April 4, 2019

E&O Insurance Frequent Claim Scenarios: Case #2

E&O Insurance Frequent Claim Scenarios: Case #2

As previously announced, to increase awareness of and ultimately help agents avoid legal claims, we’ll review several actual cases in The Daily Bean which E&O insurers advise are most representative of all claims.

Case #2: Agent Sued for Failure to Disclose Offer and Provide Access to Property 

The Situation: An agent agreed to list and sell a residential property. The agent had an interested buyer, and an offer was presented and accepted on the property. Subsequently, a neighbor was denied access to view the property despite stating that he would offer $85,000 more than the original offer. The seller ultimately claimed the agent was negligent in not making the property accessible to the neighbor and demanded the difference in the selling price.

The Problem: The relationship the agent had with the buyer would later create an issue because the agent failed to give access to the neighbor and failed to inform the seller of the higher competing offer.

The Mistake: The agent should have disclosed his relationship with the buyer to the seller. The agent should have given the neighbor access to the property and conveyed the higher offer from the neighbor to the seller.

The Result: Several months after closing, the seller found out from the neighbor about the offer of $85,000 over the asking price. Following document production and depositions, the evidence revealed the agent had favored the buyer – a violation of agency law. Experts lined up to testify, and the agent eventually settled with the seller for $40,000 plus attorney fees.

Prevention: Breach of agency or fiduciary duty allegations typically arise following a problem with a transaction, and many of the disputes involve claims of undisclosed dual agency. You should always keep abreast of agency laws in your state to minimize potential claims alleging breach of fiduciary duty and disclosure issues. It’s important to exercise fair and equal treatment to both sides of the transaction. Avoid dual agency if possible, but if you must agree to disclosed dual agency, fully disclose the status to the purchaser and seller in writing with a reminder that no confidences can be maintained. Always provide a full disclosure of information.