Home Inspector professional liability, general liability and other applicable insurances for home inspectors. Risk management tips and hints and home inspector claim information.

1. Home Inspector’s Insurance
& Risk Management
Presented by:
Jerry Brunker, CPCU , ARM
&
Lauren Morris
TAREI Fort Worth TX July 19, 2013

2. Learning Objectives - TAREI
 Part 1 - Home Inspection Industry Overview
 Liability of Home Inspectors
 Part 2 –Insurance
 Types of Insurance Protection for Home Inspectors
 Tool Kit for Home Inspectors with Tips and Hints to
Reduce Liability Exposures
 Questions and Answers

3. Part 1
Home Inspection Industry Overview
 No state regulated HIs prior to 1985
 Professional associations played a big role
in educating and credentialing HIs and in
legislation and ethics
 31 states have some form of regulation
today
 ASHI 2007 ranking of state regulations -
top 10:
 LA, NJ, AZ, TX, MA, CT/NC, AR, IN, RI/WV

4. Regulation and Practice Types
 State statutes similar:
 Education or experience
 License by a state board
 Certain liability insurance(s) or bonding
 Prohibitions on repairs and other conflicts of
interest such as accepting referral fees
 Most HIs practicing as sole proprietorships;
with some LLCs

5. Duty To Client
 Standard of care: level of care that is the
customary or usual practice of other
members of the home inspection
profession
 Example: failing to visually inspect and
detect faulty roofing
 Duty to non-clients?

6. Negligence
 Four key elements to a suit:
 HI had a duty to the client
 Prove HI breached that duty
 Plaintiff must show they were injured
 Prove breach of duty was proximate cause of
the injury (was breach sufficiently responsible
so that HI should be held accountable?)

7. Home Inspectors in Courts
 Caveat Emptor Alive and Well (existing
homes)
 Liability to Parties Not In Privity and Other
Third Party Issues
 Consumer Reliance, Substandard
Inspections, Misunderstandings of what a
HI does or does not promise
 Arbitration, limitation of liability clauses
and reducing statutes of limitations
 Other issues: profession or trade

8. Liability To Parties Not In Privity
 Other defendants with the HI: sellers, real estate
agents and lenders
 Attempts to limit circulation of written reports
and to limit liability to party in privity
 Like other professionals with written reports,
courts have expanded liability beyond client
identified in contract
 Use disclaimer language and express language
aimed at listing agent and seller
 Potential exposure to seller for devaluation of
property

9. Consumer Reliance
 Out options on contract if inspection uncovers
significant problems (buyer)
 “As is” imposes duty on buyer to thoroughly
inspect – can be fatal to a subsequent claim for
fraud, fraudulent suppression or negligence
 Buyer should not expect to hold HI liable when
HI’s recommendations for further investigations
are ignored
 Whether sellers or real estate salespersons
present during the inspection
 Buyers must understand limited nature of
inspections (visual snapshot @ accessible places)

10. ASHI Definition of Home Inspection
 A visual analysis for the purposes of providing a
professional opinion of the condition of a building
and its carports and garages, any reasonably
accessible installed components and the
operation of the building systems, including the
controls normally operated by the owner, for the
following components of a residential building of
four units or fewer: heating system, electrical
system, cooling system, plumbing system,
structural components, foundation, roof covering,
exterior and interior components and site aspects
as they affect the building.

11. Substandard Inspections
 Most common claim is negligence and not
fraud
 HIs performing beyond mere negligence
may be liable for mental anguish and
violations of DTPA (Guilbeau v Anderson
841 S.W.2d517 (Tex.App. 1992)

12. Limitation of Liability and Imposition of
Mandatory Arbitration
 Mixed success in most jurisdictions
 Enforceability of arbitration has not gone
well – not many cases – cost of arbitration
greater than the fee limitation
 Limitation of liability clauses – present
them early and in a conspicuous fashion
(Head v U.S. Inspect DFW, Inc.)
(limitation of liability clause was set apart;
enclosed in a box and separately initialed
by client)

13. Shrinking Statutes of Limitation
 Statutes of limitations for torts and contracts –
bar action after the injury or discovery of a
deficiency
 In Pitts v Watkins HI went 0-3. MS Supreme
Court found arbitration was unconscionable (HI
could go to court but consumer forced to
arbitrate)
 Limitation of liability unconscionable with $265
fee limitation but negligence caused damages of
$30,000-$40,000
 Three year statute of limitation shrunk to one
year from date of inspection – further evidence of
overreaching, oppressive, unconscionable

14. Other Issues
 Suing the individual or corporate entity
 Texas unique with the Real Estate
Inspection Recovery Fund ($12,500 per
transaction/$30,000 aggregate per
inspector)
 Texas Loser Pays Statute

15. Part 2
Insurance Overview
 New TREC Laws
 Bonds
 What is Professional Liability?
 Non-Admitted vs Admitted Markets
 What is General Liability?
 Other Insurances
 WDI Inspections
 Tips and Hints to Reduce Liability
Exposures

16. TREC Requirements
 HB 2911 - Signed by Governor June 14,
2013. Effective September 1, 2013.
Amends the regulation of real estate inspectors.
Requires an inspector to maintain financial
responsibility in the form of either a liability
insurance policy or a bond. An insurance policy
must have minimum limits of $100,000 per
occurrence and a $100,000 annual aggregate.
The E&O coverage can be issued by an eligible
surplus lines insurer.
(source: http://www.slsot.org/SLSOT/LawsRegulationInformation/legislation.htm)

17. TREC Bond Requirement
 (b) bond posted as security under
Subsection (a)(2) must:
 (1) be issued by a carrier admitted in this
state;
 (2) be in an amount not less than $100,000;
 (3) be continuous; and
 (4) be cancellable by the surety only after the
surety has provided at least 90 days ’ written
notice to the commission before the effective
date of the cancellation.

18. Bond
 A bond is NOT insurance.
 A three-party contract in which one party,
the surety, guarantees the performance or
honesty of a second party, the principal
(obligor), to the third party (obligee) to
whom the performance or debt is owed.
 If a bond pays out, the inspector will be
required to re-pay the surety company the
entire sum they had to pay out.

19. Bond Types
 Licensing Bond
 AZ licensing bond wording: The condition of this
obligation is such that if the Principal shall strictly,
honestly and faithfully comply with the provisions of the
statutes and rules adopted pursuant thereto and shall
satisfy any final judgment in favor of an injured person
arising out of any transaction governed by the
provisions of such statutes and rules…
 Employee Theft Bond
 the condition of this obligation is such that if the above
bounden Principal shall indemnify the Obligee from and
against actual loss which shall be sustained through any
act of “Theft” by the Principal or Principal’s “Employee”,
while this Bond is in force, of any property or “money”
to which the Principal or Principal’s “Employee” has
access in the performance of its services…

20. Professional Liability
 Also referred to as Errors & Omissions or
E&O
 Coverage intended for claims that might
arise from the rendering or failure to
render professional services

21. Professional Liability Claim Examples
 Failure to note bad electrical wiring

22. Professional Liability Claim Examples
 Client claims that the roof damage was not
noted on the inspection report.
 Weather might restrict inspecting certain areas
of the house. In this situation, be sure to
make a clear notation of areas you are not able
to inspect and the reasons why.

23. Duty to Defend
 Claims might arise from false or frivolous
allegations causing a business to incur
defense costs. Within the scope of a
policy's coverage, the insurance provider
of a professional liability policy would have
a duty to defend, within the policy limits.
 Insurer’s duty to defend is broader than
the duty to pay

24. What is a Claim?
 Sample Policy Wording:
 a written demand against any Insured for monetary or non-
monetary damages;
 a civil proceeding against any Insured for monetary damages,
non-monetary damages or injunctive relief, commenced by the
service of a complaint or similar pleading;
 an arbitration proceeding against any Insured for monetary
damages, non-monetary damages or injunctive relief;
 a civil, administrative or regulatory investigation against any
Insured commenced by the filing of a notice of charges,
investigative order or similar document;
 a Disciplinary Proceeding; including any appeal therefrom.
 When should you consider it a claim?
 Any time someone makes a verbal or written demand for
payment or services.

25. When a Claim Happens
 Insured’s responsibilities:
 Do not admit or assume liability or settle or
negotiate to settle any claim or incur any claim
expenses without the prior written consent of the
insurance company.
 If a settlement is reached and you refuse to
consent, this will often void the insurers
responsibility to continue to defend you and they
will pay out the amount that was settled, within the
policies limits, and leave the remaining defense up
to you. This is sometimes referred to as the
“Hammer Clause.”

26. When a Claim Happens (continued…)
 Policies will state specific responsibilities of the
insured regarding when to file a claim, how to file a
claim and what is expected of the insured during
the filing of a claim:
 Often states in some form that the insured must
provide notice of the claim situation as soon as
practical but no later than a specified date (ie 30
days)
 Your agent can help you get the claim information to
the right people at your insurance company. But if
your agent is unresponsive, you are still required to
make sure the information gets to the correct party.
 Often requires insureds to cooperate with the
insurance company with all information and
assistance reasonable requested by them.

27. Disciplinary Proceeding Limit
 Some policies provide coverage in the
event that disciplinary hearing causes you
to incur actual loss of earnings.
 Often an aggregate limit that is in addition to
the policy limit
 Not subject to the deductible.

28. Each Claim/Aggregate LIMITS
 An each claim limit is the limit a policy can pay
out for any one claim situation.
 An aggregate limit is the total amount that a
policy can pay for the duration of a policy period.
 For example, a policy with limits of $100,000 each claim
$100,000 aggregate has a claim that pays out $50,000
and in that same policy period a second claim is filed
resulting in $50,000 paid out. In this example, the
policy's aggregate limit of $100,000 would be exhausted
and no more coverage would exist for the remainder of
that policy period.
 Defense costs included within limits of liability

29. Retroactive date
 Also referred to as prior acts date
 Found on Claims Made policies
 This is the earliest date from which a currently in
force claims made policy will provide coverage for
wrongful acts committed after the retroactive
date.
 If a policy with a 09/01/12-13 policy period has a
retroactive date of 09/01/1998, coverage would be
provided for claims arising from wrongful acts that took
place on or after 09/01/1998 and prior to 09/01/2013.

30. Extended Reporting Period (ERP)
 Coverage afforded under a claims made
professional liability policy only applies to claims
made and reported during the policy period.
Coverage ceases to exist as of the expiration,
cancellation or non-renewal date.
 An extended reporting period (ERP) is coverage
that can be purchased for an additional set
amount of years in order to continue to provide
coverage for inspections that were previously
done between your expiring policy’s retroactive
date and the expiration date of your last policy.
 Must be purchased with in a certain time from the
expiration of your policy.
 Options vary by carrier
 Fully Earned Premiums (cannot be financed)

31. Contingent bodily injury/property
damage
 Provides bodily injury and property
damage coverage to professional liability
claims.
 Without this coverage, bodily injury and
property damages that arise out of your
rendering or failure to render professional
services are excluded.

32. Additional Coverage Options
 Standard home inspector’s professional liability
policies cover standard visual inspections.
Specialized areas and areas that require testing
often need to be added:
 WDI/Pest Inspections
 Radon Testing
 Carbon Monoxide Testing
 Mold Inspections
 Septic Systems Inspections
 Pool/Spa Inspections
 Lead Inspections
 Code Compliance
 EIFS/Stucco
 It is important to remember that just because
you do not perform a certain type of inspection,
such as carbon monoxide, does not mean
someone can not sue you for it.

33. Options
 Some provide the option of ala carte
coverages.
 Others provide package coverage options.
 Independent Agents work with different
markets and are able to help you
understand the differences between the
different options.

34. Admitted/Non-Admitted Markets
 An admitted insurer is licensed within that state to sell
insurance. The state provides financial support if the
insurer were to become financially insolvent.
 A non-admitted insurer is not licensed and must have a
state specified surplus lines tax paid on top of the
premiums and fees. They must be approved by the states
department of insurance as a non-admitted insurer.
 This state guaranty support would not be provided with a non-
admitted insurer that became financially insolvent. (Note:
Chose an A- or higher AM Best financially rated insurer).
 One of the reasons an insurer might choose to operate on a
non-admitted basis is because the admitted insurers are
required to file with the state’s department of insurance
every change to their policies. Thus, non-admitted insurers
have more flexibility to make necessary changes to their
policies as the need arises.

35. Commercial General Liability (CGL)
 General liability provides protection for
claims that might arise out of premises,
operations, products and completed
operations resulting in bodily injury
and/or property damage to a third
party. Or claims may arise from specific
personal injury offenses such as libel or
slander or advertising injury.

36. Premises General Liability
 Bodily Injury and Property Damage
coverage only during the performance of a
home inspection.
 Some insurance companies have the
option to add this coverage to a
professional liability policy.

37. General Liability Claim Example
 During an inspection you would logically leave
your ladder propped against the house while
inspecting the roof. If a gust of wind were to
knock a ladder over, causing it to land atop the
neighbor's head, the resulting bodily injury might
land you in a general liability claim.
 While walking through an attic during an
inspection you might put your foot through the
ceiling causing property damage that could result
in a general liability claim.

38. Each Occurrence Limit
 Commonly commercial general liability
insurance is written on an occurrence
policy form.
 An each occurrence limit provides
coverage for claims that arise out of
damage or injury that took place during
the policy period, regardless of when the
claim is made.
 Defense costs in addition to limits of liability

39. Home Builders Requiring CGL
 We are seeing an increase in the amount
of home builders requiring home
inspectors to carry CGL.
 Typical requirements:
 Minimum Limits of $500,000
 Possible future requirements:
 Listed as Additional Insured
 Provide Waiver of Subrogation

40. Additional Insureds/Referral Agent
 Additional Insured coverage extends your
coverage to a client/vendor.
 Typically only added to General Liability coverage. It is
not typically provided on E&O policies.
 Referral Agent specifically applies to business
associates, such as real estate agents, that might
refer business to you. It provides them
protection on your E&O policy that is similar to
additional insured coverage.
 Some policies automatically include.
 Some can add this coverage for additional premium.

41. Waiver of Subrogation
 Subrogation is when an insurance company seeks
reimbursement from a third party that they
deemed responsible for the incurred claim costs.
 Providing a client/vendor a waiver of subrogation
voids the insurance company’s right to subrogate
against a third party.
 Some policies automatically include with a requirement
that you must have a written contract requiring you to
provide this to a client/vendor prior to the loss.
 Some policies require you to name the third party and
might charge an additional premium.

42. Certificates of Insurance
 Acord Certificates
 TREC Certificate
 WDI Certificate - (Texas Department Of
Agriculture)

43. Business Owners Policy (BOP)
 A general liability and property package
policy
 Can add in the following coverages:
 Inland Marine
 Business Personal Property (BPP)
 3rd
Party Data Breach
 Hired/Non-Owned Auto

44. Property Coverages
 Inland Marine Coverage – Insurance for
portable property (i.e.: ladders, thermal
imaging camera, smart phones, etc.)
 Business Personal Property (BPP)
Coverage – Insurance for stationary
property at covered location. (i.e.:
computers, office art work, desks,
printers, etc.)

45. 3rd
Party Data Breach
 Coverage for lost and stolen sensitive
digital data of clients and vendors. (i.e.:
credit card numbers, bank account
numbers, etc.)

46. Hired/Non-Owned Auto
 Hired: Refers to autos the named insured leases,
hires, rents, or borrows. (does not include autos
the named insured leases, hires, rents, or
borrows from any of it’s employee’s)
 Non-Owned: Refers to an auto that is used in
connection with the named insured's business but
that is not owned, leased, hired, rented, or
borrowed by the named insured. As used in the
business auto policy (BAP), the term specifically
applies to vehicles owned by employees and used
for company business.
(source: www.irmi.com)

47. WDI Inspectors
 Texas Department of Agriculture requires General
Liability.
 $200,000 for bodily injury and property damage
coverage with a minimum total annual aggregate of
$300,000 for all occurrences limits
 Care custody and control endorsement
 Pesticide applicator endorsement
 Carriers provide coverage
 Some provide certificate if waiver is signed stating there
are no pest applications performed.
 Some provide the coverage as required by the state, but
exclude coverage for the home inspections.

48. Workers’ Compensation (Not CGL)
 Workers’ Compensation provides several benefits if an
inspector is injured on the job.
 Income benefits - (other than impairment income benefits)
replace a portion of any wages you lose because of a work-
related injury or illness. Income benefits include temporary
income benefits (TIBs); impairment income benefits (IIBs);
supplemental income benefits (SIBs); and lifetime income
benefits (LIBs).
 Medical benefits - benefits pay necessary medical care to
treat your work-related injury or illness.
 Burial benefits pay for some of the deceased employee's
funeral expenses to the person who paid the funeral expenses.
 Death benefits replace a portion of lost family income for
eligible family members of employees killed on the job.
(source: http://www.tdi.texas.gov/wc/employee/benefits.html)

49. Home Inspector Risk Management
 You have the option to turn away potential clients.
 Use signs to keep others from using your equipment,
following you in crawl spaces or up a ladder.
 Take as many pictures as you can.
 Use standard & consistent wording.
 Quote the SOPs on your report.
 Write down what you are missing/what you could not access.
 State how it LOOKS, not how it IS.
 Go over entire document with client.
 Always get a signed agreement.
 Save everything.
(Source: http://riskpro.us/wordpress/reduce-your-risk-of-a-home-inspector-lawsuit-part-1/)

50. Avoid a Lawsuit
 Refunding a home inspection is often
verbiage found in most inspection
agreements to resolve a dispute about the
performance of the home inspection.
 If you are able to settle the matter by
refunding the inspection fee, be sure an
obtain a general release form.

51. Inspection Agreement
 Some insurance companies require you
have a signed agreement for coverage to
even apply.
 Underwriters strongly recommend always
having the agreement signed because
they have been able to avoid lawsuits
from groundless claims by using the
signed agreement and inspection report.

52.  Include clauses where necessary
 Include all the areas that are necessary to
properly protect yourself, you should not be
concerned about the inconvenience your client
might feel by having to read several pages.
 Always have it signed
 Programs like DocuSign can be used in
situations where the client is not available to
sign the agreement in person.
 Some insurance companies require you have a
signed agreement for coverage to even apply.
Inspection Agreement

53. Conclusion
 New TREC requirements
 Coverage Features In Professional Liability
 Coverage Features In General Liability
 Other Possible Coverage options for His
 Tips and Hits to reduce your risk
 Check out our blogs – www.riskpro.us/blog
 Questions?

54. Follow us Online
 Facebook: RISKPRO Insurance Agency, LLC
 Twitter: RISKPROInsAgy
 LinkedIn: RISKPRO Insurance Agency, LLC
 Blog: www.riskpro.us/blog
 Email: lauren@riskpro.us
This presentation can be found online at:
http://www.slideshare.net/GeraldBrunker/home-inspectors-insurance-risk-management