Errors & Omissions Insurance: Home Inspections E&O Lawsuits on the Rise
As a dramatic shift has taken place in the economy and housing market over the last several years, there has been an overall unprecedented decline in home sales and values. With this decline has come an increase in lawsuits against home inspectors as individuals seek to offset a decline in their home value by filing claims. Of course, there are cases that do have merit, but the fact is that the rise in lawsuits has correlated with the downturn in the economy.
What kinds of claims have been leveled against home inspectors in the last couple of years? One example involves a homeowner who contracted a firm to inspect a home she wanted to purchase. The contract she signed stated that the firm would be doing a visual inspection of the home, and that any concealed defects would not be covered or accounted for. The contract also stated that the liability of the firm would be limited to the cost of the inspection. The firm performed the inspection and gave the customer a satisfactory report, after which she purchased the home. After moving in, she soon discovered that there were several structural defects. She filed a suit against the home inspection firm for gross negligence, and tried to recover the full amount of damages for the home, plus the cost of the inspection. The court held in favor of the inspection company because its “inspection was visual only, and specifically disclaimed any hidden defects, which covered the structural problems discovered by the plaintiff.” Additionally, the contract stated that the defendant’s liability was limited to the cost of the inspection.
In another case, a customer contracted a real estate company to assist in finding a suitable home to purchase. The contract between the company and client stated that he was to be notified of all material facts involving the property. The company found a home, inspected the condominium, and stated that it was in good condition, and the customer purchased it. After closing on the property, he discovered that it was contaminated by mold. He brought suit against the real estate company, alleging that they were aware of the mold problem and purposely did not tell him about it so that they could sell the property. The court found in favor of the customer holding the real estate firm liable for non-disclosure of pertinent information, misrepresentation, and a negligent inspection.
How can you advise your home inspection and real estate clients on stemming E&O claims? Here are some tips to reinforce when discussing E&O:
1. Specify in the contract exactly the scope of the inspection. Just as in the first lawsuit case illustrated above, the home inspection company won the case because its contract with the client was clear about the extent of the inspection and what was covered and not covered.
2. Be sure that the customer signs the inspection agreement. This may seem like a no-brainer, but many claims are filed without a signed contract, which makes it harder to defend.
3. Be specific when noting issues during an inspection, indicating the exact location of where the problem is and the extent of the problem. Document clearly all conversations with clients about issues and problems in the specificity of the report.
4. Don’t use boilerplate disclosures. Again, be specific in your report and avoid using template checklists.
5. Take photographs. Use your cell phone camera to document evidence of defects and problems.
Caitlin-Morgan, an MGU and wholesale insurance broker, specializes in creating home inspection errors & omissions plans that complement your client’s existing insurance program.