Home Courts Insurer sues Houlihan Lawrence over coverage for dual agency lawsuit

Insurer sues Houlihan Lawrence over coverage for dual agency lawsuit

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An insurance company is asking federal court in White Plains to declare that it has no obligation to provide coverage to the Houlihan Lawrence Inc. real estate firm against allegations of dishonest and fraudulent practices.

Great American Insurance Co. of Cincinnati sued Houlihan Lawrence of Rye Brook on Feb. 4 over a lawsuit filed last year accusing Houlihan of improper use of dual agency.

houlihan lawrenceThat lawsuit, Great American claims, shows that Houlihan’s actions were not “the result of innocent mistakes, technical violations or a few rogue agents.”

Houlihan issued a statement in the original case denying the allegations and pledging, “We will continue to represent our buyer and seller clients with integrity.”

Houlihan is the region’s dominant real estate agency. It has 30 offices and 1,300 agents in Westchester, Putnam and Dutchess counties. It booked nearly $3.7 billion in sales in Westchester alone, in 2016.

Houlihan has a $5 million professional liability policy with Great American.

The original lawsuit was filed July 14 in Westchester Supreme Court by Pamela N. Goldstein, who bought a house in Greenburgh for $635,000 in 2017. She claims she was an unwitting victim of dual agency – in which a real estate firm represents both the buyer and seller and collects commissions from both sides of the transaction – and was pressured into paying $37,100 more than the initial asking price.

The complaint was amended to include Ellyn and Tony Berk, who sold their deceased mother’s White Plains house in 2014, and Paul Benjamin, who bought a Bedford house in 2016.

The complaint alleges that Houlihan has pocketed hundreds of millions of dollars in unearned sales commissions.

Dual agency is legal in New York if it is fully disclosed and the client consents.

The accusers claim that Houlihan institutionalized a dual agency scheme, by paying kickbacks to employees who secured double commissions.

They say, for instance, that the firm duped clients into signing consent forms, avoided discussions about the risks of dual agency and failed to notify clients when the situation involved dual agency.

Those alleged practices, Great American says in its federal court complaint, ran afoul of exclusions in the professional liability policy.

The policy, for instance, disallows claims “arising out of any dishonest, intentionally wrongful, fraudulent, criminal or malicious act or omission.”

The policy also does not apply to commissions, to some legally obligated damages or to expenses such as legal fees that Houlihan incurred in defending itself.

The policy does obligate Great American to defend Houlihan or approve the firm’s attorneys. But Houlihan, Great American claims, failed to get its consent for hiring Collier Halpern & Newberg, White Plains, and Barnes & Thornburg, Indianapolis.

Houlihan states in a motion to dismiss the original lawsuit that all four clients consented to dual agency. “Nothing was hidden,” a memorandum of law states, and the clients “were not deceived.”

The Berks, according to Houlihan, have no legal standing because they were administrators of their mother’s estate, did not own the property and did not personally pay any commissions. Their complaint was filed more than four years after the property was sold, the firm says, and was beyond the statute of limitations.

As to Goldstein and Benjamin, as buyers, Houlihan says, “anyone who has sold a home knows that the seller pays the entire commission.”

In this case, Houlihan argues, the buyers “seek a windfall – to recover commissions others paid to Houlihan Lawrence. That fact is fatal to their claim.”

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