NAR runs out of liability insurance coverage: Sources

Three sources, who have asked to remain anonymous, have confirmed to HousingWire that the National Association of Realtors (NAR) has run out of liability insurance funds. The news about NAR’s insurance predicament began circulating late Wednesday, with industry analyst Rob Hahn highlighting the news in the Thursday edition of his email newsletter NotoriousROB

“NAR’s insurance policy is tapped out, and there are no funds available for REALTOR Associations and MLSs for legal defense costs,” Hahn wrote. “That this is an enormous issue is understating things.”

NAR has two types of insurance it offers to associations, subsidiaries, affiliates and association-owned MLSs at no additional cost. These policies include professional liability insurance and patent infringement insurance. The liability insurance, which is offered through insurance provider Chubb, is designed to cover antitrust claims, but the policy limit is $1 million per policy. Additionally, the policy has an aggregate limit of $10 million.

For an additional cost, state and local Realtor associations, as well as association-owned MLSs, can purchase excess insurance coverage. But as Hahn wrote, and as sources confirmed to HousingWire, all of NAR’s insurance funds — including the funds in its excess coverage pool — are gone. 

Additionally, NAR’s professional liability insurance has been extended through June 30, 2024, but it has not been renewed and Chubb is no longer making new excess coverage policies available for purchase. 

For large MLSs and Realtor associations, which have their own liability insurance independent of NAR, this news is disappointing but isn’t catastrophic. But for smaller associations that do not have independent coverage and have found themselves in the crosshairs of a copycat commission lawsuit, the news is devastating. 

“Up until now, NAR’s insurance policy covered the costs of those lawyers,” Hahn wrote. “Going forward? They would have to find a way to pay those lawyers themselves.”

In Hahn’s estimates, an association with 1,000 members that charges $150 in annual dues for an annual income of $150,000 cannot afford to defend itself against one of the many copycat suits. 

“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,” Hahn wrote. “So your only leverage in negotiating the settlement is, ‘We’ll just file bankruptcy.’”

As copycat suits continue to pile up, it is clear that this issue will not be disappearing anytime soon, and that legal costs for Realtor associations and MLSs will only increase. It also remains unknown as to exactly when NAR ran out of insurance coverage. The trade group did not return HousingWire’s request for comment, and it did not confirm or deny that it had run out of insurance coverage.