When Should You Report A Home Inspection Claim?

This blog generates a lot of email from home inspectors. Recently, a home inspector wrote that he had been given a heads-up from a real estate agent with whom he has an active business relationship that a former client was getting ready to initiate the claim process against everyone involved in the transaction. Though he had not heard anything directly from the former client, the agent told him that the claim concerned cracks in front brick wall and that a structural engineer had opined that the house is three inches off level and – altogether now! – “the home inspector should have reported” a tiny caulk bead at the corner mortar joint.

So the inspector stopped by the home and took photos of the “cracks” which do not appear on the original inspection photos. Moreover, the inspection took place more than a year ago and the inspection agreement has a one-year limitation period on claims. Case closed, right?

Wrong.

Even though this is the sort of claim that I routinely neutralize with a responsive letter, after ascertaining the name of his E & O carrier, a major player in the E and O insurance for home inspector’s market, and the renewal date of his insurance, two months hence, I advised him to notify his insurance carrier of this impending claim. Here’s why.

The insuring agreement in Professional Liability Insurance policies generally provides that the insurance will respond to claims “first made against the Insured during the Policy Period and reported during the policy period”. “Made” and “reported” are the operative words.

If he notifies his insurance carrier now, then that company is on the claim no matter when the other shoe drops. Even if it happens after his insurance policy expires. If he wants to change E and O home inspector insurance carriers at renewal, he can do so with impunity.

If he had not reported the original notification from the real estate agent to his current insurance carrier and he wished to change E & O carriers at renewal, he would have to disclose any potential claim of which he was aware to the new carrier which would almost certainly exclude coverage for that claim.

So, I always advise: If in doubt, report. In writing, of course.