This article continues with the third and fourth most common real estate E&O insurance claims: breach of contract and negligence. The first and second most common types are here.

Breach of Contract

We regularly encounter lawsuits wherein one party, usually the plaintiff, asserts a breach of contract claim against the insured real estate agent. Breach of contract is a cause of action based upon an allegation that one or more parties failed to perform under the terms of a contract. If a Court finds a breach occurred, it will award damages in such an event. Note that plaintiffs will sometimes claim breach of the real estate contract; however, a breach of contract claim should not exist against the real estate agent in this circumstance, unless the agent was party to the real estate contract itself. This is distinguishable from allegations that the real estate agent breached his/her legal duties which arose out of the buying or listing agreement. It is for this reason that we typically see breach of contract claims in conjunction with other causes of action, such as breach of duty, negligence, fraud, etc.

Negligence

Generally speaking, negligence is a cause of action alleging the failure to exercise due care toward others, which a reasonable or prudent person would do in the circumstances. The plaintiff must show the defendant had a duty to the plaintiff; the defendant’s act or inaction breached that duty; the defendant’s act or inaction was the cause of the plaintiff’s harm; and the plaintiff must have suffered a discernible injury. Acts of negligence are set apart from intentional torts such as fraud, since negligence claims lack an element of intent. For example, a plaintiff does not have to prove the defendant purposefully concealed a property defect, but rather that the defendant knew or should have known about the complained of defect and failed to disclose it. Typically most plaintiffs will plead fraud and negligence in the alternative, which means that in the event the plaintiffs fail to prove fraud, the defendant can still be found to have acted negligently.

Some examples of negligence claims include:

  • “Our agent failed to transmit written notice to the listing agent before the deadline that we were opting out of the purchase and sale agreement per the inspection contingency in the contract.”
  • “Our real estate agent should have known that even though the property was advertised as a 4-bedroom house, the septic system was only approved for a 2-bedroom house.”
  • “The real estate agent should have known there was termite damage to the house and disclosed it to us, the buyers.”

Normally, plaintiffs are not entitled to punitive damages in a negligence claim, but rather are limited to the actual damages suffered, which may or may not include the costs of the litigation.

(Editor’s note: We’ll cover the remaining real estate E&O insurance claim types in Parts Three through Five of this series.)

Reprinted with permission of Rice Insurance Services Company, LLC

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