Myth # 2 The Limitation of Liability Clause Is the Greatest Thing Since Night Baseball

There is absolutely nothing that a home inspector likes better than limiting her liability. And there is nothing that limits a home inspector’s ability to make money more than clinging to this completely unnecessary clause that is way past its sell-by date.

Home inspectors love limitation of liability clauses – also known as exculpatory clauses – because, in the majority of US jurisdictions, they are routinely enforced on freedom-of-contract grounds and, thus, effectively put a cap on the inspector’s potential liability to her client for professional negligence. Indeed, every home inspector association and every home inspector franchisor actively encourage their members and franchisees to embrace this evolutionary holdover. And you would be hard pressed to find a home inspector forum whose contributors do not wax enthusiastic about the preternatural cleverness of their personal attorneys who counseled them to include such a clause in their pre-inspection agreements.

One problem with exculpatory clauses, of course, is that they also put a cap on the inspector’s earning potential. What sophisticated purchaser, in her right mind, would hire a professional home inspector who limited her liability? That’s a rhetorical question that answers itself. The sophisticated consumer will pay hundreds of dollars more to secure the services of an inspector who does not limit her liability – and makes the point in her marketing material that, unlike her lowball competition, she stands behind her inspection reports.

The other problem with exculpatory clauses is that the “protection” that they provide is in no small measure illusory. They do not prevent clients from suing home inspectors, in the first instance and – far more insidiously – they provide absolutely no protection from the contribution and indemnity claims of co-defendants. Since lawsuits that stem from a residential real estate transaction gone awry invariably implicate multiple defendants, a home inspector who substitutes an exculpatory clause for professional liability insurance may find herself in considerable financial peril, not from her client but from her co-defendants. As one court that considered the issue put it, “Indeed, it would be patently unfair to abrogate the [other] defendants’ right to contribution based on an exculpatory clause to which it [sic] was not a party.” Sommer v. Federal Signal Corporation, 79 N.Y.2d 540, 593 N.E.2d 1365, 583 N.Y.S.2d 957 (1992).

Finally, the clauses are completely unnecessary since the overwhelming majority – over ninety-nine percent in my experience – of home inspection claims have no validity whatsoever and are eminently defensible.

So, to recap, the exculpatory clause provides extremely limited “protection” from clients only, lulls inspectors into a false sense of security and renders the skilled and experienced inspector indistinguishable from the inexperienced lowballers that plague the industry. And on top of all that is completely unnecessary.

What’s not to like about that?! This is a valuable piece of home inspector training.