joe ferry

The Importance of Home Inspector E&O Insurance

I am continuously surprised at the number of inspectors who do not carry professional liability insurance or, as it is popularly known, Errors and Omissions Insurance for home inspectors (“E&O”). When I ask inspectors who attend my home inspector training at the Law and Disorder seminar whether or not they carry E & O insurance, between 40 and 60 percent of them say that they do not. That number is constantly diminishing, however, as more and more jurisdictions have introduced laws requiring that home inspectors become licensed and have made the carrying of E&O insurance a condition of licensure.Some inspectors who do not carry E&O would, perhaps, like to carry it but simply do not conduct enough inspections to be able to afford it. Those inspectors generally leave the profession when carrying professional liability insurance becomes a condition of having a license.

Many others do not carry it because they think that it is “too expensive” and/or that it “paints a target on your back” – that is, it makes you more likely to be sued than if you had no insurance.

Whether or not a given product is “too expensive” is something that individual consumers have to determine for themselves after conducting a cost-benefit analysis and considering competing products.
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The Story of Joe Ferry’s ClaimIntercept and How to Receive It

When I first began presenting my home inspector training at the Law and Disorder Seminar back in 2007, many of the inspectors in attendance would approach me afterward and ask if they could retain my claim squashing services on a pre-paid basis – a pre-paid legal of sorts.  While I appreciated the sentiment, I was very wary of providing such a service for a number of reasons.  For one, I did not have any idea of how to price such a service or, indeed, what services to provide.  Or what the inspectors’ expectations might be.  So I simply said that it was not something that I had ever considered doing but would give the matter some thought.

Three years later, after having defeated over 150 claims aborning, I really did begin to give it some very serious thought.  I thought about how truly ridiculous the overwhelming majority of claims against home inspectors are.
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Caution: Clause Interactions May Be Hazardous To a Home Inspector’s Wealth

Over the past five years, I have probably reviewed the pre-inspection agreements of about 400 home inspectors, either because I was responding to a claim that was being made against them or because they wanted me to review their agreements for strength, comprehensiveness and enforceability.

As a result, I make frequent research excursions via online legal databases to which I subscribe to ascertain a particular state’s relative friendliness or hostility to the sort of contract clauses that so frequently appear in home inspectors’ pre-inspection agreements.

For example, some nanny states are hostile to Limitation of Liability clauses on the grounds that they are anti-consumer and/or tend to vitiate the benefit of the bargained-for service while others routinely enforce such clauses on freedom of contract grounds.

On the other hand, clauses that require disputes to be adjudicated in Arbitration are universally upheld.
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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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