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Legal Updates for Real Estate E&O Liability

Invoking the Mandatory Mediation Clause Against Buyers – A Beneficial Strategic Tactic

Legal Updates for Real Estate E&O – November 2025

November 1, 2025

by Gregory P. Graham

When facing claims, Pennsylvania real estate agents too often view the mandatory mediation paragraph found within the Standard Agreement for the Sale of Real Estate as little more than boilerplate. In practice, however, this clause can be a valuable and strategic tool for the successful defense of claims. Rather than overlooking such a useful tool, real estate agents should consider invoking the mandatory mediation provision to obtain significant advantages in cost management, liability clarity, and settlement posture.

The mandatory mediation provision typically contains the following language:

Buyer and Seller will submit all disputes or claims that arise from this Agreement, including disputes and claims over deposit monies, to mediation. Mediation will be conducted in accordance with the Rules and Procedures of the Home Sellers/Home Buyers Dispute Resolution System, unless it is not available, in which case Buyer and Seller will mediate according to the terms of the mediation system offered or endorsed by the local Association of Realtors®. Mediation fees, contained in the mediator’s fee schedule, will be divided equally among the parties and will be paid before the mediation conference. This mediation process must be concluded before any party to the dispute may initiate legal proceedings in any courtroom, with the exception of filing a summons if it is necessary to stop any statute of limitations from expiring. Any agreement reached through mediation and signed by the parties will be binding. Any agreement to mediate disputes or claims arising from this Agreement will survive settlement.

This section precludes either the buyer or seller from initiating a legal action without first attempting to mediate the dispute. The only exception identified within the provision allows for the filing of a summons to halt the application of any potential statute of limitations. 

At first glance, the provision would not appear to be available to agents involved in the transaction; however, the language is clear that all disputes that arise from the agreement are subject to the mandatory mediation requirement. Upon receipt of a pre-suit claim, real estate professionals should consider invoking this provision to bring all claims and involved parties to mediation. Alternatively, if a lawsuit has already been filed, real estate agents should consider the merits of filing a Motion to Stay and to Compel Mediation pursuant to the provision. 

There are numerous benefits to do so. 

Cost Savings Through Early Resolution
Pre-suit mediation offers a controlled, confidential, and relatively inexpensive forum for resolving the dispute while the parties are still evaluating their willingness to engage in the costs of discovery, depositions and motion practice. By invoking the mediation provision promptly after a buyer identifies a pre-suit claim or upon the receipt of a complaint, an agent and their counsel can participate in a structured discussion aimed at resolution without the procedural overhead of court involvement. Even if mediation does not result in a full settlement, narrowing the issues can dramatically reduce later litigation expenses. Insurers can separately consider the benefits of early mediation for their insureds, as it signals proactive risk management and can help avoid unnecessary defense costs.

Clarifying Responsibility Through Information Exchange
Claims made by the buyer against real estate agents are often defended on the grounds that the seller’s or buyer’s own actions are the cause of the buyer’s damages. Forcing those parties to mediation encourages the early and informal exchange of key documents—inspection reports, disclosure forms, repair records—that can help inform the parties’ assessment of who bears actual responsibility. When the facts are developed cooperatively, rather than through adversarial discovery, the mediation process often highlights that the real estate agent’s role was limited to communication rather than concealment. This can refocus the dispute toward the truly responsible party and may even resolve the matter without further involvement of the agent. 

Managing Plaintiff Expectations for Future Negotiations
Even if resolution cannot be achieved during the mediation process, a mandatory attempt early in the life of a claim also serves as an effective opportunity to set realistic expectations for a buyer-plaintiff’s potential recovery. Through the mediator’s neutral perspective, plaintiffs often gain a clearer understanding of the legal limits on agent liability, the availability of defenses—such as the reliance on seller representations—and the challenges of proving causation and damages, especially if the buyer waiver or failure to inspect questions are involved. Even if mediation does not fully settle the case, it can temper inflated expectations and create a more productive environment for subsequent negotiations.

In short, mediation under the Pennsylvania Standard Agreement is not merely a procedural requirement—it is a strategic defense opportunity. By embracing early mediation, real estate agents can reduce costs, clarify liability and shape the tone of any future dispute toward resolution rather than escalation. 

Legal Update for Real Estate E&O – November 2025, is prepared by Marshall Dennehey to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. We would be pleased to provide such legal assistance as you require on these and other subjects when called upon. ATTORNEY ADVERTISING pursuant to New York RPC 7.1 Copyright © 2025 Marshall Dennehey, all rights reserved. No part of this publication may be reprinted without the express written permission of our firm. For reprints or inquiries, or if you wish to be removed from this mailing list, contact tamontemuro@mdwcg.com.

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On July 21, 2026, the Supreme Court of Pennsylvania issued an opinion emphasizing the limited circumstances in which courts may invoke public policy to bar insurance coverage, holding in Samsung Fire & Marine Insurance Co., Ltd. (U.S. Branch) v. RI Settlement Trust that Pennsylvania public policy does not preclude coverage for claims alleging that insureds enabled or profited from human sex trafficking. The decision rejects a line of federal district court decisions predicting otherwise and reinforces that Pennsylvania courts will invoke the public policy doctrine only in the clearest of circumstances. RI Settlement is particularly significant because it arose on certified questions from the United States Court of Appeals for the Third Circuit, giving the Supreme Court the opportunity to resolve an issue on which federal courts had predicted Pennsylvania law differently. RI Settlement arose out of four separate civil complaints in which the underlying plaintiffs alleged that, as minors, they were the victims of human sex trafficking at various hotels in Philadelphia. The plaintiffs claimed that the hotel owners were negligent in failing to stop the sex trafficking from happening at their hotels. After the filing of the lawsuits, the hotel owners sought coverage under their Commercial General Liability policies. The insurers initially defended the hotels under Reservation of Rights letters, though the carriers later filed Declaratory Judgment actions seeking declarations that they did not owe a duty to defend or indemnify. In short, the insurers argued in the alternative that they did not owe any obligation to provide coverage based upon Pennsylvania public policy (because the claims violated the Human Trafficking Law – 18 Pa.C.S. § 3011) and the terms and conditions of the policy. On motions for judgment on the pleadings, the District Court found for the insurers on the basis of public policy: There is no duty to defend or indemnify against actions arising out of an insured's criminal conduct related to the sex trafficking of minors. The Court appreciates that it may make public policy the basis of a judicial decision only in “the clearest of cases.” See Minnesota Fire & Cas. Co. v. Greenfield, 589 A.2d 854, 868 (Pa. 2004) (quoting Hall v. Amica Mut. Ins. Co., 648 A.2d 755, 760 (Pa. 1994)). Yet, the Court strains to imagine a clearer case than the one presented here in which the facts alleged indicate that Policyholders engaged in criminal conduct in violation of Pennsylvania's Human Trafficking Law. The hotel owners appealed the matter to the Third Circuit, which petitioned the Supreme Court of Pennsylvania to grant review of two certified questions of law: (1) whether Pennsylvania law had an “overriding public policy” against sex trafficking, such that an insurer’s duty to defend and/or indemnify is abrogated when an insured is alleged to have enabled or profited from such trafficking; and (2) if yes, is that duty abrogated whenever the insured’s alleged conduct would constitute a violation of the Pennsylvania Human Trafficking statute. Importantly, the certified questions did not ask the Supreme Court to determine whether the policies afforded coverage under their terms. Rather, the court was asked only whether Pennsylvania public policy independently barred coverage. As a result, the court assumed for purposes of answering the certified questions that the insurers otherwise owed a duty to defend and addressed only the public policy issue, leaving all policy-based coverage defenses for further proceedings. Because the court concluded that the answer to the first certified question was “no”, it did not reach the second issue. In reaching its determination that Pennsylvania public policy does not prohibit insurance coverage for sex trafficking claims, the court limited the impact of its decision in Minnesota Fire & Cas. Co. v. Greenfield, 855 A. 2d 854, 855 (Pa. 2004), which the RI Settlement opinion emphasized as having been an “Opinion Announcing Judgment of the Court” – or a plurality opinion. In Greenfield, the insured homeowner was sued by the estate of his houseguest who overdosed from heroin that he sold to her. The matter wound its way to the Supreme Court, which determined that the insurer did not owe a duty to defend or indemnify based upon Pennsylvania public policy, which criminalized the sale and use of heroin as a Schedule I narcotic. In RI Settlement, the court “decline[d] the invitation” to extend the rationale of the three-justice plurality in Greenfield beyond cases involving Schedule I controlled substances. In so holding, the justices in RI Settlement refused to “divine an overriding public policy pronouncement by the General Assembly by virtue of its enactment of the Human Trafficking Law.” The opinion further states that it is not “within the purview of this Court to rank the magnitude of the public policy underlying the various crimes defined in the Crimes Code. It is sufficient for the work of the courts to know that the General Assembly has identified conduct it deems harmful and dangerous to the maintenance of an orderly society and criminalized it.” While the court declined to declare that Pennsylvania public policy prohibits coverage for sex trafficking claims, the opinion in RI Settlement expressly states that insurers are free to include appropriate exclusionary language for such causes of actions in their policies if they desire to do so. It will certainly be interesting to see whether the insurance industry accepts the court’s invitation, or perhaps whether the Pennsylvania legislature steps in to clarify that sex trafficking claims are indeed of the type or magnitude that they should not be covered by insurance. In any event, we will, of course, continue to monitor this and other insurance coverage issues that arise before courts in Pennsylvania, New Jersey and throughout our firm’s geographic footprint and around the country.

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