Lawsuit: Re/Max brokerage owes $1M for agent who pocketed earnest money; Insurer won't defend

By Scott Holland | Oct 28, 2016

An insurance company has gone to federal court in hopes of proving it has no obligation to cover a suburban real estate brokerage against a lawsuit brought by a woman who has demanded the agency pay her more than $1 million for failing to stop an agent who worked at the brokerage from pocketing tens of thousands of dollars in earnest money. 

Connecticut-based Twin City Fire Insurance Company filed a complaint for declaratory judgment on Oct. 25 in federal court in Chicago. It argues it owes no insurance coverage obligations to Re/Max Northwest and Dorothy Ellis, the brokerage’s owner and managing broker, in a Cook County Circuit Court breach of contract lawsuit filed June 7. 

In that matter, Elzbieta Sofer, of Park Ridge, accused Re/Max Northwest agent Eva Kalembasa of pocketing a $40,000 down payment Sofer made for an $80,000 Chicago property and a $10,000 down payment for a $180,000 Park Ridge property. As part of that complaint, Sofer said Ellis did nothing to stop Kalembasa from “defrauding certain customers” of more than $2.5 million. 

Ellis, Sofer alleged, “failed to make any effort to determine what, if any, properties Eva Kalembasa was attempting to sell, what monies she had collected and if she put funds into an escrow account as required by various contracts and Illinois statute.” 

On account of emotional distress Sofer alleged she suffered over her loss of $50,000 — “which caused her to become nervous to such a degree that she required medical care and treatment and still requires medical care and treatment” — Sofer seeks judgment of more than $1 million in punitive and exemplary damages. 

According to Twin City’s complaint, Sofer contacted Re/Max about her earnest money on April 16, no more than three days after Re/Max heard allegations of Kalembasa’s conduct. Re/Max and Ellis notified Twin City of the issue via a May 2 letter. The Illinois Department of Financial and Professional Regulation filed a disciplinary complaint against Kalembasa, Re/Max and Ellis; the firm sent the complaint to Twin City the same day. 

Twin City cited the Real Estate Errors and Omissions Liability Policy and said it only obligates coverage for “damages” resulting from “a negligent act, error or omission in the rendering of or failure to render ‘professional real estate services,’ ” but said Sofer’s complaint includes no such claim. 

Further, Twin City said its policies don’t apply to claims’ — such as Sofer’s — “arising out of the inability or failure to pay, collect or safeguard funds held or to be held for others or any conversion, misappropriation, commingling or defalcation of funds or others property.’” 

Since Sofer is seeking punitive and exemplary damages, “which are not covered ‘damages’ under the policies or insurable under Illinois public policy,” Twin City said it owes no such coverage and asks the court to provide relief, including the costs of pursuing declaratory judgment. 

Twin City also argued it is covered by an issue of timing. The first claim, in April, fell under the 2015-2016 policy. Though the lawsuit was filed later, the acts date to April and therefore would not be eligible for coverage under the current 2016-2017 policy. Since Re/Max and Ellis were aware of Kalembasa’s conduct before the current policy took effect, Twin City argued it has protection under the current policy’s prior knowledge exclusion. Finally, Twin City invoked the known loss doctrine, using the same timeline argument. 

Representing Sofer in her complaint is attorney Edwin J. Belz, of Chicago. 

Twin City’s attorneys are Michael J. Duffy and Ashley L. Conaghan, of Wilson Elser Moskowitz Edelman & Dicker, of Chicago.

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Edwin J. Belz, Attorney at Law Wilson Elser Moskowitz Edelman and Dicker LLP

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