Written by attorney Phillip C Querin

Risk Management Tips for Brokers and Owners - PART TWO

PART TWO: The next step is to implement corrective action to reduce or eliminate known risks. This requires management from the top down.

Claims Evaluation – Before The Case Is Filed. The most critical component in managing risk is the capacity to evaluate a claim at the earliest possible time. But this first requires that all agents be required to promptly report any potential client problems to their principal broker and that the principal broker be skilled in handling and properly evaluating the complaint. Some principal brokers are better than others when it comes to dealing with unhappy buyers or sellers. This may mean that client complaints be channeled to one or more persons who are adequately skilled in dealing with the problem. Claims management by a principal broker with a tin ear is no management at all. Here are some tips companies may wish to consider in evaluating and handling claims before they become unmanageable:

Ø Immediately call the unhappy customer(s) to let know you’re reviewing the matter and will get back to them promptly. Then thoroughly debrief the agent(s) about the claim. Is the agent being truthful and complete in their explanation? Is the principal broker willing to ask tough questions of the agent?

Ø Become intimately familiar with the entire transaction. Are all transactional documents in order, fully executed and principal broker reviewed? Make sure there are no documents in the agent’s personal file that should be in the transactional file.

Ø In most cases the agent being complained about should be instructed to have no further contact with the customer – unless and until the problem has been fully resolved to everyone’s satisfaction. Otherwise, select an appropriate substitute broker or principal broker to continue working with the customer.

Ø Are there any aspects of the transaction that create more concern than others? For example, was dual agency involved? If so, was it done in an even-handed manner? Was the agent engaged in any activity involving their personal business? Did the agent have any undisclosed relationships or financial interest in the transaction (besides recovery of a commission)?

Ø Is the claim one for which there may be no E&O coverage? What are the reporting requirements to the company? If there is coverage, can the claim be resolved within the deductible limits of the policy? Does it need to be turned over immediately in order to avoid a risk of denial later?

Ø Be extremely careful about making written evaluations of claims, since they may be discoverable by the other side if litigation ensues. If the company has legal counsel, consider having all agent and principal broker writings, explanations, evaluations, etc. directed to the attorney, since it is more likely to provide some level of privilege and immunity from review by the other side.

Ø After fully investigating the case, every effort should be made to have a face-to-face meeting with the complainant(s). This may mean driving out to see them. A face-to-face meeting at their home sends a message of good faith concern and allows the principal broker to evaluate their demeanor in familiar surroundings. If the customers are a couple, try to have both of them present in order to get both versions at the same time. Take notes or make them immediately after the meeting.

Ø In most cases it is not a good idea to have the agent present, since it may hamper the customers’ willingness to make a full and honest disclosure. Moreover, the agent may feel compelled to defend his or her actions which could result in a confrontation.

Ø Be timely in meeting with the complainant(s). Delay will be interpreted as avoidance.

Ø Be a good listener; don’t argue or make excuses. Be polite. Don’t minimize the complaint, regardless of how small it may seem. Don’t play “devil’s advocate." Remember, the customers are probably angry and upset. It is important to let them “vent."

Ø Above all, don’t do or say anything that could be construed as an admission by the agent or the company.

Ø Be careful about having your legal counsel present at such a meeting: (1) It sends a mixed message to the other side (this claim real is “serious"; or “we need to intimidate the customer"), and (2) It could result in making the lawyer a witness if the customers change their story. This could disqualify the attorney from representation should a lawsuit or arbitration be filed.

Ø If the other side wants to bring their attorney, make sure your attorney has set the ground rules for the meeting. For example, if it is agreed in writing that the meeting is to be in the nature of settlement discussions, it will likely be protected under the applicable evidence code. In this manner what is said in the meeting may not be introduced into court or arbitration. Set parameters on such a meeting and observe them; don’t let it become a shouting match. Either adjourn or terminate the meeting if courtesy is not observed or if threats are made. The goal should be solution oriented and forward looking – i.e. how can we get things back on track?

After the matter has been thoroughly reviewed and the principal broker has assembled all of the facts, the matter should be re-reviewed in-house. The more experienced principal brokers involved the better - group evaluation may draw differing points of view about the severity of the claim and possible legal exposure. This may be the time for legal counsel evaluation.

Conclusion: As noted above, claims are an inherent part of the business, especially where fiduciary duties are involved. But good people skills, courtesy, and a willingness to listen, will go a long way in keeping potential claims from becoming real claims.

© 2010 Phillip C. Querin, QUERIN LAW GROUP LLC. No portion may be reproduced or copied without the author’s express written consent.

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