Most real estate agents probably don’t give much thought to insurance claims on the homes they are trying to sell or the ones their clients may be interested in buying. But they should. Failure to inform the seller or buyer of the availability of a free and easily-obtained report of insurance claims could expose both seller’s and buyer’s agents to claims from their respective clients: From sellers for failing to take steps to ensure full disclosure, and from buyers for failing to require a seller to make a full disclosure.
The CLUE (Comprehensive Loss Underwriting Exchange) report is a report that contains seven years of personal property claims history. Under the Fair Credit Reporting Act, a homeowner is entitled to the free report prepared by Lexis-Nexis, a consumer-reporting agency. An owner may request the CLUE report online (www.lexisnexis.com) or by phone (866-312-8076).
What the CLUE Report Will and Won’t Tell You
The personal property report classifies property/casualty claims under one of three dozen causes, several of which will not likely relate to circumstances or conditions requiring disclosure by sellers, e.g., “dog bite” or “theft”. The location of the loss (on-premises or off), the date of the claim, amount paid and mortgagee are also identified. Information relevant to buyers and sellers in specific jurisdictions, e.g., those prone to flooding, fires or earthquakes, is also included. Owners are also able to correct information that has been reported incorrectly.
Insurance companies and CLUE
Insurance companies report claims to CLUE. They establish a file on a possible claim, pay money to settle a claim, or formally deny a claim. Generally, insurance companies will not report when an insured contacts the insurer with a question concerning deductibles or coverage. An insurer may request a CLUE report when a consumer requests a quote or applies for coverage. The insurer analyzes the consumer’s claims history to decide if it will offer a policy and, if so, how much coverage it will cost. Insurers’ analyses also indicate a correlation between past claims and the tendency to make future claims.
Does the CLUE report impact an agent’s duties to one’s seller or buyer?
The seller disclosure requirements in most states, including Minnesota and Wisconsin, require a seller to disclose certain information that could have been the source of a property or casualty insurance claim. Some sellers may not recall specific incidents that might have triggered a claim or a potential claim. Other sellers choose not to make full a disclosure.
What are the risks if a CLUE report is not pulled?
The CLUE report provides an independent source of information that potentially could serve to help a seller make a complete disclosure. Recommending that a seller obtain a CLUE report may also go a long way toward insulating the seller’s agent or broker from claims against a seller for making incomplete or inadequate disclosures.
Conversely, a CLUE report demanded by a buyer might serve as a check and balance against disclosures the buyer may already have received from the seller. It may also serve as an aid in completing inspections of the property by identifying specific incidents, such as flooding, casualty or other damage. The CLUE report could also help identify areas, for example, where further investigation might be necessary to reveal existing conditions or confirm that past conditions were adequately remedied.
Can the buyer order a CLUE report?
No. Only an owner can order a CLUE report. A buyer’s agent would want to include it in a purchase agreement as a condition of the purchase.
Might a court or jury find liability for failure of a seller’s agent to request the seller to obtain a CLUE report to ensure full and accurate disclosure?
The author is unaware of any such case or ruling in Minnesota or Wisconsin, but it is plausible that, under certain circumstances, a plaintiff’s expert could say that such failure to recommend fell below the accepted standard of care for the seller’s agent. Requesting that the seller obtain a CLUE report is good business and it may just trigger a memory of a previous condition that, had it not been disclosed, may have increased the potential for a future claim against the seller.
Would failure to advise one’s buyer of the availability of the CLUE report fall below the accepted standard of care?
Not likely in the abstract; again, the author is unaware of any such ruling or determination in Minnesota or Wisconsin. But the purpose of proactive advice to both buyers and sellers is to avoid potential liability in the first instance rather than having to defend a practice as conforming to acceptable standards. Because standards change, the best practice is to try to be out in front.
About the Author
Karl J. Yeager
Meagher & Geer
Mr. Yeager focuses his practice on business transactions and commercial litigation for clients within the real estate profession and construction and banking industry. In addition, Karl defends real estate professionals against claims made under their professional liability (errors and omission) policies. Karl’s perspective on client relations: I feel a real rapport with those in construction and real estate. My family owned and operated a small construction company, and before I went to law school, I sold real estate in Wisconsin so I have practical, hands-on experience that I feel is invaluable to my clients.