Recapping the year’s E&O claims
Despite a world in turmoil due to COVID-19, claims against licensees continue to be made on a regular basis. This year we expect to have approximately 260 new claims reported, compared to 294 in 2019, a decline of about 12% (see graph). Claims reports slowed somewhat over the spring while the courts were closed, but as the real estate market has rebounded, we expect claims to slowly increase as well.
There are currently 475 open claim files, a decline of about 15% from the same time last year. Of these, 76% are in litigation, with 81% of those claims in Supreme Court. Our four staff lawyers are currently handling about 43% of the litigation matters in-house. Our 2020 claims surveys, completed by our insureds upon closing a file, continue to show a high regard for our in-house lawyers’ services, with an average rating of 98.55%. We’re now sending out these surveys in a printable pdf format to make them easier to complete. We encourage all feedback.
The breakdown of closed claims doesn’t change much from year to year. Of the 3,742 claims reported since January 1, 2008 that are now closed, 68% were closed with no expense other than staff costs to resolve them. A further 17% resulted in legal costs only, while only 15% involved indemnity payments (see chart).
As licensees are now commonly using electronic signature software to put deals together, particularly in our current social-distancing world, we caution you to use extra care and attention. Scott Cordell’s article on the dangers of e-signatures explains some of the mistakes that can be made and what you can do avoid them.
Finally, as the year comes to a close, we may see calendar-related mistakes. Be careful that the year you write into a contract is the correct one! These mistakes usually happen when a licensee fails to change the year for the completion date in a counteroffer. For example, an offer is received in December 2020 with a completion date in January 2021 and the seller wants to counter an offer with an earlier completion date in December 2020. Make sure you change both the month to December and the year to 2020. (Otherwise, you may have a very unhappy seller who has inadvertently agreed to a completion date one year away, in December 2021.)
2020’s five most expensive claims
- Breach of fiduciary duty: A limited dual agent was alleged to have breached his fiduciary duties by preferring one party’s interests over the other and failing to recommend legal advice to the parties involved. Total cost, including legal fees: $900,000
- Negligence: A limited dual agent was alleged to have been negligent in failing to recommend an environmental assessment clause. Total cost, including legal fees: $717,000
- Negligent misrepresentation: A tenant’s agent was alleged to have been negligent in recommending a property that could not be used for the tenant’s purposes. Total cost, including legal fees: $547,000
- Negligent misrepresentation: A limited dual agent was alleged to have misrepresented the assets and value of a commercial property. Total cost, including legal fees: $501,000
- Negligence: A limited dual agent was alleged to have been negligent in failing to disclose that a dwelling was non-conforming and had to be moved. Total cost, including legal fees: $342,000
We wish you all the best of the season and a happy and healthy 2021!