COVID 19 Liabilities & Real Estate Firms - We’ve Only Just Begun

As this year’s pandemic spread through the Spring and Summer, so did the unpredictability of its many consequences.  Real Estate firms, and their insurers, braced for an influx of liability claims, mostly in the areas of property contamination, transmission of the virus to others, loss of use and decreases in property values. Surprisingly, there has been a very low number of claims filed against real estate firms that allege harm due to COVID-19. What’s going on? Are we out of the woods? According to attorneys and claims experts, that is hardly the case.

Between government shutdowns, social distancing and changes in personal interactions, and guidance from REALTOR associations and other authorities, it would be a reasonable assumption to assume that the risks have diminished to whatever degree. This assumption would be incorrect, according to most claims experts.  The Summer surge in the spread of the virus and now the opening of schools, shows that whatever precautionary steps were taken in the Spring may have helped but ultimately we are still pretty much in the same or a more dangerous place. The factors that may be influencing the lower-than-expected number of claims may have more to do with the inability to file claims - government shutdowns, closed attorney offices and closed courtrooms , unemployment and illness-  than the idea that people were not harmed during the course of a real estate transaction. As society “opens up”, there is an expectation of significant litigation from past, current and future allegations of injury, damage and loss.

There is an uptick, for example, in “employment”-related claims, including and specifically related to Broker/Owner and Independent Contractor relationships. This is the first wave of claims against real estate practices, and includes (alleged) pressure and influence from a superior to go to the showing, hold the open house, in-person rather than virtual signings, and similar activities (even and especially if contrary to government guidance) where an agent feels compelled to act, and he/she (or a family member) then becomes ill.  The guidance being provided by Associations and other authorities becomes even more crucial to follow. A brokerage has few defenses if they are operating against local ordinance, Franchise guidelines or other established safety protocols.

Another area where liability claims are increasing has to do with contractual default. Buyers, especially non-local, investment and foreign buyers, are backing out of contracts if they learn or feel that the property is made less desirable due to government shutdown, lack of access, eviction moratoriums, travel restrictions or civil unrest. Some buyers will forfeit the deposit, but that will not necessarily relieve the buyer of liability. We know once the buyer/seller is sued, so will be the agent. The burden is placed on the agent, then, to inform buyers, and sellers too, that the sale could be delayed , value decreased or otherwise impacted by these events, and the client must perform their due diligence on the ability to consummate the deal. It is not suggested that the agent attempt to interpret local mandates or other impacts of the pandemic. All of this, including eviction guidelines and moratoriums, are moving targets.  Next week everything might be different! And whose guidance should be followed, especially when state and local mandates are in conflict?

The liability concerns of the Spring are only just beginning to become real, and in fact are increasing as society returns to more typical patterns of behavior and commerce. Will that person who allegedly became ill at the open house two months ago now finally file suit since they are now well and can reach a lawyer? Will the family who was evicted file suit because the property manager followed local guidance, but not state guidance? Will the agent sue the broker because the broker required an in-person, rather than a virtual showing? These scenarios, and a host of others, are just beginning to arise. We would suggest that now is the time for increased vigilance, stringent implementation of safety protocols and awareness of the traps of how contractual liabilities (with buyers, sellers and agents) can be undermined by the moving target that is this pandemic.

We wish you and yours good health and prosperity.

John Torvi
Vice President of Marketing & Sales
The Landy Insurance Agency
781.292.5417 | johnt@landy.com