Risk, Its Place in the Home Inspection Industry and How to Combat It

The recent earthquake that hit near Japan set me to thinking about emergency preparedness in general and disaster-preparedness, in particular. The earthquake-prone nation is being widely praised for the strength of its building codes which contemplate the need for buildings to be able to withstand these inevitable periodic massive shocks to their structural integrity. And by all accounts, all things considered, the minimal damage that was sustained by buildings in cities closest to the epicenter of the huge quake has vindicated the decision to implement those precautions.

Where I live, we seldom experience earthquakes, a fact that prompted the actor David Morse [St. Elsewhere] to move here with his Philly-born wife, after an earthquake destroyed their family home in California in 1994. And the ones we do experience tend to be at the lower end of the Richter Scale. I personally have never experienced one and apparently slept through one that took place here in the early ‘70s.

We do get our share of capricious weather, however – Nor’easters, blizzards, hurricanes and the occasional tornado – for which you do have to be prepared. As President Kennedy sagely observed, “The time to fix the roof is when the sun is shining.” The time to plan for disaster is before disaster strikes.

Risk management is the workman-like name that economists give to this hedging science. Most major corporations have entire departments devoted solely to minimizing the shock to earnings that might ensue, should some identifiable risk eventuate. And many of their techniques for doing so are quite sophisticated. Airlines, for example, hedge against spikes in the price of oil, a major component of their cost structure, by playing the oil futures market and thereby reducing the risk.

That is one of the four generally recognized methods of managing risk: risk reduction. The other methods are: avoiding the risk altogether, transferring it to another party and risk retention or accepting the risk. Home inspectors engage in all four of these strategies.

Many home inspectors will not perform certain types of inspections: pool inspections, for example, or termite inspections, or for certain kinds of clients: lawyers come to mind for some reason, thus avoiding that particular risk. Others purchase insurance with various deductibles, thus both transferring and reducing the risk at the same time. A tremendous number of inspectors – maybe even a majority – simply retain the risk, relying on their acknowledged skill and, perhaps, over-relying on the strength and enforceability of their inspection agreements to protect them.

The problem with the home inspection industry, of course, is that no matter what an inspector does, no matter how thorough he is, no matter how painstakingly she identifies and accurately reports issues, no matter how thoroughly and appropriately he disclaims responsibility for certain inaccessible systems, the home inspector is simply too tempting a target for that scapegoating troika: the client, the real estate agent and the repairman, all of whom have vested interests in getting the inspector to pay for needed repairs.

The good news is, as I have pointed out quite often elsewhere on this site, is that these generally ludicrous claims are eminently defensible. The bad news is that, if the inspectors who come to the Law and Disorder seminar can be credited, no one is all that enthusiastic about defending them. Especially, if it’s going to cost, you know, more than the deductible.

And that is the problem that I have identified with the home inspector E & O insurance market place and a major reason why so many inspectors are willing to take their chances going it alone. And who can blame them? If the insurer is not going to actively resist ridiculous claims, why bother having insurance? Better to set the money aside and conduct your own defense if the time comes.

Fortunately, there is now a better way. My success rate at terminating these claims aborning attracted the attention of a major insurance broker who completely supports and endorses my approach to claim containment and incorporated that approach into the E & O program that it designed for home inspectors. For more information and a quote call 800-803-9552 or visit http://inspectors.locktonaffinity.com.