When property is in your care, custody, and control, agents are duty-bound to maintain property premises in a safe and hazard-free manner. Failure to do so, such as in cases of neglect, deferred maintenance, or negligence, may result in the property manager/custodian being liable for any injuries caused by hazardous conditions. Typically, insurance covers injury claims resulting from property hazards, but certain exclusions and limitations may apply – especially if the property manager/custodian knew of a hazard and did nothing to mitigate it before an injury occurred. Let’s take a closer look at a situation that resulted in a denial of an E&O claim.

The Claim

In May 2018, a person – the eventual plaintiff in a lawsuit — was visiting a property managed by a real estate brokerage in New Jersey. While on the premises, the woman fell through a hole in a deck structure on the property, severely injuring her foot, back, and neck. Despite medical care and rehabilitation, the injuries eventually resulted in a loss of earning ability, permanent partial disability and disfigurement, and pain and suffering that is expected to continue indefinitely. In October 2018, the injured woman filed a civil action against the real estate brokerage and the property owner. Together, these two entities are the defendants. In the lawsuit, the plaintiff and her attorneys allege that the defendants:

• Was owner, lessor, lessee, and/or otherwise legally responsible for the care and safety of the property on which the plaintiff received injuries;
• Were aware of the unsafe condition of the deck structure, and;
• Failed to inspect the premises for hazards and/or provide barriers to prevent visitors from becoming injured.

The plaintiff sought a judgment of $50,000 plus costs and other financial relief the court deems just. The lawsuit is still pending in New Jersey court.

What Went Wrong

To protect business interests against losses due to the possibility of legal action against it, the defendants in the lawsuit filed an E&O claim with their insurer. Ultimately, the claim was denied by the insurer for two reasons.

First, the claim was denied for a simple technicality, but one that had significant ramifications for the insured brokerage. In November 2018, a process server delivered notice of the lawsuit to the insured’s office. A receptionist at the firm signed for the delivery but neglected to let anyone else at the brokerage know about the service of suit. One year later, service of suit was once again delivered to the insured’s office; it was only then that they tried to report the civil suit to their insurer. The denial was simple; the E&O policy required any insured with knowledge of legal action to report a claim as soon as practicable. The initial delivery by the process server should have triggered a report to the E&O carrier from the insured, and because the insured waited a year – only after the second service of suit – the insurer ruled that this constituted “prior knowledge” of legal action.

Second, the insured had set up an Arch insurance policy sometime after the initial process server delivery. An advantage of the Arch policy is that only claim managers – in this case, executive officers of an insured company – must have knowledge of a legal claim in order to trigger a report to the insurer. In other words, not just any employee of an insured company has a duty to report, only executives. Unfortunately for the insured, the Arch policy was set up after the initial civil action was delivered, and was therefore not covered by the policy. In this case, the retroactive exclusion applies to any insured having knowledge, and no just an executive officer or claim manager having knowledge of the process service.

The major takeaway from this case is that insureds have a duty to report any claims or potential claims to their insurance company promptly. Failure to do so in a timely manner may result in an E&O claim being denied – even one that may have otherwise been covered under insurance policy language.

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