Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
Issue link: http://cire.epubxp.com/i/504576
Commercial Investment Real Estate IS SUE S BUSINE S S c by Mary Stark-Hood, JD, CFP Liability Solutions Commercial real estate practitioners need to be concerned about liability issues that can result from handling complex transactions. Claims have been fi led for various reasons, including failure to deliver leased properties on time because construction was not completed; misrepresentation of square footage and usability of a commercial space; involvement in drafting a purchase agreement for industrial property with known environmental issues; failure to investigate prior use of a property that was a marijuana facility; improper valuation of triple net leases; and failure to properly calcu- late common area maintenance charges that are tied to taxes. Paulo Cruz/Thinkstock T e list above excludes even more areas of potential exposure. As a result, a com- prehensive real estate errors and omis- sions policy is a necessity. In general, E&O; insurance provides coverage for an act or omission in the performance of profes- sional services. Choosing a Policy Following are tips for reviewing and select- ing a real estate services E&O; policy. Understand the coverage. T ere is not a standard policy form. T e terms and con- ditions of policies vary from one insurance company to another. Comparing policies and coverage requires understanding them or engaging an independent insurance broker. Know the limits of policy coverage. T e policies will cover the performance of profes- sional services by those insured, but some exclusions apply. An understanding of the exclusions is crucial. Some common exclusions include claims arising from bodily injury, personal injury, property damage, and fraudulent or criminal acts by the insured; environmental issues; misappropriation or commingling of funds; dealing in properties owned by the insured; construction management services; mort- gage banking; renovation management ser- vices; syndication; and violation of various securities laws. Determine limits of liability. T e liability limit will be stated, but it's important to dif- ferentiate per claim limit and/or an aggregate limit for all claims during the policy term. Many policies contain both limits. Also determine whether the limit includes both claims expenses and damages. When claims expenses are within the limit, it reduces the limit of liability available to pay damages. Choose a deductible level. T e amount of the deductible af ects cost and must be decided by the firm. Self-insuring at the lower end may make sense depending on the f nancial circumstances of the f rm. Policies have dif erent deductible applications. Typi- cally, the deductible applies to both damages and claim expenses and applies separately to each claim. Understand your involvement in the deci- sion to settle or litigate. Groundless, false, or fraudulent claims are sometimes f led, and it may make economic sense to quickly settle them. If brokers are opposed because it could generate more claims or make the brokerage f rm appear to be a bad risk, consent to settle- ment generally may be withheld. It's important, however, to understand the ramif cations of this. If the broker rejects a settlement suggested by the insurer, there may be caps on subsequent amounts the insurance carrier will pay for damages or defense costs.