E&O Risk Manager: Buyer Sues Agent for Negligent Referral

A Real-Life Situation on the Importance of Never Selecting Vendors for Your Client’s Property

Situation:

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A real estate agent listed an older home in need of electrical, plumbing, and cosmetic improvements. The agent recommended to the sellers that they hire contractors in order to make the property more attractive to potential buyers. The owners agreed with the strategy and hired an electrician and painter, but couldn’t find an available plumber. The agent then referred them to one who could immediately address the leakage problems in the kitchen and bathrooms.

Problem:

Following completion of the electrical and plumbing repairs, the painter brought in his team and freshened up the home’s interior. The strategy to improve the appearance of the home was successful, as the home quickly went under contract and closed. However, the new owners later discovered that the upstairs bathrooms continued to experience leaking, resulting in ugly water stains on the ceilings and walls below.

Mistake:

Not only was the plumber unlicensed, but the agent gave assurances that the leaking was remediated at the pre-closing walk-through.

Result:

The new buyers filed a lawsuit against the agent alleging negligent referral, intentional misrepresentation, and breach of the standard of care. The plumber was also named as a defendant, but carried no liability insurance. The buyers also filed a regulatory complaint against the agent’s broker alleging failure to properly supervise. The lawsuit was eventually settled when the real estate brokerage agreed to reimburse the buyers for the costs to fix the plumbing issues and to re-paint the damaged areas.

Prevention:

An agent should never be the one to select or hire vendors to perform work on client property, especially if they’re unlicensed or otherwise unqualified. That decision should ultimately be made by the seller from a list of licensed and insured vendors. This will reduce the possibility of being the target of “negligent referral” claims, as well as claims from contractors if clients fail to pay for the services that you arrange on their behalf. It’s not worth the risk to your reputation.

The recommendations in this article may differ from state and local practices. Greenwich Insurance Company and Indian Harbor Insurance Company Coverage is not available in all jurisdictions.

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