Ask FREA's Ben Garrison.

[Ben L. Garrison]

Originally Posted by ekartal6

Thanks Ben,

But I would like to know specifically, if I could lose my personals savings, stocks and even IRA if I was sued and did not have E & O insurance. I understand the being a corporation or LLC does not guarantee peronal protection.

Thanks
Erol Kartal

You absolutely can have EVERYTHING taken from you if found guilty/negligent for any error or ommission made in your inspection report. If your business assets are not enough, adios to your personal savings and everything else.

For a while I was under the impression that the only way to completely protect your personal assets was to put them in an irrevocable trust. But I was later informed that even that can be penetrated if a plaintiff's lawyer can somehow suggest that the trust was set up as a shelter from any liability.

With jury trials, it's not always a matter of who is right and who is wrong. A jury will make a decision on the basis of which lawyer presented the case better. And that's assuming they even listen to all the facts. It's hardly predictable. Therefore, you should have some form of insurance to protect ALL of your assets.

[James H. Bushart]

So, Ben...it's been a while.

Have you been able to dig up any of those statistics I was asking for back in Janurary? I notice you are referring to "jury trials" and that was exactly what I was asking about. I assume, since you have this info at your fingertips now, you can share with me exactly how many of these "jury trials" happened in 2005, or 2006?

[John Cahill]

Originally Posted by bgarrison

Economically speaking, why would an insurance company want to spend $20,000 to litigate when they can potentially settle out for a fraction of that cost? Follow the money.

Because settling on innocent cases establishes a precident that encourges frivoulous law suits? A question to ask is "Do inspectors want to be defended when they are innocent?"

[James H. Bushart]

Originally Posted by jcahill

Because settling on innocent cases establishes a precident that encourges frivoulous law suits? A question to ask is "Do inspectors want to be defended when they are innocent?"

Inspectors want to be defended...but they are only paying premiums, not lawyer and court fees. If you are insured, you are at the mercy of the insurance company as to how your case will be handled.

[Ben L. Garrison]

Originally Posted by jbushart

Inspectors want to be defended...but they are only paying premiums, not lawyer and court fees. If you are insured, you are at the mercy of the insurance company as to how your case will be handled.

At the mercy of the insurance company is not such a bad thing. Considering they're paying your court AND lawyer fees in return for a premium. As well as settlements assuming that's necessary.

[John Cahill]

Hi Ben,

In other professional business the insurance is called Professional Liability. In home inspection it is called Errors and Omissions. The name itself appears to be an implied warranty. It instructs the consumer and Realtor that there is $$money$$ to pay for errors and omissions.

From the comments of a lot of persons who post, a home inspection is expected to provide restitution for anything that could have been reported that was within the scope of the Standards.

Is it truthful to say a home inspector is responsible to provide restitution for any error or omission that was visible and accessible and a requirement of the SoP?

[Ben L. Garrison]

Originally Posted by jbushart

So, Ben...it's been a while.

Have you been able to dig up any of those statistics I was asking for back in Janurary? I notice you are referring to "jury trials" and that was exactly what I was asking about. I assume, since you have this info at your fingertips now, you can share with me exactly how many of these "jury trials" happened in 2005, or 2006?

I don't know how much more clearly I can say it, but I can't access those statistics. Once again, I am not the insurance company and I am not privy to that information.

With regard to jury trials, it does not take a rocket scientist, nor statistics to understand that a verdict a jury renders can go either way and they are highly undpredictable.

Don't you ever watch Law & Order?

[Ben L. Garrison]

Originally Posted by jcahill

Hi Ben,

In other professional business the insurance is called Professional Liability. In home inspection it is called Errors and Omissions. The name itself appears to be an implied warranty. It instructs the consumer and Realtor that there is $$money$$ to pay for errors and omissions.

From the comments of a lot of persons who post, a home inspection is expected to provide restitution for anything that could have been reported that was within the scope of the Standards.

Is it truthful to say a home inspector is responsible to provide restitution for any error or omission that was visible and accessible and a requirement of the SoP?

I kinda get the impression that this question is some sort of trap, but here is my reply. You are correct and it's doctors and lawyers in most cases that use the term "Professional Liability." (Sidebar - how paradoxical would it be to hear an attorney complain about his/her liability insurance costs?).

If the home inspector legitimately made and error or omission during a home inspection, evident in the inspection report, it makes sense for that inspector to rectify the situation.

I think I'd go with the acronym "E&O" rather than "Professional Liability." The word "Liability" just has a negative connotation. KFC did the same thing years ago... the word "Fried" is percieved as unhealthy. Which it is. So they branded themselves as "KFC" rather than "Kentucky Fried Chicken."

[Brian E. Kelly]

I have E&O insurance. I and or the bank own more than one property and more than one vehicle.
I believe insurance is a necessary evil as I would like to keep my things. If a customer calls and complains about a bad HI on my part, I will do everything in my power to keep it from becomming a situation that will only be corrected by lawyers/insurance.
Now if it gets to lawsuit time I will be more than happy for my insurance company to step in and protect me from financial ruin.

On the other side of the coin, if a customer is going to sue me they are also going to have to come up with some money to get a lawyer to take their case.

[John Cahill]

Originally Posted by bgarrison

I kinda get the impression that this question is some sort of trap, but here is my reply.

If the home inspector legitimately made and error or omission during a home inspection, evident in the inspection report, it makes sense for that inspector to rectify the situation.

Yes, it is a friendly trap to reveal the truth. Thanks for being forthright. Can we assume "rectify" means to correct or provide compensation for?

The truth in your opinion (and many others) is a home inspector should "correct or provide compensation" for a legitimate error or omission.

My next questions are:

Is it unethical for an inspector to advertise E&O coverage?

Is it unethical to limit your liability via a contract (where permitted by law)?

Yes, these are tricky questions. So far your telling me I need to pay for anything I legitimately miss. Its vital for all inspectors to know that. In a way it might sell more insurance! Play along with me.

[James H. Bushart]

Originally Posted by bkelly2

On the other side of the coin, if a customer is going to sue me they are also going to have to come up with some money to get a lawyer to take their case.

Not really. If he knows you are insured, most lawyers will accept the case on contingency. They know how anxious an insurance company is to settle in order to keep their expenses down.

If you lack insurance and the lawyer sees the likelihood of a trial and a fight to recover anything, he will want money up front from his client before he invests his time.

Would you disagree, Ben?

[Ben L. Garrison]

Originally Posted by jcahill

Yes, it is a friendly trap to reveal the truth. Thanks for being forthright. Can we assume "rectify" means to correct or provide compensation for?

The truth in your opinion (and many others) is a home inspector should "correct or provide compensation" for a legitimate error or omission.

My next questions are:

Is it unethical for an inspector to advertise E&O coverage?

Is it unethical to limit your liability via a contract (where permitted by law)?

Yes, these are tricky questions. So far your telling me I need to pay for anything I legitimately miss. Its vital for all inspectors to know that. In a way it might sell more insurance! Play along with me.

Again, I'm here to help inspectors manage risk and protect yourselves. Yes, I work for FREA. Yes we make money on selling insurance. Just like you make money inspecting homes. But I'm not trying to sell FREA's insurance on this platform. I get plenty of phone calls all day from Inspectors looking to buy E&O.

Home Inspectors are not perfect. Nor is anyone for that matter. Is there a chance you might legitimately miss something during your inspection that you are responsible for? Of course. If you changed lanes while driving and didn't see a car in your blind spot and you hit them, wouldn't you be liable for damages? Of course. So yes, the inspector does assume the responsibility where he/she is at fault. Ok, so now the question gets recycled... "What if we weren't at fault?" In some cases, it's so costly to establish that you were not at fault that an insurance company will settle. Look, I know that doesn't settle (no pun intended well with you, but it can and does happen. Like I said earlier, if the insurance company went to court with every claim, the rates across the board would skyrocket.

Now to answer your questions:

1. Is it unethical for you to advertise that you have E&O? Not to agents if that's where you're getting a good chunk of business from. Often times they like it if your policy has the "Agent/Broker Indemnity" rider on the policy which offers them protection from a negligent referral. I wouldn't go advertising it to the consumer. Is there a need to? If a buyer asks you if you're insured and further asks your limits, I wouldn't do that inspection.

2. You can limit your liability in your contract, some states honor that, some don't. But that will more than likely "protect" you from settlement damages. Let's not forget who's making money in all of this. The attorneys who charge an arm and a leg for their services. And you will pay big bucks for them.

Hope thise helps.

[Brian E. Kelly]

Originally Posted by jbushart

Not really. If he knows you are insured, most lawyers will accept the case on contingency. They know how anxious an insurance company is to settle in order to keep their expenses down.

If you lack insurance and the lawyer sees the likelihood of a trial and a fight to recover anything, he will want money up front from his client before he invests his time.

Would you disagree, Ben?

This is fun

James have you any data to back up your claim of "most" attorneys will sue HI's for a cut of future earnings? And could you break down the word "most" into some sort of quantifiable number?
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[ekartal6]

Originally Posted by bgarrison

You absolutely can have EVERYTHING taken from you if found guilty/negligent for any error or ommission made in your inspection report. If your business assets are not enough, adios to your personal savings and everything else.

For a while I was under the impression that the only way to completely protect your personal assets was to put them in an irrevocable trust. But I was later informed that even that can be penetrated if a plaintiff's lawyer can somehow suggest that the trust was set up as a shelter from any liability.

Ben,

I've been under the impression that there are legitimate ways to protect personal assets from a suit. I just haven't done my home work. In your personal opinion do you feel this cannot be done?

Thanks

Erol

[Ben L. Garrison]

Originally Posted by bkelly2

I have E&O insurance. I and or the bank own more than one property and more than one vehicle.
I believe insurance is a necessary evil as I would like to keep my things. If a customer calls and complains about a bad HI on my part, I will do everything in my power to keep it from becomming a situation that will only be corrected by lawyers/insurance.
Now if it gets to lawsuit time I will be more than happy for my insurance company to step in and protect me from financial ruin.

On the other side of the coin, if a customer is going to sue me they are also going to have to come up with some money to get a lawyer to take their case.

Brian -- you're doing the right thing. There's a certain level of customer service that you need to have with running a business. I don't care what business you're in, if your customer is not happy you should at least listen to his/her initial concerns to see if there is any merit. And reply accordingly.

You need to be diplomatic with how you handle your clients. If you blow them off, tell them you did nothing wrong in a belittling way, or worse, you don't respond altogether, expect a lawsuit.