foreclosure. The victims agreed to buy the homes and paid the realtor, as well as other parties, for what the victims believed to be their new homes. In fact, the realtor was not authorized to sell the homes, and the fraud began to unravel when the victims began receiving eviction notices from the true owners.

Many of the victims have filed a federal lawsuit seeking civil damages against the realtor and many of the realty companies with which he was associated. James Halpin “Real estate agent admits to scam” (May 26, 2017).

The realtor-client relationship is that of a fiduciary. The realtor owes the duties of loyalty, honesty, prudence, full disclosure, confidentiality, good faith, reasonable care and diligence, and accounting.

Obviously, the real estate agent in the case above did not adhere to his fiduciary duties, and his unsuspecting clients suffered for it, as well as the real property owners.

Be aware of the types of real estate fraud that might be perpetrated on your clients:

  • Foreclosure rescue companies that convince distressed homeowners to “temporarily” transfer title or “leaseback” their own home to obtain relief.
  • Mortgage elimination schemes involving “loopholes” to help homeowners eliminate mortgages within an unreasonably short time.
  • Home improvement fraud committed by unscrupulous realtors who obtain a loan in the name of fictitious people or previous clients.
  • Equity skimming: where a buyer convinces a seller to relist the house at twice its true value. The buyer gets a larger mortgage, pays seller the original list price, and skips with rest of mortgage money, leaving the house to go into foreclosure.
  • Illegal flipping: flipping for profit is fine, but flipping for a price well above appraised value is not.
  • Equity fraud happens when crooks take stolen personal information and use it to obtain fraudulent loans.
  • Fraudulent loan origination happens when realtors help unqualified buyers get mortgages they are unable to pay in exchange for a larger sales commission.
  • Predatory lending and aggressive sales pressure: beware of “no money down” or “no credit check” schemes, which usually prey on the elderly, the unsophisticated, or those who are desperate.

Protect your clients from these scams by knowing your market, the true property values, and your client’s needs and motivations. Keep a watchful eye on how everyone involved in the transaction performs his or her job.

Interested in PBI Group generating an E&O insurance quote for your real estate agency? Click here.

Hanover Insurance Group

Protecting Client Property: Real Estate Agent’s Ethics Violation Turns Criminal


During the Christmas season, neighbors in a Connecticut town spotted two men carrying large sacks in and out of a home. According to police, one was a local realtor and the other, his accomplice. The men were in the process of stealing from an unoccupied house.

Police arrested the real estate agent on charges of third-degree burglary, conspiracy to commit third-degree burglary, and possession of burglary tools. The home belonged to a recently deceased man, and the agent had access to the home as a realtor.

Police are investigating whether the real estate professional abused access to other homes, which had recently experienced burglaries. Ben Lane “Connecticut real estate agent arrested for allegedly abusing access to rob homes-Authorities investigating a string of burglaries” (Dec. 29, 2016).


The realtor in the above-cited article likely violated at least two professional standards of practice, which led to his criminal liability as well. The 2017 Code of Ethics of the National Association of Realtors includes the following:

Standard of Practice 1-10

REALTORS® shall, consistent with the terms and conditions of their real estate licensure and their property management agreement, competently manage the property of clients with due regard for the rights, safety and health of tenants and others lawfully on the premises.

Standard of Practice 1-11

REALTORS® who are employed to maintain or manage a client’s property shall exercise due diligence and make reasonable efforts to protect it against reasonably foreseeable contingencies and losses.

The particular types of ethics violations in Connecticut are not as common as violations relating to representation and honesty. And, the agent-turned-burglar incident is an extreme and obvious case of an agent failing to properly manage or protect a client’s property.

However, these days, protecting a client’s property is not just about preventing physical access. Real estate professionals must also protect a client’s privacy. During an open house, for example, hide not only the obvious things, like jewelry and small electronics, but also hide any medications in the bathroom, checkbooks, garage door remotes, or any kind of document with your client’s personal information on it. Shut off the homeowners’ Wi-Fi while crowds are present to minimize network hacking attempts.

Consider using security cameras and alarms. It is now possible to easily equip the home with not only security alarms, but also with portable or temporary security cameras can be quickly set up, viewed from a smartphone, and removed when the home is no longer being shown.

Hanover Insurance Group

Dual Agency on Agricultural Land Deal proves to be Risky Business

Land for Sale

A spotlight on a claim against a real estate agent who acted as a dual agent for both the seller and the buyer of 1000 acres of agricultural land for $10 million dollars ($10,000 per acre).

Fact Scenario:

Prior to the sale, the seller told the agent that the property line was his fence surrounding all 1000 acres. The agent relayed that information to the buyer. The buyer never ordered a survey despite being told to do so by the agent. None of these communications were in writing.

After the sale of the land, the buyer began planting orange trees within the fence lines surrounding the property for his business. Soon after the buyer starting planting, a neighbor to the north complained that the buyer was planting on 100 acres of his property that was within the fence boundary.

The buyer refused to stop planting and continued to develop the disputed property. The neighbor filed a lawsuit against the buyer to quiet title and for trespass. The buyer and the seller filed cross complaints against each other and the agent and his brokerage.

The buyer said he was told that the property line was the fence. The seller said he never told the agent that the property line was the fence. Both the buyer and the seller independently accused the agent of not looking out for their respective interests to help facilitate the sale and earn both commissions for himself.

In addition, the damages for the buyer were not just for the potential loss of 100 acres, they also included the lost revenue for the crop planted on the disputed property line. The buyer claimed that the combination of lost property and revenue was two times the original purchase price per acre. The lack of documentation and the $2 million dollars in damages made the case difficult to settle and very expensive for all parties to defend.


Ultimately, after a bench trial, the court found that the disputed property belonged to the neighbor. The court noted that the neighbor had been paying taxes on the disputed land.

However, the court split the buyer’s damages three ways ($666K each) between the agent, the seller and the buyer. The judge found the seller at fault for not being clear about the property line in light of his fence on his neighbor’s property, the buyer at fault for not purchasing a survey and the agent for not documenting all communications about the property line and survey.

Best Risk Management Practices:

In cases of dual agency, an agent has duties to both the seller and the buyer. It is incumbent upon an agent to thoroughly document all communications. Any doubts as to what was communicated to the parties will be construed against the agent.

Interested in PBI Group generating an E&O insurance quote for your real estate agency? Click here.

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

Who needs Construction/Development coverage?

New Construction

Construction/Development coverage extends the E&O policy to provide coverage for the sale of residential property that has been built or developed by an insured agent or broker. The practice of building spec homes has become common in the real estate industry and purchasing Construction/Development coverage will address the specific risk involved in the sale of this type of property. Defending an E&O claim where the agent is also the builder is challenging at best.

The basic E&O policy excludes the sale or property in which an insured agent or broker has an ownership interest, and includes several exceptions to the exclusion, with specific caveats that must be satisfied for coverage to apply. With Construction/Development coverage to apply, the policy usually requires that there must be a specific separate business that does the construction, so an individual cannot be the builder. The policy will also require a specific written disclosure of the relationship of the agent, insured and builder/developer. Keep in mind that every insurer words the coverage a little differently, so read the policy thoroughly.

Keep in mind that while many agents will say that that are not builders, but they sell the houses that their husband or wife builds, they own the construction company as community property. So when you are completing the E&O application and you see the question regarding the sale of property built or developed by an insured, be sure to consider the agents that are selling spec homes and whether or not that agent has an ownership in that construction company.

Interested in PBI Group generating an E&O insurance quote for your real estate agency? Click here.

Know your “Hammer Clause”


There really is no such thing as a “Hammer Clause”, but that is the common term for the Consent to Settle Clause in your E&O policy. The Consent to Settle clause dictates what the insurance company will do when the company and a party making a claim against you agree on a settlement, but for whatever reason, you decide not to settle. Remember, the insurance company cannot settle a claim without your agreement, so there is a provision in the policy that determines what happens if this situation occurs.

There are various reasons why this might come up. The insurance company is interested in settling claims with the least amount paid in attorney’s fees and damages and that is not always what is best for you as an insured. Think about a transaction where you did your job perfectly and your client turned around and sued you for some nonexistent undisclosed defect in the property. The insurer might want to offer the claimant $5,000 to sign a waiver and drop the suit rather than hire an attorney and defend you. Some agents, in the interest of time and aggravation, may agree to settle. But you have the option to fight the claim. This is where the Consent to Settle clause comes into play.

When an insured refuses to agree to a settlement, the policy dictates the amount that the policy will pay over and above the amount that the claim could have been settled for. A standard Consent to Settle limits the insurer’s liability to the amount that the claim could have been settled for plus legal fees up to the time the settlement offer was made. Some policies have what’s known as a “Modified Hammer” in that the insurance company agrees to pay up to what the claim could have been settled for plus 50% of the damages in excess of the original settlement offer.
The important thing to remember if you are faced with this situation is that, by refusing to settle, you are taking on the chance that a court or arbitration may find in the favor of the claimant, and you could end up paying out of pocket for damages that could have been avoided.

Interested in PBI Group generating an E&O insurance quote for your real estate agency? Click here.

What does DOL (Defense Outside The Limit) Mean?

blankOne of the options you have when buying E&O insurance is Defense Outside the Limit (DOL) or Defense Within the Limit (DWL). It is important to understand this option clearly because this will impact coverage under your E&O policy significantly as well as the premium charged.

Defense Outside the Limit, which is sometimes referred to as Claims Expenses Outside the Limit provides substantially more protection than Defense Within the Limit which can also be referred to as Claims Expenses Inside the Limit. The difference is how the expenses incurred defending you or your agent against an E&O claim impacts your limit and what you have available to pay in damages, if any, when that claim is resolved.
Under either option, DOL or DWL, any costs incurred defending a covered claim will be paid by the E&O policy, after any deductible is paid, but with the DOL option the payment of these costs will not reduce the limit of liability that you have available to pay damages that may be awarded to the person making a claim against you. If you choose DWL any costs incurred will reduce the amount you have available under your policy to pay damages.

As an example consider a claim involving a buyer that claims an agent failed to disclose a leaky basement. The insurance company hires an attorney to defend the agent and between information discovery and depositions the attorney’s fees and costs amount to $100,000. It becomes apparent that the agent should have known and disclosed previous water infiltration problems with the house and the claimants are awarded $200,000.

Assuming the agent’s policy has a $250,000 limit, the E&O policy that is written with Defense Outside the Limit will pay $100,000 in attorney’s fees and $200,000 in damages. Under this same claim example if the agent had a DWL policy the $100,000 in attorney’s fees would be covered under the E&O policy but only $150,000 in damages would be covered. The difference is that with DOL the attorney’s fees are covered IN ADDITION TO the limit of liability available to pay damages.

It is also important to note that the aggregate limit of liability is the maximum amount available to pay damages for any one policy period. So, while unlikely, it is possible to have one or more claims during a policy period that exhausts your policy limit.

Interested in PBI Group generating an E&O insurance quote for your real estate agency? Click here.