REAL ESTATE BROKERS
Selling a property in which you have an interest - think carefully
The FARCIQ professional liability insurance policy provides a guarantee to brokers and real estate agencies for claims relating to compensatory damages awarded for an error committed in the performance of professional duties.
Of course, the scope of the guarantee is affected by the nature of the insurance contract. In order to be covered, the professional services must be provided to third parties. You will note that this obligation is also included in the Real Estate Brokerage Act. Article 1 of the Law defines the field of practice of real estate agencies and brokers in the following way:
"1. This Act applies to any person or partnership that, for others and in return for remuneration, engages in a brokerage transaction relating to:
Consequently, the FARCIQ policy is not applicable when the insured is one of the parties in the brokerage transaction. The insured is no longer an intermediary as defined in the policy and the Act. He becomes one of the parties to the transaction or to the contract under consideration. Consequently, potential claims against him in this sort of situation will not be accepted by the Insurance Fund. It is better to think twice before putting your own home on the market.
This rule is not limited to properties which the insured owns in whole. It extends to other types of brokerage transactions. Exclusion 2.03 m) of the policy reads as follows:
"2.03 - EXCLUSIONS : The following are excluded from the guarantee:
m) Claims arising from a real estate brokerage transaction in respect of a property or a right in which an Insured has an interest:
1) as the owner of more than a 10% interest; or
2) if such property or right is held by a Corporation, as a shareholder holding more than 10% of the voting shares; or
3) as a creditor having a real right in such property or right.
This exclusion cannot however be set up against any Insured who does not hold such an interest."
The above elements are the only limitations of the insurance policy with regard to the sale by brokers of real properties in which they hold an interest. This means that claims from the following brokerage transactions are covered by the guarantee:
- the sale of a spouse’s property, to the extent that the insured holds no interest in it;
- the sale of a property belonging to a relative, no matter the family connection.
Determination of insurance coverage in a given context depends essentially on the facts of each file. Consequently, grey zones remain, for which analysis must be more finely made. Examples include the application of rules relating to family patrimony, and the settling of estates.
In case of doubt about applicable insurance coverage, it is best for the insured to contact FARCIQ to present the nature of the transaction under consideration. He can then obtain the necessary information, which will eliminate many problems.
SCENARIO INSURANCE PROTECTION
If you have any questions or comments regarding your professional liability insurance, write to the FARCIQ at email@example.com.
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