COURTSIDE NEWSLETTER

TO: MEMBERS AND AFFILIATES OF THE ASSOCIATION OF REALTORS®

FROM: JOHN V. GIARDINELLI and D.W. DUKE, ASSOCIATION COUNSEL

Disclosure of MLS Information to Third Parties

Improper utilization of MLS information by real estate professionals is a problem in the multiple listing services. Some agents have sold MLS information to various members of the public without authorization. Moving companies are often the recipient of this information. As a real estate professional you need to be aware that such improper disclosure is a violation of MLS rules and may subject you to liability. This issue is addressed in the C.A.R. MLS Model Rules which have been substantially adopted by most regional and local associations.

RULE 12:11 prohibits a real estate professional from using MLS information for any purpose other than to market the property or to support market evaluations and appraisals. Any use of MLS information in a manner not consistent with these uses is expressly prohibited.

RULE 12:12: provides:

“Any information provided by the service to the participants and subscribers shall be considered and treated as confidential by participants and subscribers and shall be for the exclusive use of the participants and subscribers for purposes described in Sections 2, 12.7, 12.11, 12.14, 12.16 and this section. Participants and subscribers shall at all times maintain control over and responsibility for each copy of any MLS compilation leased to them by the A.O.R. and shall not distribute any such copies to persons other than participants and subscribers. Participants and subscribers are responsible for the security of their pass codes and shall not give or allow use of or make available their pass codes to any person. Participants and subscribers may reproduce or display the information as provided in these rules.”

The permitted uses for MLS information, as identified in the sections referenced in RULE 12:12 above, include the preparation of appraisals, marketing the property, offering compensation to participants and subscribers, and displaying information electronically or in printed form to prospective purchasers and internet and “IDX” in a manner consistent with Rule 12:16. Selling MLS information to a third party such as a moving company is not within the permitted uses of MLS information and may result in disciplinary action pursuant to Rules 14:1, 14.2 and 14.3.

Additionally, the improper use of MLS information may constitute a violation of federal copyright law. Rule 11.6 provides that the A.O.R. owns all rights, title and interest of every MLS compilation and has the right to license such use. Violation of federal copyright law may result in severe penalties including substantial fines and even imprisonment.

Lastly, and most importantly, the improper dissemination of MLS information may constitute a breach of fiduciary duty on the part of the agent disseminating the information. The fiduciary obligation of every agent to his client prohibits the agent from any self-serving activities and from taking advantage of his client. Selling MLS information to third parties such as moving companies does not benefit the client in any way and may even violate his right of privacy. For this reason, such activities may constitute a breach of the agent or broker’s fiduciary obligation to his client.

In light of the serious consequences of the improper use of MLS information, an agent should be very careful in the manner in which he disseminates MLS information for any activity other than those uses specified in Sections 2, 12.7, 12.11, 12.14, 12.16 of the CAR MLS Model Rules.

CAUTION: A Trap for the Unwary - Lapsing Insurance Policies

Every year our office receives a number of clients who have encountered the denial of coverage by their Errors and Omissions (E & O) insurer due to a failure to tender the claim to the insurance company on a timely basis. As a result, they are forced to spend a substantial amount defending a claim by a disgruntled client. The reason for this failure is often due to a misunderstanding of the claim reporting requirements of insurance companies.

There are three primary reporting methods for liability claims against an insured. General liability policies, such as automobile policies, may usually be reported at any time the claim is brought against the insured. The question in that situation is whether the “incident” or “accident” occurred during the policy period. For example, if an automobile accident occurs in 2005 and the policy period under the general liability policy is January 1, 2005 through January 1, 2006, but a lawsuit is not filed until February 1, 2006, the insured may tender the claim to the insurance company who will have a duty to defend and indemnify the insured, assuming it is a covered claim. This is true even if the policy has lapsed before the lawsuit is filed.

Many real estate professionals mistakenly assume that the same is true with respect to Errors and Omissions policies. They operate under the misguided belief that the claim can be reported at any time and if the incident occurred during the policy period, the insurer must defend and indemnify. In reality, that is usually not the case.

Errors and Omission policies are generally of two types with differing reporting requirements. The first is called a “Claims Made” policy. For there to be coverage under this kind of policy, a claim must be made against the insured during the policy period, or an extended reporting time, and the incident must have occurred during the policy period or within the dates otherwise set forth in the policy. (Usually called retroactive coverage date and extended coverage date.) If the policy is terminated, and a claim or lawsuit is filed against the insured after any extended coverage time, the insurer has no duty to defend and indemnify.

The second type of “Errors & Omissions” policy that often leads to even greater confusion is a “Claims Made and Reported” policy. With this type of policy not only must the claim or lawsuit be brought against the insured during the policy period, but the insured must also report the claim to the insurer during the policy period. Often an insured will receive a claim or a complaint (initiation of a lawsuit) not realizing that the claim must be reported to the insurer during the policy period. As a result, when he does tender the claim it is denied as untimely. This usually happens when a party changes insurance companies and does not purchase retroactive or extended coverage.

Recently, some insurance companies have even taken the position that even if the policy is renewed, each policy period is a new policy period for purposes of the reporting requirement. As a result, they are denying claims that are presented to the insurer after the policy period has terminated even though the insured renewed the policy.

If you should be served a claim or a summons and complaint, be certain to review your policy very carefully to ascertain when the claim must be reported. Some insurance policies actually include language to the effect that if the insured does not tender a claim immediately then they will deny coverage. The courts do not view such provisions favorably and tend to require that the insurer show that it was somehow prejudiced by the delay. But nonetheless, the failure to tender a claim timely can result in unnecessary grief for the insured.

If you have any questions about the reporting requirements of your insurance policy, you should consult with your attorney.

Giardinelli, Duke and Simmons, LLP in cooperation with International Christian Adoptions hosts dignitaries from Guatemala.

Giardinelli, Duke and Simmons, LLP, in cooperation with International Christian Adoptions, was privileged to bring five high level government officials, and two private attorneys who served as translators, from Guatemala to the United States from September 11, 2006 through September 18, 2006. The officials included the Chief Attorney General (PGN), the Presidential Secretariat and a number of attorneys from the PGN. During the visit the dignitaries had the opportunity to meet with Riverside County Superior Court Judge Thomas Cahraman who gave the dignitaries a tour of the Riverside County Courthouse in Riverside, California. They also visited the Office of the Governor and the Department of Social Services in Sacramento. In addition, the dignitaries had an opportunity to enjoy recreational activities such as a trip to Disneyland and various historical sites and to attend the Padres vs. Dodgers game on September 15 in Los Angeles.

Guatemala is a member of the Hague Convention but a Guatemalan Constitutional Court overturned the accession to the Convention in 2003. Under international law Guatemala remains a member of the Convention though they are not currently considered compliant. One of the reasons for the visit to the United States was to learn about the legal process in the United States, including the process for international adoptions, in consideration of becoming fully compliant with the Hague Convention.

The dignitaries stated that they had a wonderful time in the United States and have developed a very positive view of our legal system. One of the members of the delegation stated that this is the first time this group of high level dignitaries ever traveled to a foreign nation in a single visit. Another stated that this trip, and the activities that will follow, will make history for the people of Guatemala. Similar sentiments were expressed by a member of the US State Department in Washington, DC. Plans are currently underway to host dignitaries from India and the Philippines before the end of this year.

If you would like to see certain questions answered or topics you would like to see explored in this monthly column, please feel free to e‑mail your questions or comments. All opinions expressed are those of the writers and may not reflect the Association’s point of view. Specific legal issues should be addressed to your attorney. The information contained in this Newsletter is general in nature.

John V. Giardinelli and D.W. Duke, Attorneys at Law
GIARDINELLI, DUKE & SIMMONS, LLP
31594 Railroad Canyon Road
Canyon Lake, California 92587
Telephone: (951) 244-1856
e-mail: office@gdslaw.org; dwduke@gdslaw.org