August 29, 2019

E&O Insurance Frequent Claim Scenarios: Case #5

E&O Insurance Frequent Claim Scenarios: Case #5

Maintaining a written record of your work is an integral way to protect yourself from litigation. If a claim is ever filed against you, proper documentation can help clear you of any wrongdoing.

Unfortunately, not all real estate agents are in the habit of creating a thorough paper trail.

Here’s a real-world scenario where failure to obtain written approval resulted in a lawsuit:

The Situation: A real estate agent entered into an exclusive listing agreement with a builder of custom homes to market a thirty-lot subdivision. As part of his responsibilities, the agent created a brochure with photographs and descriptions of properties the builder had previously constructed. This brochure was designed for potential buyers to gain an understanding of the builder’s quality and craftsmanship.

The Problem: The builder invited the agent to tour one of his completed houses, which was already occupied. The agent used the opportunity to take pictures of the home’s interior and exterior. The agent published the photographs in the brochure and in the local newspaper real estate section without gaining written permission from the homeowners.

The Result: When the homeowners learned of the unauthorized photographs, they immediately filed a motion for declaratory judgment asking the court to declare the newspaper publication had violated their rights to privacy. They also sought a cease and desist order.

The owners were concerned that others would copy their home’s design and that their personal property was now a target for burglars. Upon receiving the court documents, the builder instructed the agent to pull the newspaper advertisement and discontinue the brochure. Shortly thereafter, the builder terminated the agent’s exclusive listing agreement and demanded the agent’s broker compensate his clients for the invasion of privacy.

Prevention: In this situation, commission revenue was lost for thirty potential transactions – all because the agent didn’t obtain written consent to publish photographs.

One of the main objectives of a risk management program is to help avoid litigation and the potential loss of clients. Getting relevant written approvals to use specific images should be a fundamental requirement when creating marketing materials and advertising copy.