Matt Ehmann is Vice President of Professional Liability Programs, and Brian Callahan is Financial Products Claims Director, at Great American Insurance Company. Great American works with The Herbert H. Landy Insurance Agency, a Texas REALTORS® risk management partner.

Breach of fiduciary duty is a serious accusation in its own right. Here’s how to avoid it.

Your real estate license requires you to put your clients’ interests first. That fiduciary obligation is the highest duty recognized under law.

If your clients file a lawsuit against you, they may also allege a breach of fiduciary duty—it almost always appears alongside another claim. How can you defend yourself against this serious accusation?

Matt Ehmann and Brian Callahan, of Great American Insurance Company, explain breach of fiduciary duty and how you can avoid it.

Like negligence, only worse

Breach of fiduciary duty claims arise from situations where a client has the perception that their agent was not looking out for their financial interests. Unfortunately, these claims often hinge on conflicting versions of events with little to no evidence of what was actually said or discussed.

Alleging a breach of fiduciary duty broadens the scope of the claim. It accuses you of not only being negligent—you also didn’t put your client first. “It opens the door to much broader damages,” Callahan says.

Breach of fiduciary duty claims are often more fraught, adds Ehmann. That’s because they’re filed by former clients instead of third parties. “There’s personal feelings involved.”

Callahan gives the following examples of breach of fiduciary duty:

  • Disclosing confidential information to the seller, such as your buyer client’s highest offer price
  • Not bringing all offers to your seller client’s attention in order to close more quickly
  • Glossing over the details of a buyer’s backup offer with your seller client
  • Dissuading buyer clients from getting inspections or walkthroughs with detailed explanations from qualified experts.

Ways to protect yourself

A breach of fiduciary duty claim functions similarly to a negligence claim. If the allegation is a failure to disclose a leaky roof, for example, you would defend yourself using emails and documentation to show you did tell the client about it or try to prove you didn’t know the roof leaked.

To help avoid or mitigate these situations, Ehmann and Callahan suggest that agents consider the following:

  • Keep the decision-making processes in the hands of clients wherever possible.
  • Keep the transaction fully transparent. Share all communications with clients and ensure that they receive all offers, reports, and other documents.
  • Refrain from offering opinions on matters outside of your competency or matters for which you lack adequate information.
  • Document, document, document. Avoid the “he said/she said” problem by creating a paper trail of all material communications with the client and all events that occur during the transaction. To the extent possible, confirm conversations with clients with follow-up emails and/or have the client sign off on any changes in writing.