The High Price of a Missed Crack

The following is a real home inspection claim from our archives. To protect the insured’s identity, all identifiable characteristics—including names, associations, and locations—have been altered or removed.

Home inspectors,we have good news and bad news.

The good news: Most home inspection claims turn out to be frivolous and unfounded. 

The bad news: House repairs are expensive. When an inspection claim comes through, they can be extremely costly. Moreover, it doesn’t matter if the claim is meritless or legitimate. Once a client decides to take legal action, you have an obligation to respond. Insurance gives you the support you need to handle the financial and logistical costs of defending your business.

This month’s case study shows just how powerful the safety net of insurance can be against expensive home inspection claims.

The Inspector’s Expensive Insurance Claim

A month after the inspection, clients accused their inspector of failing to identify cracks in the exterior foundation walls. The cracks were visible after they moved in, so they should’ve been visible on inspection day, the clients argued.

They called the inspector’s boss, the primary insured on our policy who owned the inspection business. In a good faith effort to make things right, he visited the property twice to see the alleged defects in person. There he noticed lots of vine-like vegetation growing over that part of the foundation. The clients had cut back the vegetation, making the foundation more visible than it was during the inspection. 

Theoretically, the vegetation might have obscured the inspector’s view of the foundation cracks. If that were true, our claims team could’ve potentially used a photo of the vegetation growth to argue the defects were concealed or inaccessible at the time of the inspection. 

Unfortunately, that was not the case here. 

Not only did the inspector take a photo of a larger foundation crack. He also included that photo in his report. He’d used the photo to report an entirely different defect. Even if some of the foundation cracks were obscured by the greenery, there was no arguing against that at least one of them had been visible. It was right there in his report. 

The clients demanded more than $310,000 for this expensive insurance claim.

The Resolution

Our claims team hired a contractor to visit the site and estimate repair costs. They also hired an appraiser to estimate the property’s value. It was clear from this research that the only viable option was to settle.

Contrary to common insurance myths, settling isn’t the automatic red flag it’s often made out to be. In fact, when the inspector’s liability is clear and a defensive route is unrealistic, settlements can be the most practical and strategic route. It encourages more efficient agreements and prevents an expensive insurance claim like this one from accruing excessive legal fees.

Except the opposing counsel was not interested in our settlement offers. They declined two of our offers and were uncooperative for months. The COVID-19 pandemic struck soon after, causing even more significant delays.

Nearly five years after the original inspection, the opposing counsel finally allowed us to send structural engineering and construction experts to re-inspect the property. The client’s counsel raised their demand to $440,000 and asked that the entire rear foundation wall be replaced. Our experts argued that such a replacement was unnecessary. 

In a final mediation, our team negotiated their demand down to $250,000. We asked them to sign a release of all claims to prevent them from filing future claims against our insured inspector. The insured paid their deductible of $5,000. 

Key Takeaways

This case study demonstrates why pre-inspection agreements, careful reviews, and insurance matter at every stage of your inspection career.

Here’s what you can learn from this expensive insurance claim.

1. Have a strong pre-inspection agreement.

Your pre-inspection agreement is your first line of defense as a home inspector. But not all agreements are created equal.

Many home inspectors are using agreements they found online, received from a mentor, or got from a lawyer who doesn’t specialize in home inspections. These cookie-cutter agreements tend to leave out essential clauses or ignore state limitations. This leaves many inspectors vulnerable to drawn-out, expensive insurance claims like this one.

For example, certain provisions are not permitted in every state. Include one, and inspectors in that state could be penalized or risk having their entire agreement thrown out in court. 

But include the right clauses, and your pre-inspection agreement will prove integral to resolving claims quickly and cost effectively. Some of the most effective include:

Limitation of Liability Provision: Caps your financial responsibility. Instead of paying for a new roof or foundation, your liability could be limited to double your inspection fee.

Statute of Limitations Provision: Discourages clients from filing claims when the inspector’s findings are no longer relevant, like years after the inspection.

Scope and Exclusion Clauses: Outline the standards of practice (SOP) the inspector will follow, plus items inspectors aren’t expected to report, like defects hidden behind walls or below ground. They help prevent misunderstandings about what is and isn’t covered in a home inspection.

Dispute Resolution Provision: Encourage processes that close claims faster and more cost effectively, and with experts who understand home inspections. For example, this could mean encouraging arbitration rather than mediation.

With InspectorPro, expertly crafted pre-inspection agreements are the easiest risk management step you can take. They’re regularly updated to provide the right provisions and state-specific protection for your business.

Contact the InspectorPro team to get yours. And remember to get every agreement signed before you start every inspection.

2. Set aside ample time.

This expensive insurance claim underscores an important reminder: Time invested now is reputation protected later. 

It’s possible this inspector reviewed his materials as closely as anyone could. At the same time, given the home inspection defect was visible in a report photo, he might’ve missed the defect because he was inspecting or writing his report in a hurry. 

Taking the time for thorough inspecting and reporting always matters. But it’s especially important for major systems like foundations, which account for some of the industry’s most common and expensive home inspection claims. Signs of common foundation problems like cracks are often subtle, concealed, and easy to miss when inspectors are rushed or distracted. 

To prevent the inspecting and reporting errors that escalate into expensive insurance claims, don’t rush or overschedule yourself. Always set aside enough time to be thorough. It’s key to providing the high-quality, high-value services clients love. 

3. Protect your business with home inspection insurance.

As this case study shows, mistakes happen. You can do everything right 99% of the time. But one small mistake, like overlooking a defect in your report photo, and you could face an expensive insurance claim just like this one. 

That’s why every inspector needs insurance. Even if the claim is frivolous, and even if you have the best agreement, it can cost six figures in legal fees to defend your business. Without adequate coverage, those high legal fees could fall on you, jeopardizing your business, your savings, and your future in one swoop.

In this case study, our insured inspector received a demand for more than $310,000 and only paid his deductible. Since then, we’ve introduced even more tools to protect inspectors from expensive insurance claims: pre-claims assistance, discounts for reporting claims early, and discounts for consecutive years without claims, to name a few. We help many inspectors avoid claims altogether, or pay $0 deductibles when claims do arise. 

You’ve worked hard to build your inspection business. Set yourself up for success and get the right insurance before a claim happens. 

Built-In Backup 

InspectorPro can be your built-in backup when an expensive insurance claim hits.

Anyone could face an expensive insurance claim. But not every inspector has to face claims alone.

InspectorPro Insurance with the ASHI Advantage makes proactive peace of mind easier than ever. Scan the QR code or visit inspectorproinsurance.com to apply for a free quote.

Note: The Managing Risk column with InspectorPro Insurance provides home inspectors with tips to protect their businesses against insurance claims

Alyssa Guerra is the Marketing Content Editor for InspectorPro Insurance, which offers ASHI members exclusive benefits through its program: InspectorPro with the ASHI Advantage. Through risk management articles in the ASHI Reporter and on the InspectorPro website, InspectorPro helps inspectors protect their livelihood and avoid unnecessary risk. Get peace of mind and better protection with InspectorPro’s pre-claims assistance and straightforward coverage. Learn more at inspectorproinsurance.com/ashi-advantage.

Opinions or statements of authors are solely their own and do not necessarily represent the opinions or positions of ASHI, its agents, or editors. Always check with your local governmental agency and independently verify for accuracy, completeness, and reliability.