Attorney Mark Carlson Discusses How Real Estate Agents Can Manage Liability and Risk With the Right Insurance Policy

Mark Carlson, Attorney for Real Estate Agents

Mark Carlson is a highly sought after and respected attorney in Los Angeles whose practice is focused on representing real estate professionals. Born and raised in California, he’s been practicing law for more than 25 years, and he has seen just about every kind of real estate lawsuit there is.

We recently chatted with Mark, and he was kind enough to answer some of our questions about realtors/real estate agents and the need for adequate insurance, particularly general liability insurance. Here’s Part One of our conversation. 

Mark, you have an impressive resume of practicing law in the areas of the business of real estate? How did you first get into the practice area? 

MC: I have been representing real estate brokers since I became an attorney in 1993.  I clerked for a small firm in Encino while in law school.  That firm handled claims for one of the largest Errors and Omissions carriers in the state at that time.  I gained a lot of experience in representing real estate brokers and escrow officers in the two or so years I was there.

Early on you worked for a large law firm where you saw a lot of action on virtually every angle of real estate, from agents to escrow officers, loan officers, developers, and many others. What did that kind of background do to prepare you for launching your own firm and specializing in this area? 

MC: When I left the small firm that I started with and moved over to a larger firm, I started handling slip and fall, auto, construction defect and products liability lawsuits.  The firm was handling matters for a pre-paid legal services program that marketed to Realtors.  As I had experience in handling those types of matters, I was given the task of handling the client.  From that client, another associate and I developed a real estate practice group at the firm where none had previously existed.  As I was still doing construction defect litigation as well, in those years I was representing real estate agents, developers, architects, engineers, contractors, escrow officers and appraisers.

When we hear the words “general liability insurance”, what does that mean?

MC: General liability insurance, whether as part of your homeowner’s insurance or a commercial general liability for businesses protects you from liability claims alleging bodily injury, property damage, libel and slander.

How is that different from errors and omissions coverage? 

MC: Errors and omissions insurance protects a professional from liability claims alleging that there was an error or omission in the professional service rendered to the client.

Why would a real estate agent need general liability insurance?

MC: Over the years, there has been litigation that alleges both professional liability and personal injury.  In the 1990’s there was a lot of litigation surrounding asbestos exposure.  In the early 2000’s asbestos claims were replaced by mold claims.  Following the 2008 market crash, agents were being sued along with lenders for habitability claims following foreclosure.  All of these types of lawsuits alleged both damage to the property that was sold (save for the habitability claims) and personal injury to the occupants.  Of course, there is always the risk of a slip and fall at an open house or showing.

Wouldn’t a broker carry this kind of insurance for its agents? 

MC: Most brokers do carry Commercial General Liability insurance.  However, those policies typically only cover injuries occurring at the broker’s office.  They also typically have a “business pursuits” exclusion that would limit coverage for injuries while providing professional services.  Also, even if coverage existed, it would apply to the broker and his or her employees.  As real estate agents are independent contractors, they would not fall within the definition of who is an insured.

In our next post, see Part Two of our discussion with attorney Mark Carlson, when we ask about the types of cases he see, and also the effectiveness of low cost insurance solutions for realtors and real estate agents.

Mark Carlson is managing partner of the Carlson Law Group, Inc. He has more than 25 years experience representing realtors, agents, and brokers. He has tried case locally all the way up to the California Supreme Court. Their website is www.carlsonlawgroup.com.

Want to know more about low cost General Liability Insurance for Realtors and Real Estate Agents? Email Robert Feldman at robertfeldman@allstate.com.

 

 

 

 

 

 

 

 

 

Myths about Umbrella Coverage for 1099-Employees: Real Estate Professionals Beware

What does umbrella coverage actually cover?

Personal umbrella coverage is designed to keep you safe when you damage property, cause an injury, or have a lawsuit filed against you.  However, this coverage starts and ends on you.  When you begin to act as an agent for a business, even your own, this coverage becomes unreliable.  In many cases insurance agencies will cite the ‘course and scope’ section stating that you were in the process of real estate activities during the time of the incident.

 

What does that mean for Real Estate Professionals?

Real estate professionals receiving a 1099 form may not be covered under their personal general liability ‘Umbrella’ coverage.  Since you receive the 1099 and are considered a business you have the same legal obligations and liability as larger firms.  In addition, you don’t have any of the protections of a larger firm!  Real estate professionals need to be extra vigilant in this area.  If you are classified as a Sole Proprietorship type business you could end up with huge legal fees and an insurance plan that won’t cover it!



What about my E&O coverage? 

Unfortunately, E&O isn’t a silver bullet catch all to protect yourself.  With only an E&O policy that brokerages generally require you may have many gaps in your policy.  These gaps include general liability, employee injury, and property damage.  For example, a client could injure themselves during the showing of an open house, general liability insurance could have protected you!

 

How to get coverage applicable to your real estate activities:

Small Business Owners Plans, or BOPs, are specialized plans the have the most important types of coverage bundled as a package to save you money.  A specialized Real Estate Professionals BOP is available here. To learn more about how a BOP can protect you and your assets from costly legal fees please contact us.

Real Estate Agents: Liability During an Open House

Can a Real Estate Agent be Liable for Injuries at an Open House?

 

 

 

 

Personal Injury Attorney Barry P. Goldberg weighs in on liability questions for real estate agents.

 

During an open house the agent “takes control” of the premises and is required to use reasonable care for the safety of potential buyers. In the event that a potential buyer is injured, you could be held liable!

According to personal injury attorney Barry P. Goldberg, “It is a relatively common occurrence for potential buyers to be wondering a property for sale and slipping or tripping on a stair or slippery floor. It is easy to understand why— potential buyers are looking around— not down. They are by definition unfamiliar with the property and are more likely to miss a step or small defect.”

Are you in good hands?

 

 

 

 

 

 

Should You Incorporate Your Real Estate Business?

If you are a realtor and operating as an independent contractor for a broker, there are two good reasons to form a corporation for your realty business:

1) Tax Savings
2) Personal Asset Protection

Tax Savings
If a real estate agent works for a broker as an independent contractor, and receives a Form 1099 from the broker for reporting of wages, then that agent is responsible for paying 15.3% self-employment tax on those wages to the IRS, along with regular income tax.
By forming an S Corporation, you can avoid paying much of those self-employment taxes.
An S Corporation is known as a “pass through” entity, which means that the profits and losses pass through the corporation and flow to the tax returns of the individual shareholders. Shareholders who actively run an S Corp must pay themselves a “reasonable” salary, which is subject to employment taxes. For example, a realtor who makes a profit of $200,000 a year and works 40 hours a week running the business to generate those profits, might pay herself a “reasonable” salary of $75,000. After that, all other income can be paid out as dividends, and is subject only to income tax.
S Corporations also pay an annual state franchise tax of 1.5% of net income in California, subject to a minimum of $800 per year.
S Corporations are also attractive because they have a very low audit risk.
It is always a good idea to discuss these issues with your CPA.

Personal Asset Protection
Unfortunately, the California Bureau of Real Estate still only recognizes broker’s corporations for the purpose of licensure. If you form a corporation, you will still need to operate through the BRE as an individual. Therefore, forming a corporation will not protect your personal assets from your own mistakes or accidents. However, if you have employees (salespeople, administrative staff, etc.), then your corporation can protect your assets from their actions.
Example A – A real estate agent operates as a sole proprietorship carrying $100,000 in liability insurance. She hires an assistant to sit at an open house. While showing the house, the assistant accidentally leaves a large window open and a subsequent torrential rain ruined the homeowner’s carpet and pricey paintings. The homeowner’s insurance company sued the broker for repayment of $200,000. The broker paid $50,000 through its insurance company but demanded the agent pay the remaining $150,000. Since the agent’s company only has $100,000 in liability insurance, the agent is personally responsible for the remaining $50,000.
Example B – A real estate agent sends his assistant to the bank to make a deposit. The assistant has a car accident while driving to the bank. People in the other car are seriously injured and they sue the realtor for $1,000,000. The limits on his auto policy are only $300,000. The agent is personally responsible for any award of damages over $300,000.
By forming a corporation, and properly maintaining it, you can protect your personal assets from all business related liabilities of your staff, and thereby prevent creditors and claimants from going after your personal assets to satisfy business debts or judgments. (Note: there are a few exceptions to this general rule which include personal guarantees, payroll taxes and fraud.)

For more information about formation, maintenance, and taxation, please call or email Joslyn Stuart, Esq. at The Small Business Law Firm, P.C. (805) 778-0206 jstuart@smallbusinesslaw.org