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Phillip C. Querin, Partner
Partner - Portland, Oregon Office

philquerin@dwt.com
(503) 241-2300

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Managing Your Risk (Part One)
[March 2004]

Litigation and arbitration cannot be avoided forever. They are a fact of life in today’s society and a cost of doing business. This is especially true in those professions where a fiduciary relationship is created between the consumer and the service provider. Realtors®, doctors, lawyers, and even the clergy, are targets for litigation because of the nature of their business and the service they provide. Trust is an essential byproduct of the relationship, and accordingly, liability is high. But this does not mean that the risk inherent in these professions cannot be successfully managed in a manner designed to reduce or eliminate their adverse impact. The purpose of this article is to analyze where the risks reside, how to reduce or avoid them, and what to do if a client’s dissatisfaction should ripen into an actual claim.

Management Of Risk From The Top Down. Every real estate company of any size should evaluate whether to create a quality assurance committee with the sole mission of determining how best to manage professional risks and handle claims. Here are some issues to consider:

Are there agents who have had multiple claims filed against them? Are they sufficiently counseled and supervised?
Are there some agents whose specialty (e.g. foreclosure properties) invites greater risk?
How many agents is the principal broker responsible for supervising? Is the ratio realistic?
Are there some agents with other real estate related business, such as home construction? Are they allowed to list and sell their own properties?
Are all agents encouraged to fully document their professional real estate activities for inclusion in their personal file, should a problem later arise?
Are transactional files reviewed for completeness at the conclusion of the transaction before the commission is disbursed to the agent?
How many agents have licensed personal assistants and who is really supervising them?
How extensive is the company’s office policy regarding client complaints? Are agents encouraged to immediately report problems to the principal broker, or are they left to be handled by the individual agent until the last minute?
Is agent advertising really supervised?
How does the company deal with dual representation – are single agents allowed to represent both sides of the transaction – and if so, are they supervised any closer than the others?
Is principal broker review truly a review or merely a rubber stamp?
Are the rules of client confidentiality sufficiently defined in written office policy and are the policies actually enforced?
Does the company have written office policies that comply with state law and is there broker training to assure that each agent is familiar with them?
What policies – if any – does the company have regarding allowing its agents to testify in court regarding industry standards?
What policies – if any – does the company have in permitting its agents to file complaints with the Real Estate Agency or local board against other agents?
Are the principal brokers sufficiently familiar with the company’s E&O coverage to know which activities are covered and which are excluded? If so, are agents permitted to engage in the excluded activities within the brokerage?

These are just a few of the topics that may be addressed at the quality assurance level. There are many more. But the best offense is a good defense. Evaluation of the company’s risk management policies and procedures is the best place to start. The next step is to implement corrective action to reduce or eliminate the risks. This requires management from the top down.

Claims Evaluation – Before The Case Is Filed
The most critical component in managing risk is the capacity to evaluate a claim at the earliest possible time. But this first requires that all agents be required to promptly report any potential client problems to their principal broker and that the principal broker be skilled in handling and properly evaluating the complaint. Some principal brokers are better than others when it comes to dealing with unhappy buyers or sellers. This may mean that client complaints be channeled to one or more persons who are adequately skilled in dealing with the problem. Here are some tips companies may wish to consider in evaluating and handling claims before a case is filed:

Immediately call the complainant(s) to let them know you’re reviewing the matter and will get back to them. Then thoroughly debrief the agent(s) about the claim. Is the agent being truthful and complete in their explanation?
Become intimately familiar with the entire transaction. Are all transactional documents in order, properly reviewed, and fully executed? Make sure there are no documents in the agent’s file which should be in the transactional file.
In most cases the agent being complained against should be instructed to have no further contact with the complainant(s). If further action is necessary, appoint another agent or principal broker.
Are there any aspects of the transaction which create more concern than others – e.g. was dual agency involved? Was the agent engaged in an activity involving a personal business? Did the agent have any undisclosed relationships or financial interest in the transaction?
Is the claim one for which there may be no E&O coverage? What are the reporting requirements to the company? If there is coverage, can the claim be resolved within the deductible limits of the policy?
Be careful about written evaluations of claims, since they may be discoverable by the other side if litigation ensues. If the company has legal counsel, consider having all agent and principal broker writings, explanations, evaluations, etc. directed to the attorney, since it is more likely to be deemed privileged and immune from review by the other side.
After fully investigating the case, every effort should be made to have a face-to-face meeting with the complainant(s). This allows the responsible principal broker to evaluate their demeanor and good faith. If the claimants are a couple, e.g. husband and wife, try to have both of them present in order to get both versions. In most cases it is probably not a good idea to have the agent present, since it may hamper the willingness of the complainant(s) to make a full disclosure. Moreover, the agent may feel compelled to defend their actions which could result in an argument.
Be timely in meeting with the complainant(s). Delay will be interpreted by the other side as avoidance and exacerbate the situation.
Be a good listener. Don’t argue or make excuses. Be polite. Don’t minimize the complaint, regardless of how small it may seem. Don’t play “devil’s advocate.” Remember, the complainant(s) are probably angry and upset. It is important to let them “vent.” Above all, don’t do or say anything that could be construed as an admission of guilt. Be careful about having your legal counsel present: (1) it sends the wrong message to the other side, and (2) it could result in making the lawyer a witness if the complainant(s) changed their story. This could disqualify the attorney from representation should a lawsuit or arbitration be filed.
If the other side wants to bring their attorney, make sure your attorney has set the ground rules for the meeting. For example, if it is properly established to be in the nature of settlement discussions, it will be protected under the rules of evidence, and what is said could not be admitted in court or any other hearing.
After the matter has been thoroughly reviewed and the principal broker has assemble all of the facts, the matter should be re-reviewed in-house. The more experienced principal brokers involved the better - group evaluation may draw differing points of view about the severity of the claim and possible legal exposure.

(Next issue: Part Two - Claims Evaluation)

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