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Legal Updates for Real Estate E&O Liability

Limiting Agent Liability in Pennsylvania: Knowledge, Reliance, and the E&O Landscape

May 7, 2026

by Carly P. Edman

Errors & Omissions (E&O) claims against real estate professionals in Pennsylvania frequently arise from allegations of nondisclosure or misrepresentation. However, Pennsylvania law provides meaningful guardrails for defense counsel, particularly where plaintiffs attempt to impose duties on agents that exceed statutory and common law obligations. A key principle, often dispositive at summary judgment, is that a seller’s agent does not owe an independent duty to investigate or discover latent defects.

Under Pennsylvania law, a real estate agent representing a seller is not required to inspect the property for defects or to disclose conditions of which the agent has no knowledge. This principle aligns with the statutory framework governing licensee conduct, including the Real Estate Licensing and Registration Act (RELRA), which imposes duties of honesty and good faith, but does not create an affirmative obligation to uncover unknown defects. As a result, liability exposure in E&O claims often turns on whether the agent had actual knowledge of the alleged defect and whether the buyer’s reliance was justifiable.

The Gordon v. McManus decision illustrates these principles in practice and remains a useful tool for defense practitioners. No. 972 EDA 2013, 2014 WL 10917627, at 3 (Pa. Super. Ct. June 30, 2014). In Gordon, the plaintiffs asserted claims for fraudulent misrepresentation and fraudulent inducement against real estate agents, alleging that the agents were aware of a recurring water infiltration issue and failed to disclose it. The plaintiffs further contended that the agents negligently misrepresented the condition of the property when questioned directly about potential water issues.

The factual record, however, undermined these claims. The defendant agents maintained that they had no knowledge of any water infiltration problem. Critically, the plaintiffs had been informed by a neighbor that the basement had flooded on multiple occasions prior to closing. They also conducted their own inspection of the property and observed conditions – including the presence of a sump pump – that could reasonably signal potential water concerns. Despite these indicators, the plaintiffs did not pursue additional investigation or specialized inspection.

The Superior Court affirmed summary judgment in favor of the agents, emphasizing two key points that frequently arise in E&O defense. First, the absence of actual knowledge was fatal to the plaintiffs’ fraud claims. Without evidence that the agents knew of the defect, there could be no intentional misrepresentation or concealment. Second, and equally important, the court found that the plaintiffs’ reliance was not justifiable. Having been placed on notice of potential water issues, the plaintiffs failed to exercise reasonable diligence in investigating the condition. Pennsylvania courts have consistently held that where a buyer is aware of facts that would prompt further inquiry, reliance on generalized or informal assurances is insufficient to sustain a fraud claim.

The Gordon court also disposed of the plaintiffs’ claim under the Pennsylvania Unfair Trade Practices and Consumer Protection Law, reinforcing that such statutory claims cannot survive where the underlying fraud theory fails. For defense counsel, this linkage provides an additional pathway to narrow or eliminate exposure early in litigation.

From an E&O perspective, Gordon highlights several recurring themes. Plaintiffs frequently attempt to recast nondisclosure claims as affirmative misrepresentation, particularly where there are informal communications between agents and buyers. Yet, absent proof of knowledge, these claims often collapse under scrutiny. Moreover, the decision underscores the importance of the buyer’s own conduct. Evidence that a buyer received notice of a potential defect, whether through third parties, inspection findings, or observable conditions, can significantly weaken claims of justifiable reliance.

Practically, this framework offers clear guidance for both litigators and real estate professionals. For defense attorneys, early case assessment should focus on developing the evidentiary record regarding the agent’s knowledge and the buyer’s pre-closing awareness. For agents and brokers, risk mitigation remains centered on disciplined communication practices and encouraging independent inspections without offering definitive assurances about property conditions.

Ultimately, while E&O claims in Pennsylvania continue to test the boundaries of agent liability, decisions like Gordon reaffirm a consistent judicial approach: liability cannot be imposed where knowledge is absent and reliance is unreasonable. In an environment where plaintiffs increasingly rely on hindsight to construct claims, these principles remain a critical line of defense.

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Florida Supreme Court Rules Florida Statute §627.70152 Does not Apply Retroactively

In a decision that resolves years of appellate uncertainty and confirms that insurers and insureds alike can rely on the legal framework in place when a policy is issued, the Supreme Court of Florida last week found that Florida Statute §627.70152, which involves an insured’s requirement to provide an insurer with pre-suit notice before filing a suit, cannot be applied retroactively. In Universal Property & Casualty Insurance Company v. Hughes, the Court was presented with the issue of whether the statutory pre-suit notice requirement applied retroactively and whether it would apply to a breach of contract of an insurance policy that was issued before the statute went into effect. Before the Court was an appeal from a homeowner, Ms. Hughes, who sued her insurance carrier, Universal Property & Casualty Insurance Company (Universal) for breach of contract under an insurance policy that was in effect from April 24, 2019 through April 24, 2020. During the policy period, Ms. Hughes suffered a loss and, on May 29, 2019, made a claim for water damage. The carrier investigated the loss and issued payment; Ms. Hughes disputed the payment, finding the amount insufficient for repairs. On July 1, 2021, Florida Statute §627.70152 went into effect, which required insureds to provide notice of intent to initiate litigation against the carrier prior to filing a lawsuit; if an insured filed the lawsuit without complying with §627.70152, a court must dismiss the case without prejudice. On August 4, 2021, Ms. Hughes filed her lawsuit against Universal for breach of contract. Universal moved to dismiss based on her failure to comply with §627.70152. Ms. Hughes contended the notice requirement could not be applied retroactively. The trial court disagreed and dismissed the lawsuit without prejudice, and Ms. Hughes appealed. During the appeal, the Fourth District Court of Appeal, in Cole v. Universal Property & Casualty, 363 So. 3d 1089 (Fla. 4th DCA 2023), ruled that Florida Statute §627.70152 did apply retroactively to policies issued before the effective date of §627.70152. However, the Sixth District Court agreed with Ms. Hughes and overturned the trial court’s ruling, finding the statute could not retroactively apply to policies issued prior to the statute effective date. Thereafter, the other district courts weighed in, with the Third District Court agreeing with the Fourth District Court, and the First, Second and Fifth District Courts agreeing with the Sixth District Court. In resolving the conflict amongst the district courts, the Supreme Court advised “as a general rule, ‘the statute in effect at the time an insurance contract is executed governs substantive issues arising in connection with that contract.’ Hassen v. State Farm Mut. Auto. Ins. Co., 674 So. 2d 106, 108 (Fla. 1996). The Court applied the two-step test when deciding whether a statute has retroactive application: “First, the Court must ascertain whether the Legislature intended for the statute to apply retroactively. Second, if such an intent is clearly expressed, the Court must determine whether retroactive application would violate any constitutional principles.” Menendez v. Progressive Exp. Ins. Co., 35 So. 3d 873, 877 (Fla. 2010). In analyzing the Legislature’s intent, the Court must determine whether the Legislature has manifested a clear command for retroactivity in the statutory text.  In review of the statutory text, the Court found nothing in the language of the statute to indicate that the phrase “all suits” was serving another purpose of expanding its reach to suits based on policies that both predate and postdate the enactment of the statute. Buis v. Universal Prop. & Cas. Ins. Co., 394 So. 3d 738, 741 (Fla. 2d DCA 2024). Further, the Court noted the statute has an effective date, which has long been considered to be evidence against retroactive application of a statute. The Court concluded that, on its face, no provision of §627.70152 speaks to application of the statute to insurance policies issued before the statute’s effective date and therefore, the Legislature did not clearly command retroactivity of the statute to include insurance policies issued prior to the enactment of the statute. The Court briefly reviewed Universal’s argument that the presuit notice requirement was procedural, not substantive, and therefore should be applied retroactively; however, the Court agreed with the Sixth District Court’s finding that, in its entirety, §627.70152 transformed an insured’s ability to sue an insurance company under a property insurance policy and an insurer’s obligations to respond to and pay insurance claims, thus making the requirement a substantive change. The Court thereby upheld the decision of the Sixth District and disapproved the decision of the Fourth District in Cole.

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Complete Victory Obtained in a Workers’ Compensation Matter

Result

Complete Victory Obtained in a Workers’ Compensation Matter

Thought Leadership

Commonwealth Court Reaffirms the Constitutionality of Act 111's IRE Provisions

In this case, the claimant sustained a work injury of January 6, 1994, which was acknowledged by Notice of Compensation Payable (NCP). After the claimant’s receipt of 104 weeks of temporary total disability benefits, the employer filed a Request for an Impairment Rating Examination (IRE). The IRE was performed in May 2023 and the IRE physician found that the claimant had a 5% whole person impairment, under the AMA Guides. The employer filed a Petition based on the IRE results, and the Petition was granted by the WCJ. During litigation, the claimant argued that the IRE provisions of Act 111 (Section 306(a.3) of the Act) were not applicable to her injury, since it predated June 24, 1996, the date Act 57 went into effect, and that the IRE provisions were unconstitutional. The Workers’ Compensation Judge (WCJ)) granted the Petition and the Board affirmed. On appeal to the Commonwealth Court, the claimant argued that Act 111 violated the nondelegation doctrine and that its retroactive application to the claimant’s injury was unconstitutional. The court rejected the arguments on the basis that they had already found the same arguments without merit in multiple, prior cases. The court also addressed an argument made by the claimant that Act 111 was procedurally defective under the Pennsylvania Constitution because it was only considered on two days in each House after having undergone amendments and reassignments. The court noted that the Pennsylvania Constitution requires every bill to be considered on three different days in each House. The claimant maintained that, according to the legislative history, the bill did not receive three separate days of consideration from each House when it was assigned a new bill number. The court pointed out, however, that the bill number, H.B. 1840 remained constant and was considered on three occasions by the House. Further, the court concluded that minor amendments to the bill were germane to its original subject, which was to modify the Act’s IRE process, in accordance with Protz II.

Thought Leadership

The Tolling Trap: Filing Alone Will Not Toll the Statute Without Good-Faith Service

The Eastern District of Pennsylvania recently reinforced a critical limitation on bad faith claims, holding that a timely filing alone will not preserve a cause of action absent a good-faith effort to serve the original process. The plaintiff had presented a claim for underinsured motorist benefits to his auto insurer. The insurer evaluated the claim and determined that the plaintiff’s accident-related damages did not exceed the bodily injury liability insurance limits of the at-fault driver and denied his claim. Among other claims, the plaintiff sought to present a claim for insurance bad faith under 42 Pa. C.S.A. § 8371, to which a two year statute of limitation applies. He first filed a praecipe for writ of summons before the expiration of the statute of limitation. However, the plaintiff did not attempt to serve the praecipe or writ until after the statute of limitations had expired. Additionally, the service failed as the plaintiff had mailed the original process to an incorrect address. Despite receipt of the Postal Service’s failure to deliver the original process, the plaintiff did not attempt to re-serve the writ. Two months later, the plaintiff filed a complaint and then successfully served that complaint. The insurer sought to dismiss the plaintiff’s bad faith claim as time-barred by the statute of limitations. The district court agreed. Though the plaintiff had filed a praecipe for a writ of summons prior to the expiration of the statute of limitations, the statute is only tolled if there is a good faith effort to serve that original process. In this case, the court determined that the plaintiff had failed to perform a “good faith effort to serve the original process”. Additionally, though the filing and service of a complaint can serve as alternative original process when the lawsuit is commenced by the filing of a praecipe for a writ of summons, the plaintiff filed his complaint after the statute of limitations had expired. The plaintiff’s bad faith claim was therefore determined to be barred by the statute of limitations and dismissed by the court, with prejudice. A key takeaway for the defense is not to assume that the statute of limitations has been successfully tolled by a plaintiff merely because a praecipe for a writ of summons or complaint has been filed prior to the expiration of the statute. A filed complaint or writ is only part of the equation. The defense should carefully review the docket and filings to confirm that the plaintiff also performed the requisite good faith effort to serve that original process. A thorough review of the docket may reveal that the plaintiff failed to make the good-faith service efforts necessary to toll the statute of limitations.

Defense Victory Obtained in Workers’ Compensation Case

Result

Defense Victory Obtained in Workers’ Compensation Case

Marshall Dennehey Named a Standout in Litigation by BTI Consulting Group

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Marshall Dennehey Named a Standout in Litigation by BTI Consulting Group

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CLM 2026 Focus Conference

Allison joins three insurance industry leaders to discuss how cyber coverage disputes, the growing impact of social inflation on bodily injury claim valuation, and the use of artificial intelligence are reshaping the bad faith landscape. The panel will examine emerging sources of extra-contractual exposure, including evolving cyber insurance coverage issues and the challenges of accurately valuing bodily injury claims. Practical approaches to claim evaluation using AI, along with defense strategies designed to help prevent or successfully defend against bad faith litigation, will also be addressed. 

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Result

Summary Judgment Obtained in Insurance Coverage Case