Agents' Conduct in Connection with Real Estate Mergers Not “Professional Services”
In St. Paul Fire and Marine Ins. Co. v. ERA Oxford Realty Co. Greystone, LLC, 2009 WL 1757162 (C.A.11 Ala.), St. Paul Fire and Marine Insurance Company appealed the district court's order declaring that the professional liability insurance policy issued by St. Paul to ERA Oxford Realty Greystone, LLC obligated St. Paul to provide a legal defense for certain claims pending in the Eleventh Circuit Court of Appeals.
The facts of the underlying suit were that employees of ERA approached Jeff and Kathy Johnson, licensed real estate brokers with Johnson Realty Pros, about a potential merger between ERA and Johnson Realty Pros. The parties negotiated a verbal agreement whereby the two corporate entities would merge, the Johnsons and the other agents working for Johnson Realty Pros would become agents for ERA, and the Johnsons would receive an interest in the newly-formed entity. Jeff Johnson arranged for his agents to meet with William Waldrip, an owner and employee of ERA, regarding the merger. Subsequently, Waldrip informed Jeff Johnson that ERA would not complete the merger. Shortly thereafter, Johnson Realty Pros' two full-time agents left and began working as agents for ERA.
Also, Deerfoot Realty Co., a brokerage operated by Freda Jones, entered into a written agreement to merge with ERA. Under the terms of this agreement, Jones would close Deerfoot Realty Co., become an agent for ERA, and receive an interest in the newly-formed entity. Following the merger, Jones closed Deerfoot Realty Co. and attempted to transfer her real estate license to ERA. ERA then breached the terms of the agreement by not providing Jones with business cards, signs, or health insurance coverage, and by not making lease payments on Deerfoot Realty Co.'s previously-leased offices. ERA also failed to timely transfer Jones's real estate license to ERA, resulting in ERA's improper receipt of Jones's commissions. Waldrip also later told Jones that he never had the authority to provide Jones with an ownership interest in the merged entity. Jones told Waldrip and Charlene Phillips, another ERA employee, that she would leave ERA and asked Phillips to hold her real estate license in ERA's office so she could continue to work there temporarily. Phillips instead mailed Jones's real estate license to the Alabama Real Estate Commission and advised the Commission that Jones was selling real estate without a license.
Based on these facts, Freda Jones, Deerfoot Realty Co., Jeff and Kathy Johnson, and Johnson Realty Pros brought an action against ERA, William Waldrip, Charlene Phillips, ERA Franchise Systems, Inc., and Mike Manacuso, asserting nine causes of action alleging assorted negligent acts and misrepresentations against the brokers relating to the merger
ERA submitted a claim to St. Paul requesting a legal defense to the ERA parties in the underlying suit and payment of any resulting damages under the policy. In response, St. Paul filed an action in district court seeking a declaration that it owed neither a duty to defend nor a duty to indemnify the ERA parties in the suit. St. Paul and the ERA parties filed cross-motions for summary judgment.
The policy at issue in the case defined “real estate professional services” as “those professional services performed, or failed to be performed, for others as duties as notary public and in [the capacity of a r]eal estate agent or broker.”
The district court, granting the motions in part and denying them in part, noted that the meaning of the term “real estate professional services” was “far from clear” and that therefore the term should be given “the broadest reasonable interpretation under the policy.” The court also noted that an Alabama supreme court case rejected the argument that a professional liability policy covering losses resulting from a mental health center's provision of “professional services” was triggered only upon the exercise of some “learned profession.”
Accordingly, the district court found that the allegations in the underlying complaint, which the court described as related to the “real estate business,” described losses resulting from the provision of “real estate professional services.”
St. Paul appealed, arguing that the district court erred in finding that the underlying complaint asserted any claims resulting from the performance of real estate professional services for others.
After reviewing the applicable case law and the facts at hand, the Eleventh Circuit determined that the ERA parties' conduct in connection with the attempted mergers was not part of the “professional services” provided by them, and therefore was not within the coverage of professional liability insurance policy.
In addition, the court held that “professional services” unambiguously applied only to those services which required the specialized knowledge of a real estate agent or broker in performing his or her professional duty for others.
Thus, the court vacated the district court's decision and, on remand, directed the court to grant St. Paul 's motion for summary judgment to the extent that it sought a declaration that the allegations of underlying complaint did not require it to defend the ERA Parties in the underlying suit.