The Top 5 E&O Claims Commercial Real Estate Professionals Face

This blog was originally published on April 19, 2013. It was updated and re-published on January 15, 2019.

In 2016, Insurance Journal’s Agency E&O Survey found that the majority of agency owners (83.5 percent) purchase Errors & Omissions coverage to keep their assets safe. The same goes for real estate professionals. The stark reality is that at any given time, a claim can happen; when a claim happens, you need insurance to protect you.

When dealing with Commercial Real Estate (CRE), you can never be too careful. Although these firms generally don't face the amount of litigation that a residential firm does, the risk and exposures that come with CRE firms are much more costly to defend in court. If you’re in the real estate business, it’s imperative to be aware of the claims that you could potentially come to face. Having the proper insurance coverage to defend you when you need it is essential. Here’s some real estate E&O claims examples that real estate professionals face.

The Top 5 E&O Claims

Across the commercial real estate sector as a whole, these five claims have been the most prevalent for years.

• Dual agency - When the same firm employs different agents to work on a project.
• Commissions - Sometimes real estate brokers have to bring suits against their clients for fees due.
• Pollution - If a broker fails to disclose knowledge about a contaminant in the building they’re selling, they can be held liable for it.
• Owned property - This happens when there’s a conflict of interest between a professional and a property they maintain ownership of.
• Buyer/lesser financial creditworthiness - This involves when a tenant or buyer can’t fulfill their promise to pay for the property. A broker has to properly financially qualify a buyer and they have to disclose it.

However, keep in mind that these are the most common E&O claims across the entire commercial real estate market. For more specific occupations within the real estate sector, there are different claims that arise more frequently than the above.

Commercial Property Managers Claims Examples

For a commercial property manager, claims that you’ll have to deal with, according to Capitol Special Risks, are loss of income and misrepresentation.

• Loss of income - Say a property manager is overseeing some kind of commercial building, such as a mall. But the thing isn’t taken care of at all like the contract stated. Due to this, the owner has to lower the monthly rent. If this happens, the owner can sue the property manager for loss of income.
• Misrepresentation - A corporation contracts out a property management firm to lease a building floor. But six months later, construction begins on the road next to the property, ultimately causing horrible traffic. Because of this, vendors now have trouble making it to the building. The decrease in productivity can be harmful. The corporation can now sue for misrepresentation due to the fact that they were not made aware of the construction before they rented out the building.

Real Estate Agent Claim Scenario

In addition to the above claims, real estate agents are also vulnerable to claims of negligence. Let's say a couple talked to a real estate broker about opening a daycare out of a home they are purchasing. The couple eventually bought a townhouse through the broker. After closing, they were told that they could not run a daycare out of their home. Because of this, the couple can sue for negligence.

About Axis Insurance

At Axis Insurance Services, we aim to help our customers identify their exposures and protect themselves. Founded in 1999, we offer insurance programs to a wide variety of professionals and industries including attorneys, real estate, healthcare, architects, and more, and also have a wholesale division. We pride ourselves on offering flexible insurance coverage tailored specifically to each customer’s needs. To learn more about our solutions, contact us at (201) 847-9175 to speak with one of our professionals.