By Chad Wenzelspratt, Lee Santos

E&O Case Study: When the Well Water Isn’t Enough

A real estate agent listed a home that received its water supply from a well. According to the listing agent, the seller claimed that the well produced an adequate water supply and had no problems with water quality. The buyer was interested in purchasing the residential property for his family, but had concerns about the well.

The buyer’s agent passed this information on to the buyer. However, the buyer’s family was much larger than the seller’s.

After taking possession of the property, the buyer quickly discovered the water production from the well could not support increased consumption from bathing and laundry. The water production diminished, and the buyer had to drill another well.

The mistake

The listing agent assumed he knew the buyer’s needs. He failed to consider the size of the buyer’s family and should have recommended the buyer have the well independently tested.

The buyer filed suit against the listing agent and the seller. An independent test of the well and the water determined that there was an elevated level of bacteria in the water.

A new well was drilled, and the buyer eventually settled with the seller and agent for $20,000, plus attorney fees.

How to reduce your risk

In making representations based on assumptions, you may be putting yourself at risk for litigation if your representations are perceived as being untruthful at a later time.

If water production tests yield certain gallons per minute, that should be represented. Always recommend the buyer hire an independent source to verify the information, and document your recommendations. This will go a long way in removing any perception of deceit and also transfer the risk of litigation to another party. Additionally, a well inspection may lead to the detection of other environmental hazards, such as underground storage tanks.

As in this case, contaminated water can involve significant expenditure if clean water has to be delivered to maintain the property’s legal occupancy.

Chad Wenzelspratt, CIC, is a senior account executive for Pearl Insurance, a TAR errors and omissions risk-management partner. Lee Santos is senior claim specialist-director account management at XL Catlin.