Covered or not covered: claims are stressful!

Let’s face it. As a licensee, having a claim made against you is both stressful and intimidating, even if you have insurance coverage.

But what happens if you don’t have insurance coverage? While the Indemnity Plan offers broad protection for real estate licensees, there are claims that simply fall outside of coverage.

In some instances, a licensee’s otherwise valid insurance coverage can be lost by failing to adhere to the conditions set out in the Indemnity Plan. It’s therefore critical for licensees to understand where their insurance coverage begins, where it ends and, perhaps more importantly, how it can be lost.

Here are a few scenarios where licensees have jeopardized their insurance coverage.

1. The late reporter (aka the procrastinator)

We get it. Life gets busy, and claims aren’t fun (even we’ll agree with that). What is equally not fun, however, is losing insurance coverage for failing to report a claim or potential claim in a timely manner. Under the terms of the Indemnity Plan you’re required to immediately report any claim or potential claim to us in writing¹. This is particularly important if you are facing a lawsuit as there are strict timelines to respond.

In some cases, if default judgment has been entered against you (this can occur when you fail to respond to a lawsuit by the applicable deadline) before you report the claim to us, you may be required to set aside the default judgment at your own expense before we will assume the defence (assuming the claim is otherwise covered).

So, when you do become aware of a claim or potential claim, take action and report it to us promptly and in writing by email to reception@reeoic.com. Unlike a fine Bordeaux, claims don’t get better with time. Not sure what you have is a “claim” or “potential claim?” Call us at 604-669-0019, and we can let you know if you should report the matter to us.

Tip: Don’t allow others to sign and accept registered mail addressed to you unless you have specifically authorized them to do so and to advise you immediately if this occurs. In some cases, licensees have returned to their office after a month-long holiday only to discover that a receptionist accepted a registered document for them while they were away, not realizing that this was service of legal documents. This delay left them facing a default judgment as the time limit for filing a defence had already passed.

2. The landlord

You’ve been named in a Residential Tenancy Branch (RTB) proceeding – what now? Matters before the RTB aren’t covered as they’re excluded by Part III: Exclusions, s 14 in the Indemnity Plan. You have a much greater risk of being named in a RTB proceeding if you put your name or your brokerage’s name as landlord on leases. You’re also taking on all the legal obligations as landlord under the lease. 

A better approach is to have your client, the property owner, named as landlord on any leases or notices respecting the tenancy. If your client is unable to sign these documents themselves, you can sign on their behalf if you have authority in writing from your clients and comply with Rule 45 – Signing agreements on behalf of clients. Remember, when signing on behalf of a client, sign your own name and then indicate beside your signature that you are signing “as agent for” your client.

Tip: Although your Indemnity Plan does not cover you for RTB claims, it’s a good idea to contact us when you are joined or expect to be named as a defendant in such a claim as we can sometimes help prevent other potential related claims from developing.

You may have coverage under your client’s insurance policy, or the client may be obligated to indemnify you pursuant to the terms of your property management agreement. Property management brokerages would be well advised to review their form of property management agreement regularly with their own lawyer to ensure it contains provisions to protect you.

3. The signatory

Attention strata managers and property managers! Much like entering into leases in your own name, if you enter into service contracts in your own name (presumably on behalf of an owner or strata corporation), you do so at your own peril. Liability assumed under a contract is excluded from coverage by operation of Exclusion 8 of the Indemnity Plan² if you otherwise would not have had such liability.

By becoming a party to a contract, you’re agreeing to all of the obligations and responsibilities that go along with it. For example, if an owner refuses to pay an invoice related to a service contract that you made yourself party to, you may have assumed liability for it, even if you thought you were only agreeing to the contract on behalf of your client. Even though you have no control over the actions of your client, you’re now at their mercy and must hope that they indemnify you or honour the contract.

Tips: Assist your clients with their contracts, but don’t take on liability that you don’t need to by becoming a party to the contract! Instead, have your clients review and execute contracts themselves. It’s also a good idea to ensure that your strata or property management agreements have strong indemnity clauses for situations where you may wish to seek indemnity from your clients..

4. The talker

You’ve just received an angry demand letter alleging that you’ve failed in your duties. You may be feeling angry, offended, upset or perhaps apologetic. While it’s normal to feel the need to offer assurances or solutions immediately, take your next steps with caution. What’s that old saying — anything you say can and will be used against you. There can be many appropriate responses to allegations of wrongdoing, but admissions of liability may prejudice your defence and can jeopardize your insurance coverage³. Similarly, you should never offer to settle any claim without first contacting us, as any settlement made without E&O’s express consent will be solely at your own expense.

Tips: Report claims to us promptly and let us guide you with the best response. In most instances, recommending that your client seek independent legal advice will be appropriate or simply advising your client that you require time to seek out your own advice before responding.

5. Commission claims

The Indemnity Plan doesn’t cover claims you make for commissions/fees. It also doesn’t apply to “a claim precipitated by an attempt to collect a commission or fee.” For example, a licensee who pursues their commissions/fees may face a counterclaim in negligence. While a negligence claim would typically attract insurance coverage through the Indemnity Plan, a claim in response to your pursuit of commissions/fees may be excluded from coverage by virtue of Exclusion 6 of the Indemnity Plan⁴.

Tips: Understand the potential risks of an uncovered claim should you decide to pursue your commissions/fees. We suggest you obtain independent legal advice before initiating any claim for your commissions/fees.

Conclusion

Take the time to become familiar with the coverage provided in the Indemnity Plan as well as your obligations under it. Periodically check with an experienced insurance broker whether you might benefit from additional insurance coverage.

For more information on what is or isn’t covered by the Indemnity Plan, and other insurance policies available to licensees, see Bill MacLeod and Rob McLeod’s article Risks and insurance for the real estate licensee and the FAQ section of our website. In all coverage matters, the wording of the Indemnity Plan governs.

¹ Section 3, Part IV: Conditions, of the Indemnity Plan.

² Section 8, Part III: Exclusions, of the Indemnity Plan excludes coverage for claims “relating to or arising out of liability assumed under a contract, unless liability would have attached even without the contract.”

³ Section 4, Part IV: Conditions, of the Indemnity Plan.

⁴ Section 6, Part III: Exclusions, of the Indemnity Plan excludes coverage for claims precipitated by an attempt to collect a commission or fee.