Help understand your PI Insurance risks by checking out our 6 key areas and claims examples
It’s often easier to visualise insurance risk by looking at typical claims examples.
We’ve put together some of the key Professional Indemnity Insurance exposures to help our Estate Agent, and Letting Agent clients better understand the potential pitfalls.
1: Property Misrepresentation
The Property Misdescription Act (1991) clearly articulates the need to provide accurate property descriptions and the duty of care owed by agents as 'property professionals'.
If details are inaccurate, you could be liable for a potential claim, even in an area which may seem innocuous.
EXAMPLE: Property details produced make reference to cavity wall insulation, post-sale, it is discovered by the purchaser that this is not, in fact, in place and they are looking for you as the agent to cover the cost of installation.
EXAMPLE: House is advertised and sold as a 4 bedroom property. The purchaser then discovers that the loft room does not have building regulation approval to be used as a bedroom and requires significant upgrades before it can be signed off. Purchasers solicitor is looking for the Estate Agent to cover the cost on the basis of misrepresentation.
While you may believe that your terms of conditions should protect you against legal challenges around valuation, it is still a common area for Professional Indemnity claims.
They may not all succeed. Nevertheless, there is still a significant cost associated with defending allegations of breach of trust or duty of care.
EXAMPLE: A vendor displays an obvious desire for a quick sale, the agent duly obliges, and the transaction is completed within 3 weeks for £150,000. The vendor then discovers that a month later the property has been re-sold at auction for £300,000 by the new purchaser who, it is alleged, is a personal friend of the insured. The original vendor is claiming a breach of trust and £150,000 compensation.
3: Duty of Care
We have already touched on the duty of care owed by Estate & Letting Agents, which is further outlined in the Estate Agents Act (1979).
The core basis of cover provided by Professional Indemnity Insurance protects policyholders against claims for negligence, and this can be a crucial area for potential losses in the property industry.
EXAMPLE: Letting Agent contract stipulates that a clients’ property will be inspected monthly. Due to staff holidays, an inspection was missed. During this time, a water leak had occurred, and the property was flooded, and a ceiling had collapsed. The client is looking to the letting agent to reimburse their losses.
EXAMPLE: During a viewing, the agent steps outside to take an urgent phone call about another sale. It is later discovered by the vendor that their iPad and some cash from a drawer had gone missing. The viewers’ mobile number is disconnected, and negligence is being claimed against the agent for leaving the potential purchaser unattended.
4: Intellectual Property Infringement (IP) / Breach of Copyright
In today’s virtual world, it can be easy to breach protected marks, mainly as the internet is such a vital selling tool for property agents.
EXAMPLE: An administrator inadvertently uses a photograph to enhance some property details without the permission of the owner who subsequently claims damages.
EXAMPLE: A new negotiator who is keen to impress prepares a new version of your terms and conditions. It is later discovered that this appears to be an exact copy of a rivals Terms of Business just with the branding amended. The competitor is claiming damages for IP infringement.
You might believe that property is about opinion. However, it is essential that any “opinions or views” provided, either verbally, written or via social media are based on fact and can be evidenced.
EXAMPLE: A Saturday negotiator writes on social media that your main competitor is “renowned for overcharging” on fees & they are “always late for viewings”. While this emanates from a personal account, the rival firm is claiming defamation as the person concerned is an employee of your agency.
EXAMPLE: while discussing a property with a potential purchaser, the agent suggests that the vendor is keen to sell quickly due to cash flow problems with their business. It later turns out that the viewer was a supplier to the said business, and they contacted them to remove credit terms. The vendor's solicitor claims significant resultant damages and compensation.
6: Loss of Data / Documents
CRM systems and back-office platforms are crucial to running a successful estate agency.
Still, they can also bring increased exposure to Professional Indemnity losses, and any client documents or information must be secured.
EXAMPLE: A new web portal APP provides direct access for negotiators on the road. However, a hacker gains access and 1000 records containing personal data are lost.
EXAMPLE: An email containing a client's personal information and bank details is incorrectly forwarded to the agent's entire database of prospects and customers.
- Risk Assessment: Assessing and removing risk is a key part of any business insurance programme, by mitigating risk and improving processes, potential losses can be minimised, and this will be recognised positively by your PI Insurers.
- Staff Awareness: while principles and Directors may be aware of the risks, things such as social media and copyright infringements can be easily overlooked by your busy employees. Take some time at your next team meeting to discuss the risks, not forgetting part-time or weekend staff.
- Professional Advice: Speak to your Business Insurance brokers or risk advisors to get some help and support in terms of reviewing your procedures, manuals and processes.
Free Insurance Review
Insync Insurance will provide a free consultation and review of your Estate Agents Professional Indemnity Insurance and have access to specialist underwriters providing policies for all professional risks from indemnity insurance to office risks. Book a free review via our website or call 0330 1240730 for more information.