THE SITUATION: Buyer Sues for Misrepresentation of Information

COVERAGE: Failure to Perform Professional Services

A realtor prepared a mock closing statement for a client. This statement was meant as a guide for the client to use to calculate the amount of money needed to be saved in order to purchase a property in their desired area. Their price range was from $500,000 to $700,000. The realtor’s statement contained errors, directing the buyer to save less money than what was needed to close on a specific home that was on the higher end of their price range. As a result of the realtor’s error the sale did not go through at closing due to lack of funds and the buyer lost $5,000 off their earnest money deposit.

The buyer sued the realtor for misrepresentation, resulting in:

Defense costs or “claims expenses” of $10,000
Judgments or “damages” of $7,500

THE SITUATION: Seller Sues for Alleged Misrepresentation

COVERAGE: Failure to Perform Professional Services

The Smith family is relocating and needs to sell their home quickly. Their friends, the Johnston family, wants to purchase the home because of the area. The Smith family asked their realtor which school district their current residence resided in, knowing the Johnston family wanted to purchase the home based on the school district. The real estate agent mistakenly told the Smith family the wrong school district. The Johnston family realized this and withdrew their offer. The Smith family had to put their home back on the market.

The Smith family sued their realtor for misrepresentation, resulting in:

Defense costs or “claims expenses” of $5,000
Judgments or “damages” of $0

THE SITUATION: Buyer Sues for Negligence

COVERAGE: Failure to Perform Professional Services

Retired from teaching, a woman decides to open a nanny business. She needed a new home with a larger yard that could be used appropriately. She consulted via email with her local real estate agency about purchasing a residence in which she could also run her business. The broker showed her a home that she loved. After purchasing the home, she was then told by the association that they do not allow use of the property for any sort of babysitting, nanny, or daycare business. She only purchased the home to pursue a part-time income from a nanny business.

The buyer sued the real estate agency for negligence, resulting in:

Defense costs or “claims expenses” of $15,000
Judgments or “damages” of $10,000

THE SITUATION: Buyer Sues for Discrimination

COVERAGE: Discrimination Indemnity & Defense

A minority couple was relocating to a new state and used a real estate agent whom they discovered on the internet who resides locally. The clients flew into the area to view homes and discovered that they were only being shown homes in areas predominately inhabited by other minority couples like them. When they asked if these were the only homes available that fit their criteria and price range, the realtor stated that these were the only properties available in this city. The couple decided to retain the services of another local realtor. There were many other properties available in the city and in neighborhoods that fit their criteria and price range.

The buyers sued the original realtor for discrimination, resulting in:

Defense costs or “claims expenses” of $75,000
Judgments or “damages” of $35,000

THE SITUATION: Renter Sues for Alleged Fair-Housing Discrimination

COVERAGE: Discrimination Indemnity & Defense

It has been tough for a partially disabled gentleman to find a new apartment in today’s market. He finally found an apartment of his liking, located on the second floor of the building. He approached the property manager in person to discuss renting the property. The property manager said she didn’t think it would be a good fit for the gentleman but she would have other apartments available in the upcoming months. When the gentleman asked why she didn’t think it would be a good fit, she replied that she noticed he was partially disabled and walked with a cane. Since the apartment was on the second floor of the building, with no elevator access, she had concerns for his health. Although, the property manager had good intentions, the gentleman felt discouraged. He wanted to rent the property and although the property manager did not say he couldn’t rent the property, her actions were still in violation.

The gentleman sued the property manager in violation of the Fair-Housing Act for discrimination, resulting in:

Defense costs or “claims expenses” of $55,000
Judgments or “damages” of $25,000

*NOTE: The above cases are fictional examples. Please review the actual policy for coverage intent.

Reprinted with permission of Arthur J. Gallagher & Co.

For more information on affordable errors and omissions insurance for low-risk real estate agents and brokers, visit E& For information on ethical sales practices, please visit the National Ethics Association’s Ethics Center.

The truth is becoming a rare commodity in business these days. In fact, misrepresentation and fraud in financial services is a symptom of a larger pattern of deceit in every corner of American life. Consider these facts:

  • Forty percent of Americans think it’s OK to lie (Ipsos survey, 2006).
  • People lie about 11 times a week, according to Anita Kelly, Ph.D., a psychology professor at the University of Notre Dame.
  • America’s young people are often dishonest, according to the Josephson Institute. Its Integrity Survey found that 38% of young people ages 18-24, and 51% of those 17 and under, believe they must lie and cheat in order to succeed.
  • Labaton Sucharow (a New York law firm) says that 24% of financial professionals believe that unethical or illegal conduct is par for the course.

Voters aren’t the only people who lose faith when lied to. Your customers—the people you rely on for your livelihood—have zero tolerance for industry falsehoods. When lied to repeatedly, they began to mistrust advisors and companies, disbelieve their recommendations, refuse to buy their products, and tear down their reputations. In short, lying to consumers is not only unscrupulous and morally repugnant, it’s a death trap for your reputation and practice.

So what to do about it? Commit to a new level of care: The Truth Standard. Added to the existing Suitability and Fiduciary standards, it would require 100% adherence to fact-based communications, including . . .

  • no longer allowing misrepresentations or omissions about a competing advisor, carrier, or product.
  • banishing fear mongering about the viability of Social Security or the guarantees of the Federal Deposit Insurance Corporation, among other issues.
  • requiring advisors to come totally clean about their professional expertise and training.

Sound refreshing? You bet! So be sure to read E&O HQ articles for further details. For now, follow these guidelines for injecting more truth into your client dealings—and reducing your E&O insurance risks:

  • Never tear down a competing advisor, product, or carrier unless you can provide facts.
  • Don’t prey on senior fears about Social Security, FDIC insurance, or Medicare/Medicaid. Instead, use facts to promote senior understanding.
  • Be fully transparent about your license, business model, and compensation.

For more information on reducing your errors-and-omissions insurance risks, visit National Ethics Association’s E&O Headquarters at