Example Claim Scenarios
Help illustrate to your clients the type of exposures and allegations they could face with claim scenarios
Errors & Omissions Scenarios
Commercial Real Estate Scenarios
Failure to Secure Collateral for Tenant Build Out
In this case, a property manager secures lease with a new tenant on behalf of a property owner. As part of the lease agreement the tenant is responsible for paying for their own build out for the space. The property manager engaged a contractor to build out the space on behalf of the tenant. The tenant ultimately does not move into the space and has no credible assets. The contractor sues the building owner for the payment of approximately $250,000, which is ultimately paid by the building owner. The building owner sued the property manager to recover its losses. The alleged negligence was that the property manager failed to obtain proper collateral and to investigate the financial credibility of the tenant.
Failure to Secure Credible Tenant
A broker representing a prospective tenant negotiated a long-term lease on a commercial building. The tenant moved in and paid rent for approximately 6 months. Subsequently, the tenant was unable to pay the rent and sold the company’s assets. Because the building was single tenant occupancy and the economy in this region became depressed, the building owner was not able to rent the space to another tenant. Further, if and when they could rent the space, they would not be able to obtain the original rents as the market was now depressed. The owner sued the broker for the value of the uncollected rent. The alleged negligence in this case was that the tenant’s broker had an obligation to disclose any information regarding the financial condition of the tenant to the building owner. This case raises the legal issue of what obligations does a tenant/buyers broker have to the owners of the property and vise versa.
Failure to Disclose Dual Agency
A buyer’s broker of a commercial property received an offer from their client. In good faith they presented the offer to the owner for review. Subsequently, the same broker received an unsolicited offer from another prospective buyer on the same property and also presented the offer to the property owner. The second buyer’s offer was less than the first offer. The buyer’s broker did not disclose that they were representing both buyers. The original buyer was successful. The second buyer alleged that their broker did not properly represent them. They have sued for the value of the lost opportunity, in excess of $500,000.
Failure to Disclose Environmental Hazard
A building owner hired a real estate broker to sell a commercial property. The owner completed a seller’s disclosure form with the help from the broker. The disclosure form listed minor water seepage in basement, which had been repaired. The buyer bought the piece of property and held onto it for 8 years at which time they sold the property. As part of the new sale it was discovered that there was mold in the basement of this commercial property that had to be mitigated. The new buyer (now 9 years later) sued for failure to disclose the hazard. Although, the Statute of Limitation in this state was only two years, the new buyer did not discover the issue until 8 years after the sale. Therefore, the statute of limitations did not start until the damage was discovered and thus within the statute of limitations. The payout on this case was $800,000 from the building owner and $150,000 plus legal expenses from our broker client.
Failure to Obtain Proper Value
A seller’s broker negotiated a deal on behalf of a building owner for approximately $4 million for the sale of a commercial building. The seller agreed, however, refused to close the transaction. The seller believed the sales price was too low, even though they had already agreed to sell the property. The buyer sued the seller for specific performance and after 3 ½ years the courts compelled the owner to sell the piece of property. At the new closing the broker requested they be paid their commissions on the sale and the seller refused as they felt they had not received the proper value originally. To make matters worse, the seller now believed the property was now worth $8 million. The seller sued the broker for $4 million in lost appreciation, plus legal, plus punitives, etc.
Failure of Space to Meet Zoning Requirements
In this case a selling broker sold a space to a restaurant owner whose intention was to open a restaurant with an outdoor café. An overview of the plans for the café was presented to the seller’s broker and the owner and a sale was consummated. Upon purchase, the buyer sought to obtain approval for the outdoor café. Unfortunately, outdoor café’s were prohibited by ordinance in this town and the plans could not be approved. The alleged negligence was that the broker should have been aware of the zoning restrictions relating to this property. The building owner settled for $175,000 split between the owner and the broker.
Failure to Advise of Easement
In this case a broker for a commercial property leased a space to a large tenant that utilized many large trucks in their business. Over the years, they had parked their trucks in an adjacent parking lot. This had gone on for many years and at least one lease renewal. In this case, the same broker was involved in both the lease and also the sale of the adjacent building. The new owner of the second building was unaware of the arrangement with the prior owner to allow this tenant to use the parking lot for parking their trucks. The new owner contacted the tenant and agreed to a lease for the portion of the parking lot, which amounted to several thousand dollars per month over the entire lease term. The tenant sued our broker to recoup the cost of the additional rent (approximately $100,000). The tenant finally settled for some rent relief from the owner and approximately $25,000 from our broker.
Failure to Cure Mold Problem
In this case several employees of a large employer group became ill with “Sick Building Syndrome.” These employees sued their employer under workers compensation insurance for their disability, medical, pain and suffering, etc. The insurer for the large employer spent $5 million dollars defending the claim as they did not want to set a precedent. The insurer ultimately won the case and settled for statutory workers compensation limits with the employees. However, the insurer then sued our property manager for $5 million dollars to recoup their costs. Over $250,000 has been spent in defense of this claim so far.
Failure to Timely Process Lease
A tenant seeking a space for a restaurant submitted a signed lease with a real estate broker. The lease was not signed yet by the building owner. The broker requested additional information such as financial records, business plan, etc. The broker was evaluating other options as well at the time. Somewhere in the process, the broker allegedly led the prospective tenant to believe that the lease was a done deal even though the papers were not signed. The prospective tenant quit his job, moved his family and prepared to start his business. Unfortunately, there was never a signed lease and the space was eventually leased to another party. The Plaintiff sued for a multitude of issues, primarily deceptive trade practices. The suit is for $250,000.
Failure to Appraise at Purchase Price
A real estate appraiser was asked to conduct an appraisal with the caveat to not appraise the property unless they could guarantee the purchase price value. This was a property in eminent foreclosure where timing was an issue. The appraiser performed the appraisal, which did not appraise at the purchase price. The deal ultimately fell through and the buyer of the property and the seller why felt they had a way out of foreclosure ultimately sued the Appraiser. On the surface the suit appears to have no merit, however, because of the disclosures up front, the Plaintiff believes another appraiser might have appraised to the purchase price.
A real estate agent sold a building and, as part of the negotiations, they were asked if the building was ADA compliant. The leasing agent said yes and forwarded a copy of a report from the client’s engineer attesting to its compliance. The building was a residential apartment complex and sold for $25 million. Later it came to light that it was an old report and, in fact, the building needed significant upgrades to become ADA compliant ($3.5M in upgrades). The owner, selling agent and consultant were all sued. The lawsuit was eventually settled for $3 million. The real estate agent paid $600,000 of the amount.
A software developer sold timekeeping software to a company. After removing all previous timekeeping clocks and installing software, the customer found out that it did not function properly. It failed to correctly apply the hourly and overtime rate of pay resulting in over and underpaid employees and the need to replace the original time clocks. The company sued the provider of the software for damages and expenses resulting in a $550,000 settlement.
An insurance broker contacted a client and recommended an additional type of coverage to protect him against lawsuits by employees. The client told the broker he wasn’t worried about employee-related suits and that he also didn’t want to pay any additional premium. A loss occurred and a suit was filed by an employee against the client. The insured claimed in court that the broker never mentioned any such coverage to him. The broker had no record in his files of any conversation, nor did he document the file by sending the insured a letter confirming the conversation. The client was eventually awarded $1,000,000.
An accounting firm was hired to set up the structure of a client’s investment properties. The accountant assigned to the project mistakenly set up the investment properties as a corporation instead of a partnership resulting in additional tax liability. The client sued the accountant alleging losses for tax liability and the accountant had to pay the client $375,000.
A company provided consulting services to architects and developers for large live entertainment venue halls. After the construction of a symphony hall, the owner sued the consulting company and others, alleging the sound quality in the hall was defective. Defending the case was expensive because of the potentially high exposure for the plaintiff’s lost profits claim. The suit settled with the architect who had provided faulty specifications for the sound equipment paying the bulk of the settlement.
A software development company created software to analyze the sales data of a large manufacturer of consumer products. The products manufacturer implemented the program in both their domestic and international offices, and relied on the information it provided to launch a $3,000,000 multi-national advertising campaign. Unfortunately, despite the millions of dollars spent on advertising and marketing, the manufacturer failed to see an increase in their product sales. When they discovered that the software had produced faulty data, they sued the software developer. The developer’s E&O carrier settled with the manufacturer for over $3,000,000.
An IT consulting company was hired to implement the installation of new hardware and software for a regional hospital group. The IT consultant was responsible for securing the hospital group’s existing data, including patient medical records, during the installation. One of the technicians left a “back door” open during the process. This allowed a group of hackers to gain access to the volumes of patient medical information that were stored on the hospital’s network. By the time the breach was discovered, seven months after the installation was complete, the private information of the hospital’s patients was already thoroughly compromised. The hospital group sued the IT company and accepted a settlement of just over $1,000,000 from their E&O insurer.
A software company specializing in providing software to integrate data across multiple platforms was hired to assist a medical billing company with integrating its data across several networks. The data consisted of the Medicare billing records of a large pharmaceutical distributor. When the pharmaceutical company needed access to their records during a RAC audit, it was discovered that the software had failed and had actually destroyed over 30% of the company’s billing records. The company faced fines and lost revenue of over $2,840,000. The pharmaceutical company sued both the medical billing company and the software manufacturer, and was awarded $3,000,000 plus punitive damages at trial.
Directors & Officers Scenarios
The vice president of a manufacturer determined that diversification into a different product line presented tremendous sales potential for his company. Instead of presenting that opportunity to his employer, the VP shared it with his brother who formed a new company to produce that product. On behalf of the company, a shareholder sued the VP alleging that he wrongfully took advantage of an opportunity belonging to the corporation. The suit eventually settled for $2.5 million
A company recruited a top sales executive who had an employment contract with a competitor company. The competitor sued the company for damages suffered as a result of losing its top sales producer on the grounds that the company interfered with the competitor’s contractual relationship with its employee. Defense expenses were in excess of $250,000 and the competitor was awarded damages of $600,000.
After reporting multiple incidents of repeated sexual harassment by a supervisor, an employee alleged the supervisor began a systematic campaign to force the employee to resign. The jury award in this retaliation/wrongful termination complaint was $210,000 for mental anguish, $330,600 in lost income and $1,956,240 in attorneys’ fees.
An employee of a small business convinced the board of directors that he was qualified to step into the role of president of the company, and he was appointed. Under his leadership, the company’s financial position substantially weakened. On behalf of the company, a shareholder sued the board of directors alleging that they used poor judgment and did not act in the best interests of the company when they appointed the new president. The case eventually settled for $1,500,000 and legal fees totaled $300,000..
A retailer advised one of its suppliers that it ought to increase inventory because business was expected to increase significantly. Business did increase for the retailer but it decided to use a different supplier for the increased inventory. The original supplier sued the retailer alleging that he relied on the retailer’s promise of more business and suffered damages as a result of having relied on that promise. The matter was eventually settled for $500,000.
An employee sued a northeastern water treatment company alleging national origin discrimination in violation of Title VII. The plaintiff was awarded a total of $265,000 in damages, comprised of $150,000 in compensatory damages and $115,000 in back pay. In addition, the court awarded attorneys’ fees and interest in the amount of $232,711. The company only had 15 employees.
A jury awarded damages OF $1,000,000 to a terminated employee after she sued a privately owned service company for wrongful termination and breach of employment contract, as well as an implied covenant of good faith and fair dealing. Attorneys’ fees totaled $65,000.
A shareholder derivative action against a wholesaler and its directors alleged breach of fiduciary duty. The plaintiff alleged the directors breached their fiduciary duties and wasted corporate assets in connection with certain business transactions with affiliated companies. The case settled for $1,100,000 and attorneys’ fees amounted to $150,000./p>
Investors filed a $5 million derivative lawsuit against a private company alleging breach of fiduciary duty. The investors claimed that some of the company’s officers had personal connections to the third party contractor hired to re-tool the company’s assembly line and hired that contractor to further their personal interests, not the interests of the company. Other officers and directors were alleged to have either knowingly colluded with one another, or at least breached their duty of care in undertaking the project without properly investigating the qualifications of the contractor. The suit settled for $1.5 million with an additional $150,000 for attorneys’ fees.
During a press conference the president of a service company stated that the success of his company was due in large part to a competitor’s lack of customer service and inferior product. The competitor filed suit alleging that the president had negligently interfered with business relations. The jury agreed and awarded the competitor $2 million in damages. The attorneys’ fees for this case amounted to $150,000.
Commercial Crime Scenarios
A property manager was committing fraud with various vendors providing services to the properties under their management. Vendors and the property manager were overbilling for services rendered or charging for services never provided and keeping the difference. Insufficient controls were in place regarding these vendors leading to six separate losses totaling just under $2m in losses.
Stolen Corporate Funds
A company executive delegated her assistant to set up travel arrangements and gave the secretary a corporate credit card and account information for payment. The assistant used information to make personal purchases. The assistant stole over $800,000 during a 5 year period.
A small escrow company handled transactions primarily for residential sales. There was a breach in their security and a half million dollars was wired out via several individual wire transfers. When the company was finally aware of what was happening, they contacted their bank and put a freeze on the account. The bank tried to recover the funds by contacting the financial institution where the wire transfers had gone directly. The escrow company was held liable for lost funds of their clients. The suit settled for $1.5 million.
Hostile Work Environment
An employee claimed there were derogatory statements posted by co-workers on an employee forum –an online company bulletin board that was accessible to all pilots and crew members. The airline denied responsibility, arguing that the harassment occurred outside the physical workplace. Employers are not required to monitor all private communications between employees, however, they may have a duty to stop harassment in settings related to the workplace if they know or have reason to know about it. The pilot sued the airline and other pilots for defamation and emotional distress. The court decided that the employer was liable because this online forum was a setting related to the workplace. Total defense costs and settlement exceeded $600,000.
An executive of a manufacturing company filed a suit against the company for wrongful termination and intentional infliction of emotional distress. The plaintiff, a former Chief Operating Officer, made statements that the company failed to pay an employee overtime and terminated the employee for filing a complaint. The plaintiff alleged that although the company advised him his termination was due to performance problems, he was actually terminated in retaliation for the honest statements he made in connection with a fellow employee’s termination. Total defense costs and settlement exceeded $500,000.
A female employee working for a service company alleged several employees made inappropriate sexual comments towards her, including suggestions she was having a sexual relationship with another employee. In addition, she also alleged her boss and co-workers asked her inappropriate questions concerning her personal life. The plaintiff alleged that after she complained, her manager engaged in a practice of retaliation. She contended that she was excluded from certain meetings, taken off certain projects and assignments, treated rudely and received a negative evaluation. Total defense costs and settlement exceeded $550,000.
The plaintiff alleged her employment was terminated because she testified on behalf of another co-worker who brought a separate action against the company. Plaintiff alleged this was a violation of her employment contract which provided she could only be terminated for good cause. Plaintiff asserted cause of action for wrongful termination, breach of contract, and retaliation. Total defense and settlement exceeded $120,000.
In a cross-complaint, a doctor alleged a breach of his employment agreement. Specifically, he alleged the company failed to pay his wages, provide him with a decent patient load, adequate office space, and the proper support staff needed to perform his job duties. The doctor sued, claiming breach of contract, misrepresentation, unfair competition and failure to pay wages. Total defense costs and settlement exceeded $350,000.
A financial institution employee’s laptop, containing sensitive client data, went missing. Multiple lawsuits are pending by individuals whose data has been compromised, and a Gramm-Leach-Bliley (GLB) regulatory investigation is ongoing. Total defense costs exceeded $700,000.
A well-known specialty company was sued by customers claiming that the store’s online shopping website was deceptive and confusing in regard to shipping costs. Claimants alleged that the site’s “shopping cart” feature frequently charged customers for ‘rush’ shipping without the customers’ prior knowledge or approval. The suit required the company to issue refunds of overcharges to more than 1,500 customers.
An online retailer’s network was hacked by an unauthorized user and customers’ credit card information was exposed. A class action lawsuit was recently filed against the retailer.
An online manufacturer inaccurately compared its product to a competitor’s product, triggering a lawsuit claiming misrepresentation and unfair trade practices. Defense expenses already exceeded $375,000.
An online business process software (ASP) inadvertently provided access to a non-authorized user. Confidential customer contact information was exposed to other unauthorized users. A regulatory investigation for a data privacy incident could lead to a fine or penalty. Private suit for loss of, or damage of, data settled for $875,000. Defense expenses incurred in excess of $275,000.
A designer’s apparel company included the names of competing designers in its website’s metatags (“invisible” keywords inserted in the page code), hoping to attract customers of competing brands in search engine listings. The designer was sued by the competitors who claimed that use of their trademarked names in metatags was inappropriate and unauthorized use of trademarks, and deceptive to consumers. Customers sued the company for several million dollars in damages.
A company’s web-based account management service was unavailable for a period of three days, after a disgruntled client launched a denial of service attack on the site somewhere in Europe. During that time period, customers were unable to access the system to make payments, execute transactions, or check account balances. Customers sued the company for more than $750,000 in damages.
A computer engineer who had been hired to update the computer system of a sheet metal company was fired due to incompetence. When the company refused to pay him, the engineer hacked into the company’s computer system and deleted its files. The company was forced to pay over $95,000 to rectify the damage.
A company’s e-mail system inadvertently transmitted a malicious virus to more than 1,500 clients and recipients, causing widespread loss of data, among other damages. The company was sued by the receiving firms for failing to detect and prevent this virus transmission, claiming losses, which totaled more than $3.1 million.
An energy company was sued by an ex-employee for breach of privacy, when comments about the ex-employee were circulated via the Internet. The company was forced to pay over $400,000 in damages.
FULL LIST OF PROFESSIONS SERVED
PLRisk Monthly Newsletter : Coming Soon
Quarterly Webinar : Coming Soon
AAMGA – American Association of Managing General Agents
CPCU – Society of Chartered Property Casualty Underwriters
American Association of Managing General Agents
Insurance Information Institute
Insurance Licensing Services of America
National Insurance Producers Registry
National Online Insurance School
Risk Management Association Magazine
Professional Liability Underwriting Society – PLUS
RIMS – Risk & Insurance Management Society
Centers for Disease Control and Prevention – CDC
Centers for Medicare & Medicaid Services – CMS
EDGAR (SEC electronic filings)
Environmental Protection Agency – EPA
Equal Employment Opportunity Commission – EEOC
Federal Emergency Management Agency – FEMA
Food and Drug Administration – FDA
National Highway Traffic Safety Administration – NHTSA
National Labor Relations Board – NLRB
National Transportation Safety Board – NTSB
Occupational Safety and Health Administration – OSHA
Pension Benefit Guaranty Corporation – PBGC
FILE A CLAIM
FREE CYBER HOTLINE
TITLE AGENTS & MORTGAGE BROKERS
ARCHITECTS & ENGINEERS