In Hawaii, real estate brokers and agents must adhere to record-keeping regulations set forth by the Hawaii Real Estate Commission. While Hawaii laws do not specifically reference text messages, the requirement to retain "communications" and transaction-related records may extend to text messages if they contain relevant information. Here’s a summary of Hawaii’s record retention laws and how they might apply to text messages:

1. Record Retention Requirements: According to Hawaii Revised Statutes § 467-30 and the Hawaii Real Estate Commission’s regulations, brokers must retain transaction records for at least three years from the transaction’s conclusion. This includes contracts, agreements, correspondence, disclosures, and any other documents that are material to the transaction.

2. Inclusion of Text Messages: Although not explicitly mentioned, Hawaii law requires brokers to retain “correspondence” and “communications” that are relevant to a transaction. Therefore, if a text message contains essential transaction details—such as offers, negotiations, client instructions, or changes to agreements—it should be treated as part of the official record.

3. Electronic Communication: Hawaii’s laws and regulations generally include “electronic communications” in the retention requirement, which typically applies to emails and could extend to text messages if they contain material transaction information. Brokers should consider archiving relevant text messages as part of their transaction records.

4. Method of Archiving: Hawaii does not prescribe a specific method for storing electronic communications, but it requires that records be accessible and retrievable for the retention period. Brokers may archive text messages by printing them, saving them digitally, or using electronic storage solutions that allow for secure, organized storage and easy retrieval.

5. Consequences of Non-Compliance: Failure to retain required records, including relevant electronic communications, may result in disciplinary actions from the Hawaii Real Estate Commission, which could include fines, suspension, or revocation of the broker’s license.

Summary

In Hawaii, real estate brokers should retain text messages containing material information related to a transaction as part of their required records. These records must be preserved for a minimum of three years in a format that ensures accessibility. Including pertinent text messages in retention practices helps brokers comply with Hawaii’s record-keeping requirements.

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E&O Risk

The risk to a brokerage concerning errors and omissions (E&O) insurance in relation to record retention of text messages and electronic communications is significant. E&O insurance generally provides protection against claims of negligence, misrepresentation, and failure to perform duties as expected. If a brokerage fails to archive important communications—including text messages—that document critical aspects of a real estate transaction, it can expose the brokerage to increased liability, and E&O insurance may not fully cover the consequences in certain situations. Here are key risks and considerations:

1. Potential for Gaps in Transaction Records:

   • If a brokerage does not properly archive text messages that contain vital transaction information (such as offers, counteroffers, client instructions, or contract amendments), it may create gaps in the documentation of a transaction. In a dispute, the absence of these records can weaken the brokerage's ability to defend itself and may lead to claims that cannot be fully supported or disproven.

   • If critical communications are missing, clients may allege that the brokerage acted negligently or misrepresented information, and E&O insurance may not cover claims if the brokerage did not follow industry standards for record-keeping.

2. Violation of Regulatory Requirements:

   • Most states have regulations that require brokers to retain all material records for specific periods. Failing to comply with these record-keeping regulations can lead to regulatory penalties and disciplinary actions by the state real estate commission.

   • E&O insurance often does not cover regulatory fines or penalties, meaning that the brokerage could be solely responsible for any costs incurred as a result of non-compliance.

3. Increased Likelihood of Claims Due to Incomplete Communication Records:

   • In the absence of complete and accessible records, brokerages may face higher risks of claims alleging failure to disclose, miscommunication, or misunderstanding of terms. This is particularly relevant in real estate transactions where documentation of all communications is critical to resolving any disputes that arise.

   • Without comprehensive records (including relevant text messages), brokerages may struggle to prove they acted appropriately, which can lead to larger settlements or judgments that may impact their E&O policy premiums or insurability.

4. Possible E&O Policy Exclusions:

   • Many E&O policies have exclusions related to "known wrongful acts" or "acts of intentional non-compliance." If a brokerage knowingly neglects to retain necessary records, or if record-keeping negligence is proven, E&O coverage may be limited or denied for claims resulting from this oversight.

   • Insurers may consider a failure to retain legally required records as an act outside the scope of covered professional services, thus potentially excluding coverage for claims related to missing documentation.

5. Impact on Policy Renewals and Premiums:

   • Repeated or severe claims arising from record-keeping issues can impact the brokerage's insurance premiums, making it more expensive to maintain E&O coverage.

   • If a pattern of poor documentation or non-compliance with record retention is identified, an E&O insurer may choose not to renew a brokerage's policy, forcing the brokerage to seek other (potentially more costly) insurance options.

6. Defensibility in Claims Situations:

   • Retaining text messages and other communications can be crucial in defending against claims. For instance, if a client claims that a certain promise or representation was made, well-kept records can help demonstrate what was actually communicated.

   • Without archived text messages, a brokerage may have to rely solely on testimony, which may not be as persuasive as contemporaneous written records in legal proceedings.

Risk Mitigation Strategies for Brokerages

To mitigate these risks, brokerages should:

• Establish a clear policy for retaining all relevant electronic communications, including text messages, emails, and digital correspondence, and ensure all agents are trained to comply.

• Invest in archiving technology that captures and stores electronic communications in a secure, accessible, and compliant manner.

• Regularly audit compliance with record-keeping policies to ensure agents are properly retaining required communications and that records are easily retrievable.

• Work closely with E&O providers to understand the requirements and best practices for documentation to ensure comprehensive coverage.

By maintaining thorough, organized records of all communications, including text messages, a brokerage can better protect itself against claims, demonstrate regulatory compliance, and strengthen its defensibility if claims arise, thereby optimizing its E&O insurance coverage and reducing the risk of adverse financial consequences.