Liability means that a party can be held responsible if a service is not provided. In real estate, all parties involved in a sale must purchase liability insurance to protect themselves from the risk of a deal gone bad. There are many reasons that a real estate sale can fail, even after an agreement has been signed. These include the buyer’s bankruptcy, an act of God damaging the property, an agent perpetrating fraud, or a seller’s malfeasance. Liability insurance is designed to protect the insured in the event of a failed sale, so that he will not be held liable for the financial loss. The insurance provider has an obligation to defend the insured party in the event of a lawsuit. The alternatives are for the insurance company either to contest the suit or to seek a settlement.
