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Phillip C. Querin, Partner
Partner - Portland, Oregon Office
philquerin@dwt.com
(503) 241-2300
Claims Evaluation (Part Two)
[April 2004]
This is the second in a two-part series
for Realtors® in managing their risk. In the first article we
(1) discussed managing risk “from the top down,” i.e.
management identification of what aspects of their real estate practices
need the greatest attention, and (2) proper evaluation and treatment
of customer complaints before a formal claim is made.
Where Do Claims Originate? Claims come
from three different sources: (1) The customer, (2) the customer’s
lawyer, and (3) the Oregon Real Estate Agency.
Claims By the Clients Themselves. If
the client is presenting the claim on their own behalf, the real
estate company is in the best position to have direct control over
the risk. In fact, this may be the one and only time a
principal broker has actual control over the outcome of the claim.1
Here are some tips:
- What does the company’s E&O policy say? What type
of threshold does it set for reporting claims?
- Is this the type of claim that needs to be reported?
- What is the company’s claims history – is the claim
worth reporting if it can safely be settled within deductible
limits?
- Remember that if it cannot be settled but is belatedly reported,
it could result in a denial of coverage – be sure to know
where that point is. If the claim has a risk of high damages if
not settled, would it be wiser to get it to the carrier at the
outset?
- Is the claim primarily one for monetary damages – or
is it primarily based upon ethical or fiduciary duty issues which
could likely result in a complaint to the Oregon Real Estate Agency
or the local board of Realtors®?
- Can the claim be resolved in ways other than the payment of
a large sum of money? For example, consider asking the client
what solutions they have in mind.2
If the complaint involves an alleged nondisclosure of a defect,
can the item be replaced or repaired with a minimum of expense?
- Make sure the ground rules for settlement discussions are clearly
established – i.e. that nothing said in the discussions
can be used as evidence should the case not be settled.
- Never, never, never, settle a case without making sure that
it includes a complete release of all liability, past, present
and future.
- Make sure that any settlement includes the following: (1) a
covenant that the complainant will not file anything with the
Oregon Real Estate Agency, the company’s local board of
Realtors®, or any other private or public agency; (2) a confidentiality
clause prohibiting any discussion with third parties about the
case unless compelled to do so by subpoena or other court process;
and (3) a clause prohibiting the complainant from disparaging
the company, its agents or employees to any third parties.
- Consider using a third party mediator (sans attorneys)
with the written understanding that this process shall not
be deemed to be in lieu of the local board mediation. In other
words, having engaged in informal mediation will not be deemed
to have satisfied the mandatory board mediation process required
in the statewide sale agreement form. Clearly, if the case cannot
be settled informally, the insurance company will almost certainly
have to be notified.
Claims By Attorneys. If the claim is
presented in the form of a demand letter from the client’s
attorney the ante' will probably go up exponentially. It is at this
point that the principal broker begins to lose control over the
outcome of the case. The attorney has counseled his or her client
about the “value” of the case (rightly or wrongly),
and now the client has a higher level of expectation about the outcome
of their claim. Here are some tips in evaluating the case once an
attorney is involved:
- Get your own attorney – don’t allow yourself to
engage in a one-on-one dialogue regarding the merits of the case.
Things said could come back to haunt you.
- Find out as much as possible about opposing counsel. How much
experience do they have in litigation in general and real estate
litigation in particular.
- If the claim is small, talk to your attorney about making a
formal offer of compromise (also known as an offer of judgment)
at the earliest possible time. If done correctly it may cut off
the other side’s right to recover prevailing attorney fees.
- Try to get the case into mandatory mediation at the earliest
possible time. Make sure the mediator is well versed in all of
the facts ahead of time – the good, the bad and the ugly.
- Don’t sugar coat your case to the mediator, since he
or she is in the best position to render an objective evaluation
only with complete knowledge of the facts.
- Don’t play games in mediation, e.g. attending only to
use it as a discovery tool on the road to arbitration - rather
than a engaging in good faith settlement talks.
- In 2003, PMAR mediators were able to successfully settle over
70% of their cases. Don’t ignore the statistics. Make a
genuine effort to resolve the matter.
- Remember that each side wants to walk away with some dignity.
Don’t insist upon positions that make it impossible for
the other side to agree.
- If the other side is taking an unreasonable position, insist
that the mediator become more “evaluative” by focusing
on the legal difficulties of the unreasonable position –
as opposed to letting the process be only “facilitative,”
i.e. with the mediator shuttling back and forth simply trying
to get the parties to split the difference.
- Make sure you fully understand your legal defense. Discuss
with your attorney his/her evaluation of the case. What are the
strengths and weaknesses? Is there a chance that an arbitrator
would conclude that the agent actually did fail to meet applicable
industry standards? What type of witness will the agent(s) make?
Are there principal brokers in other companies who would testify
that applicable industry standards were met? 3
- Don’t walk over dollars to pick up pennies. If the case
can be resolved by the payment of a few dollars more – even
if seemingly unwarranted – consider doing so just to get
the case resolved. Standing on principal is fine, but if there
is significant legal exposure and the other side may likely prevail,
albeit for less money, they will be awarded prevailing attorney
fees. Sometimes these fees can meet or exceed the amount in issue.
The payment of a little extra money will buy peace, which is a
commodity that rarely occurs after litigation is commenced.
Claims to the Oregon Real Estate Agency.
Remember that claims to the Oregon Real Estate Agency sometimes
can also become civil claims in court or arbitration. Unfortunately,
sometimes claims get filed simultaneously, both with the Agency
and in court or arbitration. Here are some tips in dealing with
the Agency.
- Dealing with a claim brought through the Agency is not
the same as with dealing with a disgruntled client or their attorney.
If the Agency suspects that an agent violated applicable licensing
laws, it can be virtually impossible to resolve by a simple monetary
settlement with the consumer. While settlement with the consumer
may be taken into consideration in mitigation of any licensing
sanction, settlement will not necessarily make the Agency claim
disappear.
- On the other hand, if the basis of the Agency claim is primarily
monetary (e.g. the claimant alleges that their agent
negligently failed to represent them) reaching some sort of financial
accommodation with the complainant directly, can be very useful
in reducing any possible sanction. It can also be useful if, as
pointed out above, a written settlement is reached which releases
the agent from any further civil liability.
- If the claim appears to the principal broker to be a serious
one, Agency interviews should be carefully handled. Make sure
the transactional file is thoroughly reviewed and complete. Make
sure the agent’s personal file does not contain documents
that should be in the broker’s transactional file. Thoroughly
debrief the agent before any interview. Make sure that you have
read the complaint thoroughly and understand exactly what the
customer is complaining about. Don’t allow the agent to
be interviewed without the presence of the principal broker and/or
an attorney.4
- Make sure that you’ve obtained the entire file
from the Agency before the interview. In many cases, the investigator
has already accumulated a substantial amount of information and
its always good to know, in advance, what documents and information
the Agency has.5
- Some investigators are easier to deal with than others. Try
not to get on the wrong side of them. It’s like arguing
with a traffic cop before he/she gives you the citation.
- Know the weaknesses in the Agency’s case. Remember, the
Agency doesn’t like to lose either. They will be less likely
to seek a serious sanction if they know it exceeds the likely
result handed down by an administrative law judge if the matter
becomes a contested case. If the complainant is a poor witness,
has been caught in lies, has a criminal record (it happens), is
a present or former licensee themselves, perhaps with an Agency
record (it also happens), this is useful information to have.
Occasionally, it is possible to unearth information that the Agency
itself does not yet have.
Conclusion
Litigation or arbitration can sometimes take on a life of its own.
It is rarely worth the cost and should be used only as a last resort.
Principal brokers can do much to stem the tide of litigation by
- first and foremost - training their agents to recognize where
the land mines are buried. If a particular agent continues to ignore
company policy after being properly counseled, he/she should be
let go. Principal broker supervision should be real, substantive,
and continuous. While none of these precautions can prevent customers
from becoming dissatisfied, they can help reduce the risk of dissatisfaction
ripening into a catastrophic claim.
FOOTNOTES
1
I am distinguishing this type of claim from those in the first article
simply by degree. The type of claim discussed in Part One deals
with the general dissatisfaction of the client before it ripens
into an actual demand for money or other relief.
2 While this may sound
overly simplistic, I have settled cases between sellers and buyers
that involved low dollars amounts and a simple apology.
3 This is the litmus
test for finding a breach of fiduciary duty, i.e. did the agent
fulfill their fiduciary duty to the client as prescribed by applicable
industry standards.
4
The use of an attorney during the interview can be quite helpful
in keeping the proceeding on track. Some investigators have a habit
of asking open-ended questions, which can invite the agent to give
long rambling responses. Never allow the investigator to become
argumentative with the agent or visa versa.
5
It is true that under Oregon’s Open Records Law, obtaining
information while and investigation is pending may be refused. But
in my experience, the Agency has never raised this in opposition
to a formal request to see the file.
© Copyright 2004. Phillip C. Querin,
Davis Wright Tremaine. No part may be reproduced without the author’s
express written consent.
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