Are insurance claims material facts?

QUESTION: I have a listing that is under contract. The buyer’s due diligence period has not expired. The buyer’s agent just told me that, as part of her client’s due diligence investigation, the buyer learned that the cost of insurance for the property will be double the “normal” rate because the seller has made a number of large insurance claims over the past few years. The buyer’s agent claims that the existence of these claims was a material fact that should have been disclosed prior to the parties going under contract. Is she right?

ANSWER: Possibly. The Real Estate Commission published some guidance on this issue in its course materials for the 2008-2009 Update Course. In those materials, the Commission asked: is it a material fact that the current owner does not have a homeowner’s insurance policy. The Commission’s answer: it depends on why there is no insurance. If the property is insurable, but the seller chose for whatever reason not to purchase insurance, the absence of insurance would not be a material fact. Conversely, the Commission wrote: “If the property is uninsurable, or is insurable only at exceptionally high rates, then yes, that is a material fact which must be affirmatively disclosed to all prospective purchasers.”

This guidance means that the duty to disclose prior insurance claims will have to be determined on a case-by-case basis. Clearly, insurance claims come in all sizes. Not all claims will cause an insurance company to insist on an exceptionally high rate to provide future insurance. When taking a listing, the listing agent should ask the seller about any recent insurance claims. If one or more substantial claims have been made, the listing agent should disclose that fact to all interested buyers.

Buyer agents can avoid a problem by asking the listing agent about insurance claims prior to submitting an offer. They can also request what is known as a CLUE report from the listing agent. CLUE is shorthand for Comprehensive Loss Underwriting Exchange. CLUE reports contain detailed information regarding homeowner insurance claims on a particular property within the past seven years. An excellent article about CLUE reports can be found on the NAR website here. While real estate agents and buyers cannot access CLUE reports for properties they are interested in, they can ask the seller for a copy, and can make a buyer’s offer contingent on a clean CLUE report.

Release Date: 6/5/2025

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