Recommened E&O insurance amounts

[Scott Schultz]

What's the general consensus on the amount of E&O insurance an inspector should carry? I've heard minimum of $1 million but that seems a bit excessive, I mean has any inspector been found liable for the full amount of the home? It's not that I am against this amount of insurance if, in the real world, inspecting homes warrants this kind of coverage. What are you thoughts?

[Bruce A. King]

A 300k claim can cost over 500k total after expenses, the 1 mil is usually the right amount unless you do a large number of 1 mil + homes it should be higher.

[David P. Valley]

Massachusetts requires 250k. In carry 500k.

[Ben L. Garrison]

Scott:

Keep in mind that your policy limit does not pertain just to damages. At least it shouldn't. A good E&O policy will cover any legal costs involved with defending or settling the claim. If it doesn't, it's pointless. If you're in a licensed state, you obviously need to conform with the insurance requirments... then it becomes what you're comfortable with but you will also find that some realtors or builders will mandate a certain amount. FREA offers 3 levels of coverage, 300K, 500K, and 1,000,000. I encourage you to get in touch with me for more details, I'd be glad to help you out.

Ben Garrison
1-800-882-4410 ext. 104

[Carla Horne]

Hi Ben,

I would like to chat with you regarding coverage.

I will dig out my current policy and give you a call
after the holidays.

Carla

[Scott Schultz]

I understand there aren't many (if any) occurence policies out there....only claims-made. Is this true? If so, we are getting raked over the coals by the insurance company as with a claims-made policy, you are only covered when the claim against you is filed not at the time of the incident. So, if you inspect a home on june 1, find cheaper insurance and switch on june 2 and on june 3 you get a lawsuit filed against you, the insurance co. that you dropped on june 1 will NOT defend you. The insurance co. that you picked up will NOT defend you as you were not their insured at the time of the incident. So, who pays then? that's the problem with claims-made policies. You get to pay them anywhere between $2500-$4000 a year and then they don't cover you if a lawsuit arises when you were their insured but no longer have their insurance. Also, what happens when an inspector retires who has a claims-made policy? does he/she have to carry the insurance for 2 more years in case a lawsuit is brought? Sounds ridiculous to me. Feel free to correct me if i am wrong about any or all of this.

[Ben L. Garrison]

There are "occurence" based policies out there. But it's a matter of "pay me now or pay me later," like most types of insurance. You are correct about how the claims made policy functions as far as coverage and claims go. However, you will typically pay MUCH more up front for an occurence based policy depending on the carrier. In the event that you retire, with a claims made policy, you can purchase a "tail" policy which will cover you for any inspections done while insured. And through FREA, this costs 75% of the previous year's premium. Typically, you might want to carry that for a year or two... and that's also contingent on state insurance requirements and statutes of limitations on filing claims. Further, some carriers will offer you retro-active coverage if you can show proof of prior coverage. At no additional charge.

[Ben L. Garrison]

Originally Posted by chorne

Hi Ben,

I would like to chat with you regarding coverage.

I will dig out my current policy and give you a call
after the holidays.

Carla

Carla -- I am glad to help. I will be out of the office until January 8th, but available to talk. Email me at ben@frea.com and I will give you a number where I can be reached. Hope all is well!

Ben