joe ferry

Is E & O Insurance A Waste Of Money? Part Deux

My recent post, Is E & O Insurance A Waste Of Money, prompted this comment from Arizona Home Inspector, Jeff Byfield:

Joe my question is, if you didn’t have insurance would you even be considered in these frivolous law suits that greedy people and unscrupulous attorneys pull you into? What can they really sue you for besides your ladder and a few tools, or is there more to this than what I’m thinking?

This is a question that comes up every time I present the Law and Disorder Seminar and every time I write about professional liability insurance.

Many inspectors believe that, if there is no pot of gold – insurance – at the end of the rainbow, claimants and their attorneys will simply fold their tents and go away. Problem solved. Unfortunately, as I have written extensively elsewhere on this site, lawsuits seldom end well for uninsured defendants and their uninsured status certainly does not immunize them from lawsuits.

While I have successfully persuaded over 500 claimants and their attorneys to abandon their claims, it was because I laid out compelling reasons for doing so bolstered by Force Ten levels of logic. They did not do that because the inspector had no insurance, they did it because I convinced them that they had no claim.

Some inspectors who have been following me for years and are familiar with my phenomenal success at terminating home inspection claims aborning have wondered to me what the point of having professional liability insurance is, if 97% of claims go away with a letter. Why, indeed?
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Elementary, My Dear Watson!

Around the first of the year, one of my home inspector training Law and Disorder Seminar graduates alerted me to a television show that had recently begun airing on HGTV. Coincidentally, I had actually been vaguely aware of the show from the torrent of threads appearing on home inspection message boards whose general consensus seemed to be that the show’s host was unfairly singling out home inspectors for special abuse for the crime of not having discovered defects that he was only able to discover through invasive and destructive investigation, a technique that, I hope it goes without saying, is way-hay-hay beyond the scope of a home inspection.

I didn’t pay the message board kvetching any mind but my friend seemed to think that this show would be an inestimable boon to my practice because it was basically telling viewers that if they were unhappy with their home, their home inspector was most likely the responsible party.

By then the show had been on for a while and since I had not noticed any meaningful uptick in the number of crackpot claims that home inspectors were asking me to neutralize, I figured that people were not taking the gratuitous criticism for anything beyond entertainment. But then the strangest thing happened. Shortly thereafter, I had lunch with a friend who is a very successful financial planner – a total layman – who was a fan of the show and he thought that it would be bad for my practice because it cast home inspectors in such a bad light.
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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.
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Oy, Gevalt! These UIs Are Killing Me

One of the more annoying issues that I have to contend with on a weekly basis is the drill of having to jump through the hoops erected by the myriad of Brand X E and O insurance companies that home inspectors latch onto that seem to be designed to thwart my efforts to prevent them from committing suicide and taking the home inspector along for the ride.

I call them UIs [you eyes] because I have never heard of the vast majority of these companies and that was the term that we used in the military to refer to enemy units whose identity was unknown. They were “unidentifiable”. Hence the acronym “UI”.

An inspector out West, who is insured by one of these UIs, recently contacted me to respond to a claim being made by one of his clients over an inspection that he conducted.

It almost never rains where this inspection took place and the inspector noted that the ceiling of the home had recently been painted, thus, making it impossible to ascertain with any certainty whether there were any prior issues with the property’s roof. The inspector did note a number of other issues which his client used to exact substantial concessions from the seller.
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Avoid This Deadly Ménage Á Trois

At last Thursday’s home inspector training Law and Disorder Seminar in Wall Township, New Jersey, one of the inspectors in attendance was currently a defendant in a multi-defendant lawsuit. As the seminar wore on and I was recounting all the reasons that claims against home inspectors by their former clients never have any merit, this inspector asked why the attorney who had been appointed by his E and O insurance company for home inspectors to represent him in his lawsuit was not taking any of the steps that I was saying needed to be taken to terminate the matter in his favor.

For example, even though the inspector had a clause in his contract that required that any dispute arising from the inspection had to be adjudicated in arbitration, the lawyer never filed or evinced the slightest interest in filing a motion to dismiss the inspector from the suit on that ground. Instead, he answered the complaint which constitutes a de facto waiver of the clause. Moreover, even though the inspector had no liability – the alleged defect that was the gravamen of the plaintiff’s complaint had been concealed at the time of the inspection – the lawyer was sending unmistakable signals that he was fixing to fold his tent and cut the losses of his real client, the inspector’s professional liability insurer. Certainly, the insurance company’s continued patronage is more important financially to insurance defense counsel than a random individual insured-defendant.

That’s a scenario that is very familiar to this long-time observer of the inherent conflicts of interest that obtain in the ménage à trois, formed by the prototypical insurance defense contract, among the defense counsel, insurer and insured and the reason that I never sought insurance defense clients. Numerous conflict issues can arise in such relationships but the one that concerns inspectors the most is the unwillingness of both insurers and defense counsel to vigorously defend bogus claims, if the expense of doing so would eclipse the nuisance value of the case.
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Happy Independents’ Day

That headline is not a typo.

Other than summer jobs during high school and college, a stint helping my Uncle Sam prevent the Domino Theory from becoming the Domino Law, a cup of coffee at an insurance company after the service and a brief interlude at a major Philadelphia white-shoe law firm to learn the ropes of my new profession, I have always been self-employed. Coming, as I do, from a long line of Irish farmers who had to coax a hard-scrabble living from unforgiving ground and dicey, to say the least, weather, I suspect that working for “the Man” was very likely bred out of my genetic code multiple generations ago.
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Whose Side Is This Attorney On In Home Inspection Claim?

About once a week, a home inspector who has heard me speak or is otherwise familiar with my work on behalf of home inspectors will contact me to discuss a claim that is already in suit. These contacts are always engendered by the inspector’s utter disgust with the way in which the lawyer engaged by the inspector’s insurance company to represent his interests in the litigation is executing that assignment.

Last week an inspector who had been at the seminar that I conducted for the West Virginia Association of Home Inspectors in February of this year called me about a case that he has been involved in for over two years. The attorney who is representing him has been running up “enormous bills”, currently over $150,000, while taking no action whatsoever to terminate the case.

The inspector’s deductible has long since been exhausted and he has since switched his insurance coverage to Lockton Affinity to avoid any future repeat of this sort of nightmare. Thus, he really has no further financial stake in the outcome of the litigation, assuming, of course, that attorneys fees do not eventually exceed his insurance policy limits. That fact notwithstanding, he is morally outraged at the way that this attorney is exploiting the file financially and wanted to know what he could do about it.
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Myth # 4 Having E and O Insurance For Home Inspectors Paints A Target On Your Back

Another fervently held belief of the parishioners of the Church of Lalalala I Can’t Hear You is that only a fool would carry professional liability insurance because, you see, lawyers who represent home buyers are so surpassingly naïve and venal that, if you tell them that there is no insurance from which they can collect a judgment, they will simply go away. Problem solved.

I think that this widely held belief very likely stems from the pop-culture meme that lawyers are blood suckers whose only interest is what’s in it for them. Now, I’m not so naïve that I would deny that examples of that stereotype exist in some profusion in my profession. However, against that negative stereotype you have to contrast advocates like, for example, the effulgent Daniel Petrocelli. whose masterful prosecution of the wrongful death case on behalf of Fred Goldman against the man who murdered his son, was undertaken without any realistic hope of adequate compensation – or any at all, for that matter. The vast majority of lawyers of my acquaintance, less renowned than Daniel Petrocelli to be sure, though no less skilled, embrace the same ethic. They want to see that their client gets justice.

To be sure, “justice” for a home inspector’s client who is unhappy that the air conditioning system suddenly stopped working some ten months after the inspection, eight months after the client took occupancy of the inspected dwelling and some two months after the system was performing its function flawlessly may well be – and invariably is – a firm explanation that, you know, stuff happens that, as much as you would like to wish it otherwise, is nobody’s fault.
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Myth # 3 Transfering Assets To One’s Wife Insulates Them From Creditors

There was a recent story in the local news about a lawyer who accidentally killed a fellow hunter last deer season. The lawyer was a convicted felon, a circumstance that not only should have precluded his admission to the bar but also under Pennsylvania law, precluded him from owning or possessing firearms of any sort.

As you can imagine, the lawyer is in a heap of legal trouble. He recently pleaded guilty to two felony counts of illegal possession of firearms and no contest to a charge of involuntary manslaughter and faces 12½ to 25 years in prison when he is sentenced later this summer. But he also faces massive civil damages from a wrongful death suit filed by the slain hunter’s widow.

Recently the widow requested the Bucks County Court of Common Pleas to void the transfer of four parcels of land that the lawyer, in a ham-fisted attempt to shield assets from what figures to be an enormous civil judgment, had sold to his mother for one-dollar and a fifth that he had sold to his sister for the same amount following his arrest last December.

That development reminded me of a frequent observation made on home inspection forums and to me at the Law and Disorder seminar that “putting everything in [one’s] wife’s name” would render an inspector judgment-proof and, thus, eliminate the need for an inspector to carry professional liability insurance. This, I suppose, is a corollary to the E-and-O-puts-a-target-on-your-back theorem that is so widely embraced in this industry.
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Good News! Not Every Home Inspection Mistake Is The End Of The World

One way to tell whether an issue is important to home inspectors is to count how many threads and posts it generates on home inspector message boards.

There was a recent dust-up on one board that I monitor fairly regularly that centered around an inspector’s having found black air-conditioning coils on an inspection in an area of the country where Chinese Dry Wall (“CDW”) is known to exist. That tell-tale sign raised the inspector’s suspicions and he duly reported them, noting that the condition was associated with the presence of CDW and recommending further evaluation by a qualified professional. He posted a photograph of his discovery to give colleagues a heads-up and noted that his client had walked as a consequence of this discovery.

Well, before long, another inspector noticed that the coils appeared to have been painted black and, thus, the CDW reference was very likely unduly alarmist, after which, following well-established industry message board protocol, much piling on of the original poster ensued.
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