Two Lawsuits Based on Real Estate Broker’s Dual Representation of Buyers and Sellers in Same Transaction Arise from Same Wrongful Act

The U.S. District Court for the Southern District of California, applying California law, held that two lawsuits against a real estate broker involving his dual representation of buyers and sellers in the same real estate transaction arose from the same wrongful act, such that the second suit was deemed a claim first made at the time the first suit was filed—prior to the inception of the broker’s claims-made errors and omissions policy.  Martin v. QBE Ins. Corp., 2019 WL 2009874 (S.D. Cal. May 7, 2019).

The insured real estate broker represented both the buyers and the sellers in the purchase/sale of a home.  After the transaction, the buyers filed suit against the broker for alleged misrepresentations made in connection with the transaction.  Two years later, the sellers also filed suit against the broker in connection with the same transaction.

The broker tendered the sellers’ lawsuit to his errors and omissions insurer, which denied coverage on the grounds that the sellers’ lawsuit involved the same wrongful act—defined as “Wrongful Acts that . . . [a]re logically or causally connected by common facts, circumstances, situations, transactions, events and/or decisions”—as the buyers’ lawsuit and therefore, pursuant to the policy’s multiple claims provision, was deemed first made prior to the policy period when the buyers’ lawsuit was filed.  The broker filed this coverage action for alleged breach of the duty to defend and bad faith.

The court granted the insurer’s motion to dismiss.  In doing so, the court took judicial notice of the underlying complaints, rejecting the broker’s argument that doing so would require the court to accept the allegations in the complaint as true.  Reviewing the underlying complaints in the two lawsuits, the court concluded that they involved the same wrongful act because they were connected by common facts, circumstances and decisions.  Specifically, they both involved the same transaction, the broker’s role as a dual agent of the buyers and sellers, and the broker’s alleged misrepresentations based on his alleged failure to make certain disclosures regarding the condition of the property.  Because the two lawsuits arose from the same wrongful act, the later filed suit was deemed first made before the policy period, and therefore there was no coverage available under the broker’s claims-made policy.