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A New Mexico court ruling offers an import ant reminder to brokers: Don’t make a vendor recommendation unless you’re sure the vendor is reliable, licensed and insured. In the case, after a broker-recommended contractor accidentally destroyed the sellers’ home, the court found the broker negligent in his duty of reasonable care.
The Case
In 2016, an Albuquerque, N.M., couple, Dennis and Beth Heavner, entered into a transaction brokerage agreement with a local broker. Under New Mexico statute, this relationship means the broker provides services but doesn’t owe fiduciary duties to their client.
After the Heavners contracted with a buyer, the inspection revealed problems with the roof. When the owners couldn’t find an available roofer, the broker volunteered to “take care of it.” He recommended a roofer whom the sellers hired, but he didn’t verify whether the vendor was licensed or insured. While making the repairs, the roofer triggered a fire.
The homeowners and their insurance company sued the broker and his then-brokerage for damages, alleging negligence and breach of contract in recommending an uninsured and unlicensed roofer.
The Ruling
The district court determined that New Mexico Real Estate Commission regulations impose a duty of reasonable care on transaction brokers and awarded damages, despite defining the relationship as non-fiduciary.
The defendants appealed, citing three arguments: The broker didn’t owe a duty of care to investigate the roofer’s status because it was a transactional brokerage relationship; there was no cause and effect between the roofer’s status and the negligence; and the listing agreement didn’t permit the awarding of attorneys’ fees based on negligence.
The appeals court noted the commission requires that all brokers owe a reasonable duty of care. “The purpose of removing fiduciary duties and agency status from transaction brokerage isn’t to eliminate standards of reasonable care,” the court opinion reads, “but to avoid conflicts of interest when a broker is an agent for both parties to the transaction.”
The defendants also argued they had no liability because the listing agreement put the duty to investigate vendors solely on homeowners. While the agreement did obligate the owners, it said nothing about the defendants’ duties, the court noted. So, the agreement didn’t absolve the broker’s duty of care.
The court also held there was a causal connection between the roofer’s status and the fire because, as the lower court noted, the damages were a natural result of the recommendation. Plus, the homeowners testified they wouldn’t have hired the roofer if they’d known his status.
Finally, the defendants argued the agreement limited an award of attorneys’ fees to contractual, not negligence, disputes. Again, the court of appeals agreed with the lower court.
Best Practices
No matter whom you represent:
- Vet vendors before you recommend them, and require they provide written confirmation of their licensure or accreditation status and liability insurance coverage.
- Always recommend several trusted professionals to clients for their selection.
- Avoid hiring third-party vendors directly for work being performed at a consumer’s property.
- Make sure your client agreements clearly delegate duties for investigating and evaluating third-party contractors. A broker disclaimer could possibly have helped the defendant avoid liability in this case.
