If You Have ClaimIntercept™, Do You Still Need E & O Insurance?

A home inspector recently asked me a question that I suspect has crossed the minds of a lot of home inspectors who regularly visit this website. “If I have ClaimIntercept™,” he asked, “do I still need to have E and O Insurance for Home Inspectors?”

He has been an inspector for several years and has conducted a couple of thousand inspections. When he started out as an inspector, he owned a home inspection franchise and the franchise agreement required him to carry professional liability insurance. When he parted company with the franchisor a few years ago, he dropped the E and O insurance because he felt that it only protected the client, not the inspector.

That is a very common sentiment among home inspectors, almost all of whom have either personally had a bad claim experience with a professional liability carrier or have a close colleague who has. Interestingly, the bad experience almost never involves the insurer’s failure to pay a legitimate claim. Rather, it predominantly involves insurers who, in inspectors’ minds, seem to have adopted a default posture of settling illegitimate claims rather than aggressively defending them. There is certainly no shortage of anecdotal evidence on home inspector message boards to support this widely-held belief.

When I was an executive in the insurance industry some years ago, one day several of us were conferring on a claim that had just come in. A twenty-something year-old member of the claim department said “Well, that’s why we’re in business!” To pay claims, he meant. One of my more seasoned colleagues corrected him thus: “No. That’s how we’re in business.” In other words, we were in business because people had claims, not because we were necessarily going to pay them. We were in business to make money, not to lose money by scoring a lot of Pyrrhic victories.

And that is the sentiment that informs the claims approach of professional liability insurers. Once a claim is filed with a home inspector insurance carrier, job one is to determine if there is coverage for the claim. If not, tough darts. You lose. If so, then the insurer has a duty to defend you, that is a duty to pay for legal counsel, if necessary, and to indemnify you, that is pay damages that you may be legally obligated to pay pursuant to the claim.

Please understand, however, that the insurer does not have a duty to commit suicide. It does not have a duty to spend a penny more to resolve a claim than absolutely necessary. And that is the reason that an insurer will often settle illegitimate claims, if it determines that defending them would be much more expensive.

It is also the reason that insurers will hold off on hiring insurance defense counsel until absolutely necessary because once defense counsel are engaged, the insurer effectively loses all control over costs. And because defense counsel are paid based on the amount of time spent on a file, their incentive to efficiently resolve matters is essentially non-existent.

And that is why home inspectors and one insurance company (Lockton Affinity) have so enthusiastically embraced ClaimIntercept™. Because my interests, the inspectors’ interests and the insurer’s interests are perfectly aligned: to totally neutralize the claim ab initio, so it never becomes a lawsuit and never gets anywhere near defense counsel whose incentives are exactly opposite.

So to answer the inspector’s question, ClaimIntercept™ and E & O Insurance are completely separate products that resolve separate problems. You can have ClaimIntercept™ without having E & O Insurance and vice versa. And while, I would never counsel anyone in this industry to operate without E & O Insurance, ClaimIntercept™, given its time-tested efficacy, is a product every home inspector should seriously consider having, whether or not he or she has E and O Insurance for home inspectors.