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October 2006 | Volume 57 | No 9

> FINANCE

Indemnity clause

Some agents think they don't need professional indemnity insurance because they have an indemnity clause in their agency agreements. However an indemnity clause will not cover you in all circumstances, as Nancy Rainbird from RealCover explained to the Journal.

No real estate agency is perfect and even if you are exceptionally careful, people can still make mistakes. "If you're negligent in the course of your business, the indemnity clause in your agency agreement may not prevent you from having to pay court costs or damages," Nancy said. Indemnity is a concept that has been understood at common law for centuries. It basically means that a client accepts responsibility for the expenses and liabilities that flow from an undertaking or venture that is being carried out on their behalf by someone else, such as an agent. Clause 23 in the REINSW Exclusive Management Agency Agreement (Residential) reads: The Principal will hold and keep indemnified the Agent against all actions, suits, proceedings, claims, demands, costs and expenses whatsoever which may be taken or made against the Agent in the course of or arising out of the proper performance or exercise of any of the powers, duties or authorities of the Agent. (Note that the word "proper" was added to this clause for agreements after November 2005.) This clause provides basic protection for Agents against being sued by their client (the Principal) for liabilities arising from the proper performance of their duties.

"However, if the Agent acts outside the terms of the agency agreement and is, for example, grossly negligent, the agent is not indemnified," Nancy said. She cited one case, George Halmay v Barry Michael Haiser T/A Figtree Quality Meats in the District Court of NSW, where ­ even though the Agent was able to rely on the indemnity clause to recover their costs ­ the Judge made some interesting comments on the issue. "The case involved a real estate agent who had been appointed as the managing agent of a property," Nancy said. "The plaintiff basically alleged that the agent did not perform essential repairs and maintenance to the property, causing the plaintiff's injury." Specifically, the plaintiff alleged that the walkway of a premises was unsafe and that the agent had failed to treat the pavers with a sufficiently non-slip surface. "In this case, the plaintiff lost, and the agent subsquently sought to recover their costs," Nancy said. "The agent relied on the indemnity clause in their agency agreement to argue their position." During this case, the Judge made the following comments on how an indemnity clause works: "If, for example, the agent effected repairs which were proper and, in the process of doing that, somebody was injured, then the Agent would be entitled to indemnity.

Continued over > REINSW Real Estate Journal 29

Nancy Rainbird

October 2006 | Volume 57 | No 9

> FINANCE

> Continued from page 29

"If the Agent effected repairs, but did so improperly, then he would not be entitled to any indemnity." Alternatively, if an agent fails to act and is found to be negligent, then the indemnity clause won't provide any protection, the Judge noted. In this particular case, the agent had failed to act but the court had found that the agent was not negligent. "Because the agent had not been negligent, the indemnity clause protected them and the court ruled that the agent did not have to pay costs," Nancy said. "The general rule of thumb is that if an agent is negligent, then the indemnity

clause won't protect it. However the important aspect to note is that whether or not an action ­ or a failure to act ­ is negligent is something determined by the court. "It's unwise to simply hope that you'll never be found to be negligent for something that you have or haven't done. An indemnity clause will not always protect you, whereas professional indemnity insurance can help to cover court costs and damages that can often amount to tens or even hundreds of thousands of dollars."

The Disclaimer

Professional Indemnity insurance products are issued by Aon Risk Services Australia Limited ABN 17000434720 as agents for RealCover Insurances Limited ARBN 103975355. RealCover is a wholly owned subsidiary of the Real Estate Institute of NSW and was created solely for real estate agents to put control and management of professional indemnity insurance back into the hands of the real estate industry. While care has been taken preparing this article, and the information contained in it has been obtained from sources that the Aon Group of Companies (Aon) and RealCover Insurances Limited (RealCover) believe to be reliable, Aon and RealCover do not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose that the article may be used. Aon and RealCover accept no liability for any loss or damage (whether caused by negligence or not) resulting from the use of this article. The information in this article is also of a general nature and individuals should always consider their own circumstances and read the relevant Product Disclosure Statement before making any decision regarding any RealCover or Aon product.

Nancy Rainbird is Executive Officer of RealCover. For more information about professional indemnity insurance, call the RealCover Service Hotline on 1800 803 636, or visit www.realcover.com.auI

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