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Interpretation of an Insurance Policy Term is Not Reasonable if Construed to Cover Illegal Conduct

In Compton v. Houston Casualty Co., 2017 UT 17 (Utah Mar. 23, 2017), the Utah Supreme Court held that the insured real estate agent was not engaged “in the performance of services as a Real Estate Agent/Broker of non-owned properties, for others for a fee” as required by his Errors & Omissions policy’s insuring agreement, when the claimed “fee” was a payment that was in violation of both Utah law and the commission structure in the agent’s employment agreement with his brokerage.  In the underlying real estate purchase dispute the insured agent, who was employed by a large brokerage, approached the investor plaintiffs with information about a potential commercial real estate deal with a developer.  However, the agent did not disclose to the investor plaintiffs that he would receive a payment from the developer from the investor plaintiff’s escrow deposit as compensation for bringing in a buyer.  Since this payment arrangement violated both Utah real estate agent/broker law, as well as the brokerage’s compensation policy with its agents, the Utah Supreme Court held that it would not be reasonable to interpret the phrase “for a fee” as covering any payment other than a lawful real estate agent commission that was consistent with both Utah law and the agent’s brokerage’s compensation policy. 

Written by Richard A. Vazquez