Self-Insured Real Estate Broker on the Hook for Misrepresentations Case
Self-employed broker Gary Gill Martin worked primarily in the residential real-estate sector in San Diego.
During the sale of a multi-million-dollar ocean-front home, Martin acted as dual representation for Brooks and Darlene Gifford, the sellers, and for Eric and Lauren Schiermeyer, the buyers.
Then, in 2014, the Schiermeyers sued Martin for misrepresentations during the transaction.
Following this, Martin invested in real estate services errors and omissions liability insurance, purchasing a policy from QBE Insurance Corporation. The policy period covered any incidents between March 23, 2016 and March 21, 2017.
In August 2016, Martin was sued by the Giffords, who also alleged he made misrepresentations during the real estate transaction with the Schiermeyers. Martin turned to QBE for coverage.
QBE, however, denied the claim. It said that, based on its findings, the Gifford litigation was related to the Schiermeyer litigation. The two allegations stemmed from the same claim, it argued, which was outside the policy period. Therefore, QBE had no duty to defend.
Martin countered they were two separate claims, and the Gifford claim was well within the policy period. He filed a lawsuit against QBE, asserting breach of contract and breach of the covenant of good faith and fair dealing. He contended that QBE owed him more than $500,000.
In court, QBE argued its policy did not cover the Gifford claim, because it “was not first made during the QBE policy period.”
Further, “the claims and damages asserted in [the Gifford litigation] arise out of … the same alleged failure to disclose unpermitted structures on the property that was sold, and the same commission [Martin] received as a dual agent for the transaction” that were at issue in the 2014 Schiermeyer litigation.
In essence, QBE said it was one claim. Martin said it was two.
The court had to analyze the policy language, which said a “claim” is defined as “a demand for money for services that alleges a negligent act, error, or omission in the rendering of or failure to render Insured Services.”
It further stated that “all claims arising from the same Wrongful Act will be deemed to have been at the earlier of the following times: (1) The date the first of those Claims is made against any of You; or (2) The first date We receive Your written notice.”
Scorecard: With the definition of “claims” in place, the court sided with QBE. The insurer will not have to cover Gary Gill Martin for the Gifford litigation.
Takeaway: Self-employed insureds are wise to consult with their insurers before conducting business in order to stay ahead of unforeseeable risks. Playing catch-up after an allegation won’t cut it. &