The California Association of Realtors® (CAR) is fighting back. Legislatively, that is. This year, CAR is initiating a series of legislative proposals that are intended to combat the rising costs and decreasing availability of Errors and Omissions (E&O) insurance.

The proposed legislation is not aimed at the insurance industry. Realtors® understand that the rising costs of premiums and the wariness of insurance carriers are neither isolated nor arbitrary phenomena. Rather, they are directly related to the number and nature of lawsuits filed against real estate brokers. Moreover, the Realtors® realize that litigiousness is not about to go away anytime soon in this Golden State that recently minted its 200,000th attorney.

The 2005 CAR legislative program is one part of a three-prong set of recommendations submitted to CAR directors last fall by a task force that had been appointed to review the situation regarding the costs and availability of E&O insurance. The task force recommendations also called for CAR to establish a panel of real estate defense attorneys who could provide recommendations and services to the association and its members. Additionally, task force recommendations were made regarding CAR-sponsored educational programs and CAR-produced standard forms and contracts.

Assembly Bill 323 (Gordon) is one of the first steps towards implementing the legislative program. In the words of the assembly's legislative analyst, "this bill would preclude the commencement of an action based upon the professional negligence of a licensed real estate broker or salesperson until the defendant has been given at least 60 days' prior notice of the intention to commence the action…"

The legislative analyst points out that the law already contains a similar provision with respect to health care providers. In their case, no lawsuit based on professional negligence may be commenced until the health care professional has had at least 90 days notice of the intention to file.

CAR's government affairs staff points out that, given the complexity and unique circumstances of each real estate transaction, it is often quite possible that the broker of a firm may be unaware of the possibility or likelihood that a claim is in the works. By requiring prior notice, "it will put the broker on notice of the possible action and its seriousness, and encourage the parties to settle the dispute prior to a lawsuit having to be filed."

AB 323 would not prevent any lawsuit from being filed. It would just guarantee brokers the opportunity to learn of a possible suit, and to attempt to deal with the situation, before incurring the expenses of a lawsuit. A CAR analysis also notes that this provision could be helpful to some potential claimants as well. That is, it is not uncommon for real estate lawsuits to be filed by attorneys who lack expertise in that particular area of law. Sometimes such suits wind up being dismissed for lack of merit, but not without first incurring expenses for both parties. A sixty-day notice and possible "discussion" period might help to avert such costs.

A couple of years ago, an extensive revision was made to the California civil code (sections 895 - 945.5) regarding new home construction standards and the filing of construction defect lawsuits. A good part of that revision had the same aim as does this legislation. Prior to the filing of a suit, the potential defendant is to be given an opportunity to learn of the complaint and to try to rectify the situation. In both cases, the intended beneficial effect is to unclog the courts and to reduce legal expenses. Not a bad idea, and one that could help to reduce insurance costs as well.

AB 323 is scheduled to be heard by the Assembly Judiciary Committee on April 5. CAR has encouraged Realtors® in districts represented by committee members to urge their legislators to vote in its favor. This is one of the first tests of the new CAR legislative program.

It won't be the last.