E&O Insurance Frequent Claim Scenarios: Case #4

We’re continuing to review a series of actual claims to increase awareness of common risk issues. While these cases, fortunately, don’t involve Bean Group, our E&O carrier advises these examples are representative of their most frequently submitted claims. 

Case #4: Sellers Fail to Provide Buyer with Structural Engineering Report Revealing Structural Damage to Foundation

The Problem: The subject property went under contract to prospective buyers who hired a home inspector. The inspector didn’t discover any additional structural issues, and the transaction took place. The seller failed to give the buyers a structural engineering report that indicated additional issues the home inspection didn’t reveal.

The Mistake: The agent assumed the structural engineering report did not reveal any additional problems. While the real estate agent claimed he had verbally advised the buyer of the content of the report, the disclosure statement should have been amended to include the actual report. 

The Result: Following the close of escrow, the buyer soon discovered additional cracks and water penetration. He then sued the sellers and the agent, alleging that they failed to fully disclose the defects by not providing the prior structural engineering report and not amending the seller’s property disclosure statement. It was further alleged that the real estate agent recommended to the buyer to waive the inspection contingency in the purchase agreement, which created additional exposure to the agent. The case ultimately settled for $35,000.

Prevention: Litigation would likely have been prevented with an amended seller’s property disclosure statement and disclosure of the prior structural engineering report. The bottom line: disclose what you know, and don’t rely on your client’s word if there is an actual report to disclose.