Joe Ferry’s Home Inspector Training Blog

Managing Risk with E&O Insurance for Home Inspectors

A home inspector in Texas recently asked me via email what I thought “about the efforts to have the Texas Inspector E & O mandate rescinded” which was my first notice that such an effort was afoot. Evidently the Texas Professional Real Estate Inspection Association (“TPREIA”) had succeeded in having a bill to do just that introduced into the Texas Legislature.

Anyone who has been “stalking me,” as one HI who recently connected with me on LinkedIn put it, for any length of time surely knows that I am no fan of government mandates. In general. So, bully for TPREIA for taking the laboring oar on an issue that is a major concern to its membership.

Should home inspectors protect themselves from their nutty clients? Of course. And only those who are nuttier than their clients do not take some protective measures: tightening their pre-inspection agreements, contractually limiting their maximum monetary exposure [where permitted, of course, as many jurisdictions do not allow this], issuing short-term warranties, friending the Home Inspector Lawyer, and purchasing errors and omissions insurance for home inspectors.
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5 Steps to a Good Night’s Sleep and Higher Inspection Fees

The number one complaint that I get from Home Inspectors on the home inspector training Law and Disorder Tour is about E & O Insurance companies for home inspectors. Their perceived default claim posture of caving in and paying unmeritorious claims – usually with a hefty contribution from the inspector pursuant to the deductible feature of the insurance policy – sends inspectors over the edge. And justifiably so, in my opinion.

Having quashed over 200 claims at the demand-letter stage in the last four-and-a-half years – and several more where the first notice of claim was an actual lawsuit – I am confident that I have solved that problem – at least for those insured under the Lockton Affinity E & O Program described elsewhere on this site.
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Bonds are NOT a Form of E&O Insurance for Home Inspectors

Reader Martin Greenberg brought up a good point in a comment on my recent post “The Importance of E & O Insurance for Home Inspectors.”

“In the state of Arizona,” he wrote, “the licensing bureau offers a choice. E & O coverage or post a bond. Since few inspectors are successfully sued and plaintiffs rarely win more than a few thousand dollars, bonds make sense. However, the inspector is ultimately responsible for paying the claim in the event a plaintiff is successful.”

A number of states that require a license to perform home inspections also require that Home Inspectors carry Errors and Omissions Insurance for home inspectors in certain minimum amounts as a condition of licensure. The intent is to assure that the inspector will be able to respond financially in the event that her negligence causes harm to one or more of her clients. A handful of states allow Home Inspectors to fulfill their financial responsibility requirement by securing a surety bond.
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Brand X Insurance Companies Can Be Hazardous To Your Wealth

As I was writing that headline, the thought struck me that many readers might not be familiar with the Mad Men-era advertising invention. For those benighted youngsters, in ubiquitous television commercials of the day, Brand X was the competing product that left ring around the collar, caused soapy buildup and dry lifeless hair. In real life, Brand X E and O Insurance Companies for home inspectors are ones that can cost you a small fortune.

A veteran home inspector recently called me about a claim that he had only the day before turned into his insurance company. He advised the company that he wanted to engage his own attorney to respond to the claim. The company told him not to do that; that it would handle the claimant. That, the inspector told me, was what he was afraid of.

The claim, of course. was completely ridiculous and involved the inspector’s alleged failure to advise the claimant that the supports for an elevated deck were inadequate. By the time that the claimant notified the inspector of the issue, she had already completed the “repairs”.
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Home Inspector Attorney Fees Clauses and Their Value

As I mentioned a few weeks ago, I am in my twenty-fifth year of practicing law, the last five of which have been heavily concentrated on the representation of home inspectors. Over the years, close to 1500 inspectors have attended my home inspector training at the Law and Disorder Seminar, which itself has undergone major revisions as I have continued to develop defense strategies and techniques in response to the large volume of claims that home inspectors are continually asking me to help neutralize.

My experience handling claims against home inspectors has caused me to completely reverse my position respecting provisions in Inspection Contracts that call for the prevailing party in disputes arising from the home inspection to be awarded its attorneys fees. The so-called American Rule is that each party to litigation is responsible for its own attorneys fees. The British Rule is that the prevailing party is awarded its attorneys fees.
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You Don’t Need A Weatherman To See Which Way The Wind Is Blowing

A couple of home inspectors in West Virginia recently alerted me to a hot-off-the-presses West Virginia Supreme Court decision that invalidates Limitation of Liability clauses in home inspection pre-inspection agreements. The case, Finch v. Inspectech, LLC, No. 11-0276 (W.Va 2012) can be found here.

The Court’s reasoning, which I found quite compelling, was that the State licenses home inspectors and prescribes a Standard of Practice for the precise purpose of protecting lay consumers from incompetent providers. Thus, contractual provisions that purport to limit that protection thwart the legislation’s intent and are, thus, contrary to the public policy of the state and unenforceable.
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Don’t Get Caught in Pre-Sale Inspections Trap

Pre-Sale Inspection Trap - Tip 34Sellers are encouraged to obtain home inspections prior to listing their house for sale.

That said, home inspectors MUST be aware of exposing themselves to liability to non-client third parties.

Home inspectors run into problems when someone with whom the home inspector does not have a contract claims to have been warned by the alleged negligence of the home inspector.

In this week’s video tip, I discuss why home inspectors like you should not get caught in the pre-sale inspection trap, illustrate how you can avoid it and detail an example from a case I recently handled.

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Store Your Home Inspection Reports in The Cloud

A home inspector recently asked me, “Joe, how long should I keep my inspection reports?”

Home Inspection Report StorageInstead of using a lot of paper, rely on an electronic version for your own records. There are various free electronic storage options that are beneficial to home inspectors, who are looking to store 250-plus inspection reports, along with corresponding photographs.

I look at these storage options and the benefit of using electronic storage in this week’s video blog.
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Clarifications

When I was studying calculus in college, I thought that the text book that we used belabored a lot of points that seemed obvious to me. The book would take three or four steps to illustrate some mathematical operations that the professor would illustrate in one or two. I found this disconnect a bit annoying until a classmate explained that the author of the text could not know in advance how versed a potential reader might be in mathematical arcana so, of necessity, he would have to over-explain concepts so as not to shortchange or frustrate large segments of his readership.

I recently had occasion to recall that episode when I received an email from a home inspector that read as follows:

“I have a client making a claim and am not currently covered by an E&O policy. Are you able to assist? Does one already have to be a member of ClaimIntercept™ to use your services?”

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Timing of Home Inspection Claims

When I was assembling the material for my home inspector training at the Law and Disorder Seminar a little over four years ago, I gathered some data about home inspection claims from an underwriter for an insurance company that is a major player in the home inspector professional liability insurance market. And while talking to an insurance underwriter can definitely cause drowsiness, I took one for the club and learned one interesting factoid concerning the timing of home inspection claims.

Sixty percent of claims against home inspectors, according to this underwriter, are presented within the first year after the inspection. Ninety percent are presented within the first two years after the inspection. The other ten percent arise more than two years after the inspection.

While this company extracted those percentages from a huge database of claims over many years, the numbers are actually almost congruent with my own experience over an obviously much smaller number of cases and shorter period of time.
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