When I first got into the home inspection business in 2002, a colleague told me
“it’s not if you get sued, but when.”
How can we, as home inspectors, protect ourselves when a situation like this occurs?
To find out, I consulted Joseph W. Denneler, Esq., a partner at Salmon, Ricchezza, Singer & Turchi, LLP, in Philadelphia. Joe represents home inspectors in litigation and provides risk management services to protect their businesses.
Joe recommends following these best practices:
Carry errors and omissions (E&O) insurance.
I’ve heard several inspectors say,
“I don’t need insurance because I have very few assets—my tools, my computer and a truck.”
They also believe that if they are incorporated, they can avoid payment of a judgment entered by a court. Unfortunately, an individual still can be sued despite the creation of a corporation. In some states, licensed and unlicensed professionals can be held personally liable for any claims of professional malpractice or negligence.
Additionally, there will be a judgment against your company, which could affect your ability to borrow money as a business and as an individual. You should not depend on your corporate shield to protect you from any and all assaults. Insulating yourself and your business with a tailored professional liability policy covering potential errors or omissions in the performance of your professional services puts you in a much better position to respond to claims, to defend yourself against insurmountable legal bills, and damage to your business and reputation.
Use a good inspection contract and have it reviewed periodically by an attorney, then make sure your client receives and signs the contract before the inspection begins.
Ideally, your inspection contract should afford you protection while clearly explaining to your client what you will and will not do as part of the home inspection. Also, the contract should be written to comply with any state-based inspector licensing statutes or regulations that apply. Your inspection contract is your first line of defense against all claims. If it is lacking in any material way, it could jeopardize your ability to defend yourself. Because laws can change over time, you should make sure your contract will pass muster in a court today.
Many states also require that the contract be delivered to the client in the days prior to the inspection and that it be signed before any work is done. Regardless of state laws, this is a practice you should employ with every inspection. Giving the contract to the client in advance allows them to fully read and understand what you will do and will not do, and it alerts them to any defenses, such as a limitation of liability or an arbitration clause. Having the contract signed before work starts allows you to assert that your client understood the scope of work before it was done, thereby limiting their ability to contend that they did not fully appreciate the terms of the contract.
In addition to E&O insurance, carry general liability auto insurance for your business.
In general, E&O insurance only provides coverage for an alleged failure to properly perform your professional services. It will not provide coverage for bodily injury or property damage caused by accidents occurring outside of the home inspection. For example, if your ladder falls onto a car in a driveway during the inspection, your general liability policy would, absent other circumstances, provide coverage for that accident. Finally, some states require that you carry general liability insurance in addition to E&O. You should consult an insurance professional in your state for more information on what insurance is required for you.
What should you do if you get sued?
If you have insurance, you should immediately report the lawsuit to your insurance carrier using the reporting methods they require. The notice requirements are found in the insurance policy and you should familiarize yourself with what your insurer requires. If you do not report a lawsuit or any claim in a timely and proper manner, you run the risk of voiding your coverage. If you do not carry insurance, you should immediately contact a local attorney to assist you in defending yourself. Although some companies state that they can help you with lawsuits, only an attorney can provide you with legal assistance. No other professional is specially qualified to perform that service. Finally, if you are given an opportunity to inspect the alleged material defects supporting a claim, you should always take that opportunity.
The conditions can be irreparably changed by repairs or changing conditions, and you need to preserve the evidence of those conditions so that you can defend yourself later if necessary.
“Every unfortunate event does not give rise to lawsuit.”
– Judge Mills Lane
(former boxing referee and professional boxer, two-term Wahoe County, Nevada, District Court Judge and television personality)