Errors & Omissions Claim Trends

Posted on November 29, 2012 by AAR

Summary of Survey Results from AAR’s E&O Workgroup

The Errors & Omissions (E&O) Workgroup created under AAR’s Risk Management Committee is investigating claims trends in our state with an eye to raising awareness among REALTORS® and developing risk management resources that can reduce claims in the future. The workgroup recently completed a broker survey on the topic and also contacted E&O companies for information on claim trends. Here are highlights from its findings:

Broker Survey

  • Most of the claims reported were made by buyers of residential property against listing brokers.
  • A third of the claims were filed more than 12 months after close of escrow.
  • Most of the claims were settled. Although the settlement amounts varied, interestingly about a quarter of the settlements did not involve the exchange of money.
  • In the cases that went to trial, the broker prevailed 67.6% of the time.
  • The top three claims categories were:
  • permits/zoning
  • property construction defects
  • plumbing leaks/mold
  • Transactions with clients, subdivisions, easements and termites also resulted in a significant number of claims.
  • Not surprisingly, the vast majority of brokers identified short sales and REOs as claims trends in the near future. Property management claims was another oft-cited concern.
  • Education was overwhelmingly cited as the best risk management tool that AAR can provide to the membership.


Trends According to E&O Companies
Exact numbers of claims and payments are proprietary and therefore unavailable. However, several companies were willing to share general statistics and claims trends.

  • Consistent with the AAR survey, the E&O insurers report that buyers bring the majority of claims, with the majority of those claims being against the listing broker, and involving residential property.
  • The insurers also cited vacant land transactions as a significant source of claims, both in number and severity.
  • Misrepresentation/failure to disclose continues to be the major claim theory alleged against brokers by a wide margin, followed by negligence and breach of fiduciary duty (including self-dealing).
  • Although claims involving dual agency are infrequent, these claims appear to result in increased defense costs for obvious reasons. One insurer reported that its average total defense cost is $18,000 and the highest total incurred was $167,001.
  • Like the AAR survey results, the top claims categories reported by the insurers included:
  • code violations (permits)
  • water infiltration/mold
  • Other common claims were specific performance and contract errors. The types of claims trends the insurers reported were:
  • raw/undeveloped/partially developed land
  • property management
  • lease purchase/lease option agreements


The E&O Workgroup members are: James “J.T.” Tsighis (Chair), Martha Appel, Betty Arthur, Bill Ashker, Rick Mack, Ron Moore, Lisa Robinson, Yvonne Coelet and AAR staff Michelle Lind, Christina Smalls and Jan Steward.