True Cost of Defending a Lawsuit

Have you ever heard a real estate agent say, "I don't worry about Errors and Omissions Claims; my E & O liability insurance takes care of those problems?"

A good E & O policy is essential protection if a claim is ever brought against you, but good risk reduction procedures up front can save you the time, trouble and hidden costs that go along with a lawsuit.

Agents covered under the WRA sponsored Errors and Omissions liability program, administered by Pearl Insurance and underwritten by XL America, Inc., have First Dollar Defense coverage. With this valuable feature, the policy pay 100 percent of covered legal and court fees, claim expenses and non-damage related charges with no deductible. The deductible applies only if there is a claim settlement or legal judgment against you. With this kind of coverage, it may be tempting to say, "Why worry?" But avoiding litigation through an aggressive risk reduction program is still to your advantage, especially when you consider the true costs you incur when involved in a lawsuit. Even with good E & O coverage, there is a price to pay.

The hard costs of a lawsuit are usually those associated with a deductible payment (for those who do not have First Dollar Defense coverage) or loss of commissions. These lost dollars are easy to calculate. However, there are additional soft costs that are just as real, but harder to quantify. For example, time, a commissioned salesperson's most valuable asset, is difficult to calculate when involved in a lawsuit; but time spent preparing a defense is time not available for listing and selling properties. And how do you put a price tag on stress and aggravation, two "dividends" that inevitably accompany litigation?

For those who have never had the experience, here's some of what you can expect if you're ever the target of a lawsuit:

First, you are served a summons and complaint -- a traumatic experience that is followed by many time-consuming meetings, the first of which is a conference with your Broker to explain the circumstances of the claim. Then, a full copy of the file must be prepared for the defense attorney, along with a detailed account of the claim.

After that, you enter a new world of interrogatories and depositions that devour many more hours of your valuable time. When a trial date is finally set, a settlement conference takes place. If the trial is delayed by either party, more conferences are required.

Once the trial begins, it may last from days to weeks. In addition to more time away from real estate, the emotional toll of this long, debilitating process often paralyzes participants to the extent that little or no business is transacted. And, if all of this sounds bad, don't forget that your professional reputation is also at stake. Mistakes can mean disciplinary action by the Board of REALTORS® or, even worse, loss of your real estate license.

Even if you have good E & O coverage, even if you are meticulously careful, isn't it time to initiate an aggressive risk reduction program? The time and trouble involved is nothing compared to going through a lawsuit, and your risk reduction efforts will eventually become second nature to you. Here are a few good techniques to consider:

Develop written procedures for handling disputes.

Document all files.

Confirm conversations in writing.

Utilize the mediation process to settle disputes.

Make certain all disclosure forms are complete.

Take advantage of the WRA risk reduction courses.

Remember, too, the better you communicate with your clients, the less chance you have of facing them across a courtroom someday.

Please direct questions or requests for information regarding the Wisconsin REALTORS® Association's sponsored Errors & Omissions to Pearl Customer Service at 1-800-289-8170.

Errors and Omissions Insurance Program