E & O

[Michael Merino]

I was wondering what you guys think of E & O Insurance? I start my HI classes this weekend, but I went to an informational seminar this past week. They presented the industry and the classes and most of the information mirrored what I have read on InterNACHI. So I am pretty confident that I chose a good program. But, they differed on E & O insurance. Let me explain as I recall.

E & O insurance basically gets you lawyers on retainer at a cost of about $4,000/ year. If you are sued they will fight the suit. If you win you owe nothing, if you lose the lawyers pay. But, I was told that usually the policy has a deductable, usually about $3-$5,000. So if you lose you cover the first $3,000 let's say and the lawyers or policy covers the rest.

The seminar presented that most claims will fall in the area of about $3,000-$5,000. For example, if an A/C unit was in good condition and went out a month after I inspected it and the client sued; the lawyers would negotiate paying for a new unit instead of suing. They would most likely accept this offer and I would have to pay out of pocket because of the deductable. So, in reality, I have payed a $4,000 premium plus $3, 000 for A/C unit. DOUBLE what I would pay to just cover the claim myself.

Wouldn't it be more prudent to not have the insurance, save the premium in an account to earn interest and use it to pay out any claims?

Unless I misunderstood, and am wrong about how E & O works.??

[Jeffrey R. Pope]

It's highly unlikely that the insurance company will "fight" anything. Right or wrong, typically, they settle for an amount, rather than mounting up legal fees.

"Win or lose," you will pay your deductible. Mine is only $1000.

"What if" you miss something more substantial - something that leads to catastrophic damage, or worse yet, personal injury?

I've had vehicle insurance for many, many years. I've never had a claim. Even if it were legal to do so, I would not chance driving without it. . .

[Bruce A. King]

Agreed, also you don't even have to miss something, adverse things happen to houses at unforseen times and if the timing is wrong, you will be sued for some new issue with the house.

Even if you have no assets to lose, a big judgement against you will be a lifelong payment.

He who has no E&O does not understand houses, people or attorneys or just has a good load of guts.

You can get sued, lose and actually owe more than the value of the house.

I recommend 1 mil coverage with 1k deductible.