P.I. – no not Magnum but for PMs
The need for Professional Indemnity insurance is a given for real estate agents. But many don’t realise they’re more likely to need to claim for the property management side of the business than they are for sales.
As part of their licence to operate, agents may need to hold professional indemnity (PI) insurance (also sometimes referred to as Errors & Omissions cover). PI is designed to protect agents against legal costs and any claims for damages from third parties which could arise from an act, omission or breach of professional duty in the course of their business (i.e. if the agent is accused of negligence, misleading or deceptive conduct or similar).
It’s a common misconception that agents only need to hold PI to cover their sales work, when in reality most PI claims stem from the property management side of their business.
At RentCover we see hundreds of PI claims that relate to property management, yet only a handful relating to sales. And litigation against agents is an increasing trend, as whenever a landlord’s liability to the tenant becomes an issue, the landlord often looks to join the agent to the litigation, seeking either full indemnity or contribution to the compensation payable to the tenant.
It often simply boils down to the question of ‘who is to blame?’.
Sometimes PI claims are clearly the result of poor property management practices, while other claims are the result of the agent having done their job, but not well enough and tenants end up injured as a result. For example, the agent may have failed to note exactly what’s gone on or not emphasised the extent of the risk to a landlord.
Although liability often rests with the owner of the property, the agent can also be held partially or fully liable for failing to act, as these examples highlight.
The balcony on an investment property was riddled with white-ants and was not safe. The tenant advised the agent on numerous occasions that they were concerned about the safety of the balcony and the agent repeatedly advised the landlord. The landlord asked for quotes to repair/replace the balcony railing and there was a lot (over several months) of back and forth between the agent and owner.
The tenant was so concerned about his safety that he decided to vacate the property. Unfortunately in the process of moving out, the tenant knocked into the balcony and because it was falling apart he then tripped over a loose railing, fell and injured his leg.
Although the agent did the right thing in notifying the landlord and spent many hours communicating with tradies, obtaining and exchanging quotes, calling and writing to the landlord – they failed to stress the seriousness and urgency of the matter strongly enough and, as a result, they shared in the blame for the tenant’s injury.
When entering the landlord’s premises the tenant tripped over a high uneven step at the front of the premises, fell and broke an ankle. The tenant issued proceedings against the landlord alleging landlord’s negligence (failure to take care and ensure that the tenant is not injured by reason of the state of the premises).
The landlord then issued a third party notice against the agent alleging that they relied on the agent’s expertise in regard to property management to identify hazards and notify the landlord of any defects that may require repair. The landlord alleged that the agent failed to identify the defect, notify the landlord and repair it. As the agent could not provide proof of regular inspections being carried out on the premises, they were held responsible for the injury. The amount claimed was in the vicinity of $200,000 (medical expenses, loss of earnings, gratuitous care) in addition to both the tenant’s and the landlord’s costs, which were covered by the agent’s PI insurance.
These claim examples are an important reminder to all agents about their legal responsibility when it comes to duty of care, particularly in respect to urgent/emergency repairs and general maintenance and safety. They also serve to remind agents that poor management practices can have serious impacts on the business and lead to litigation – a costly exercise even if the agent is found to have acted professionally and been absolved of liability. So it really does pay to make sure you protect your business with the right Professional Indemnity insurance, one tailored specifically to the real estate industry and covering property management activities.