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The National Association of Realtors hit its maximum insurance coverage limit of $1 million for claims related to antitrust commission suits “some time ago,” the trade group told its local and state association executives in an email Wednesday.
This means there are no funds under NAR’s policy available to pay for the cost of defending the dozens of Realtor associations or their multiple listing services who have been sued in such suits nationwide.
Lesley Muchow
The email was authored by Lesley Muchow, NAR’s deputy general counsel and vice president of legal affairs and antitrust compliance, to “dispel rumors and misconceptions” about NAR’s insurance coverage, Muchow said in the email.
While Muchow did not specify which misconceptions she was referring to, she did say that NAR’s insurance had not changed, NAR had not lost its insurance and NAR’s policy had not maxed out — except for when it comes to claims regarding the trade group’s cooperative compensation practices on MLSs. NAR also continues to have coverage for antitrust claims not related to its cooperative compensation rule.
“NAR’s liability insurance has not run out,” Muchow wrote. “However, it is accurate that we have reached our maximum coverage limit of $1 million for lawsuits challenging cooperative compensation practices on the MLS. Coverage for other types of claims is still available.”
“We reached the limit some time ago,” Muchow added.
NAR did not respond to questions asking how much the trade group has spent on antitrust litigation costs so far and when it hit its insurance coverage limit. In a Q&A included in Muchow’s email, one question is “Why isn’t coverage from the Chubb policies in 2022-2024 available to pay defense costs?” This suggests that the insurance coverage likely ran out in 2021.
“Chubb, our insurance provider, determined that the copycat lawsuits challenging cooperative compensation ‘relate back’ to NAR’s original 2019 claim under the 2019 Chubb professional liability policy,” Muchow wrote.
“That means the primary coverage from NAR’s insurance program does not cover state and local associations’ or MLSs’ defense expenses in these cases.”
Several suits filed against NAR, and against state and local associations across the country, challenge NAR’s cooperative compensation rule, also known as the Participation Rule, which requires listing brokers to make an offer of compensation to buyer brokers in order to submit a listing to a Realtor-affiliated MLS.
NAR has been fighting antitrust lawsuits regarding the practice of commission sharing between listing brokers and buyer brokers since March 2019, when a case called Moehrl was filed, followed a month later by a case that would be known as Sitzer | Burnett. On Oct. 31, in a historic verdict, the jury who heard the Sitzer | Burnett case found that NAR, Keller Williams, RE/MAX, Anywhere, HomeServices of America and two of its subsidiaries, BHH Affiliates and HSF Affiliates, conspired to inflate broker commission rates paid by homesellers. The jury awarded $1.78 billion in damages to a class of approximately 500,000 Missouri homeowners. If that award stands, it would be trebled by law to more than $5.3 billion.
According to an NAR fact sheet, Chubb has extended NAR’s 2023 professional liability policy through June 30, 2024. NAR renews its insurance policy annually and is “working to extend the current policy and hope to have more to share soon,” Muchow said in the email.
Rob Hahn
Real estate consultant Rob Hahn, who first wrote about NAR hitting its liability insurance limit, expressed doubt that the policy would be renewed.
“I would not be surprised if NAR is forced to self-insure after June of 2024 since I can’t think of many insurance companies who want to get in the middle of this action right here,” Hahn wrote.
“And self-insurance is a tough row to hoe when you’re already owing far more (so far) to the Sitzer plaintiffs than you have in total assets — liquid or otherwise.”
According to NAR, state and local associations who have bought additional insurance still have access to that excess coverage for litigation related to cooperative compensation — but they would have had to buy it by early last year.
Mantill Williams
“NAR annually provides all local and state Realtor associations with a primary insurance policy at no cost to the associations and recommends that the associations purchase an additional ‘excess coverage’ policy for their specific entity,” NAR spokesperson Mantill Williams told Inman in a statement.
“For lawsuits challenging the MLS cooperative compensation model rule, we have reached our maximum coverage limit under NAR’s primary policy, but those who purchased excess coverage continue to have access to that policy.
“As the state and local associations named in these lawsuits know, NAR is committed to supporting any association named in a copycat lawsuit. We have worked, and continue to work, with named associations to evaluate their particular circumstances and explore options to assist them.”
Under that excess coverage, associations have access to up to an additional $1 million per claim. According to an NAR FAQ about its insurance program, local Realtor associations and/or their MLSs would have had to purchase excess coverage by Apr. 3, 2023. That excess coverage is currently available through June 20, 2024, but only for those associations that purchased that coverage for the 2023 policy year.
In his post, Hahn suggested that NAR not being able to cover local association litigation costs could result in widespread settlements or bankruptcies.
“A local Association or MLS with 1,000 members (Say $150 annual dues, so $150K in total annual income) can’t afford to defend itself against a copycat lawsuit,” Hahn wrote.
“If you can’t defend yourself, then you have to settle. And you don’t get to negotiate a whole lot because the plaintiff attorneys know for a fact that you can’t afford representation. So your only leverage in negotiating the settlement is, ‘We’ll just file bankruptcy.’”
Moreover, he said local associations and MLSs are already considering leaving NAR.
“If you are a regional MLS … and you have not yet been sued, you have got to be thinking of divorce,” Hahn said.
“If NAR is out of money — and canceling ‘presidential initiatives’ for a couple of years suggests the wallet ain’t flush right now — then what’s the reason to stay married to NAR exactly?
“Even if you’re a big local, like Austin or Houston, if NAR ain’t got no cash to contribute towards your defense… what’s keeping you married to NAR exactly? Bonds of love and affection? Don’t make me laugh.”
NAR did not respond to questions asking whether it anticipates local Realtor associations will go bankrupt as a result of antitrust litigation costs or local Realtor associations or MLSs separating themselves from NAR.
It’s unclear at this point how much of an impact lack of coverage under NAR’s policy will have on local associations that are defendants in commission suits. Phoenix Realtors’ spokesperson Lauren Brinkman told Inman, “Regarding NAR’s liability insurance, the organization is not affected. Phoenix Realtors is prepared and capable to defend itself from any sort of litigation. And as always, the organization is identifying creative and effective ways to support the 11,000 members in all aspects of their careers.”
Phoenix Realtors was sued in January. Brinkman declined to comment on the question of whether Phoenix Realtors has its own liability insurance.
Another local association CEO, who asked to remain anonymous because their association has not been sued and they don’t want to attract attention, told Inman that their association does not have its own liability insurance and if it were sued, they would try to settle. “I tell my members that all the time,” the association exec said. “If we were sued, we’d settle.”
The Houston Association of Realtors, the Austin Board of Realtors, the San Antonio Board of Realtors, the Marin Association of Realtors, and the Greater Fort Worth Association of Realtors — all defendants in commission suits — declined to comment for this story.
Read NAR’s full email to state and local association executives:
As many of you know from our regular NAR insurance program education resources, as well as the overview video and FAQ available on nar.realtor, NAR’s insurance policy with Chubb offers coverage for certain claim types. The cost to defend antitrust claims is one of those claim types (but liability for antitrust claims has not historically been covered).
I’m writing to again answer questions about that insurance coverage that I have heard recently, and to dispel rumors and misconceptions. Here are the facts.
· NAR’s insurance has not changed.
· For antitrust defense, NAR and associations and MLSs who have not acquired excess insurance long have had a $1 million coverage limit. For lawsuits challenging cooperative compensation practices on the MLS, NAR has reached our maximum coverage limit of $1 million under NAR’s primary policy. Chubb, our insurance provider, determined that the copycat lawsuits challenging cooperative compensation “relate back” to NAR’s 2019 claim under the 2019 Chubb professional liability policy. That means the primary coverage from NAR’s insurance program does not cover state and local associations’ or MLSs’ defense expenses in these cases.
· NAR also has recommended that associations and MLSs avail themselves of excess coverage that NAR made available. Associations and MLSs that purchased this excess antitrust coverage may have available coverage.
Access to insurance coverage is not the only way NAR provides support in connection with the cooperative compensation lawsuits.
· NAR has worked for years to resolve the cases related to cooperative compensation.
· NAR continues to work on solutions for our associations and their MLSs.
· NAR provides legal support to associations and MLSs through its inside and outside counsel.
· NAR’s counsel has represented associations and MLSs when it can.
As the state and local associations named in these lawsuits know, NAR is committed to supporting any association named in a copycat lawsuit. We have worked, and continue to work, with named associations to evaluate their particular circumstances and explore options to assist them.
Below are some Q&As.
If you have any questions, please don’t hesitate to contact me (lmuchow@nar.realtor) or NAR’s Senior Counsel Deanne Rymarowicz (drymarowicz@nar.realtor).
Lesley
Q&A
1. Did NAR change its insurance?
· No.
· For antitrust defense, NAR and associations and MLSs who have not acquired excess insurance long have had a $1 million coverage limit. For lawsuits challenging cooperative compensation practices on the MLS, NAR has reached our maximum coverage limit of $1 million under NAR’s primary policy.
2. Did NAR lose its insurance?
· No.
· NAR renews its insurance policy annually.
· We are working to extend the current policy and hope to have more to share soon.
3. Is it accurate that NAR’s liability insurance has run out and there will be no coverage available to state and local REALTOR® associations to pay for the cost of defending the cooperative compensation suits?
· NAR’s liability insurance has not run out. However, it is accurate that we have reached our maximum coverage limit of $1 million for lawsuits challenging cooperative compensation practices on the MLS. Coverage for other types of claims is still available.
· Chubb, our insurance provider, determined that the copycat lawsuits challenging cooperative compensation “relate back” to NAR’s original 2019 claim under the 2019 Chubb professional liability policy.
· NAR has recommended that associations and MLSs avail themselves of excess coverage that NAR made available. Associations and MLSs that purchased this excess antitrust coverage may have available coverage.
4. What was the insurance limit and when did NAR hit it?
· The maximum coverage limit in our 2019 policy for the claim related to the cooperative compensation lawsuits was $1 million.
· We reached the limit some time ago.
5. Why isn’t coverage from the Chubb policies in 2022-2024 available to pay defense costs?
· Chubb, our insurance provider, determined that the copycat lawsuits challenging cooperative compensation “relate back” to NAR’s original 2019 claim under the 2019 Chubb professional liability policy.
6. What is NAR doing for state and local associations named in copycat lawsuits?
· NAR has recommended that associations and MLSs avail themselves of excess coverage that NAR made available. Associations and MLSs that purchased this excess antitrust coverage may have available coverage.
· Access to insurance coverage is not the only way NAR provides support in connection with the cooperative compensation lawsuits.
· NAR has worked for years to resolve the cases related to cooperative compensation.
· NAR continues to work on solutions for our associations and their MLSs.
· NAR provides legal support to associations and MLSs through its inside and outside counsel.
· NAR’s counsel has represented associations and MLSs when it can.
· As the state and local associations named in these lawsuits know, NAR is committed to supporting any association named in a copycat lawsuit. We have worked, and continue to work, with named associations to evaluate their particular circumstances and explore options to assist them.