COMPREHENSIVE GENERAL; PROFESSIONAL LIABILITY COVERAGES ESSENTIAL FOR MODERN HOME INSPECTION PRACTICE

By Don Kasper, Burns & Wilcox, Ltd. and
Jeremy Phelps, MVP Financial Group

While "horror stories" about home purchases grab attention, many trends are boosting the importance of the certified home inspection industry. These include the increasing value of new homes in general, the substantial assets that many Americans are devoting to their "dream homes" and second or even third homes, the growing complexity and technical sophistication of modern home systems (whether HVAC climate control or cutting-edge structural materials), and consumer awareness and expectation. Also, reputable real estate entities, developers and new homebuilders welcome the participation of home inspectors in the buying process, including the move to pre-sale inspections.

While not all states require licensure or liability insurance, we can reasonably expect more states to do so in the future in a manner similar to other construction-related trades, whether roofing, plumbing or electrical. We also note trends favorable to our organization, such as states (e.g.., Kentucky, Pennsylvania) specifying InterNACHI Certification as a requirement for state licensure.

Why be insured? Home inspection services are delivered with necessary caveats and, ordinarily, the signature of the client to a series of liability waivers. The enforceability of such waivers is subject to state laws and case law. As with licensure in general, we anticipate that more states will look to hold home inspectors responsible for their work product. A waiver, in and of itself, does not preclude misunderstandings or litigation, which can be expensive without insurance-provided defense. One claim could destroy a business enterprise.

Regardless, the ethical, qualified practitioner wants to be responsible for his or her work product and, as in other fields, having necessary coverages in place means you conduct yourself professionally-it just makes good sense. More established inspectors such as those belonging to the National Association of Certified Home Inspectors (InterNACHI), understand these issues. However, this industry is growing by leaps and bounds, prompting wider discussion of these issues.

Some things to look for in policies. It should go without saying, but a business pursuits endorsement to one's homeowner's policy offers no liability protection. Inspectors should have separate GL (general liability) coverage and Professional Liability coverage, also called Errors & Omissions. [GL coverage is for physical acts such as damaging the home while inspecting it or acts for which the inspector is the proximate cause, the classic example being that of leaving a tape measure on the floor that someone later slips on and injures themselves. Professional liability is for your work product as an inspector.]

More underwriters (insurance carriers) are entering this class of business. This is a good trend, for it means that quality coverage is more likely to be available, it encourages pricing competition, and represents, overall, a normalization or understanding of risks germane to home inspection.

When comparing policies, consider the following items:

Whether newly established firms are eligible. Many underwriters will require prior experience in a construction-related industry and/or formal education in home inspection. As this field of insurance grows, we can expect underwriters to become more involved in seeing standards for insurability as a means of loss control, which, again, is to this organization's advantage.
The dollar limits that are available.
Most policies provide "claims made" coverage. Some carriers offer optional prior acts coverage (which may be valuable for entities that merge) or an extended reporting period.
The ability of the carrier to tailor policy language to your specific practice.
Whether the carrier will insure business operations in multiple states.
The A. M. Best rating of the carrier.

While the insurance industry "learns" better the home inspection industry, it is important to note the overall upward trend in construction defect litigation, especially in "hot" housing markets. This trend puts greater pressure on all parties in the real estate chain, including home inspectors.

More specifically, in speaking with underwriters, we note the following:

The most important coverage issue may be contingent bodily injury (BI) and property damage (PD) under the professional liability policy. Most PL policies cover financial loss only. Watch for that, as almost all claims include some element of property damage to the home inspected (failure to detect a defect leading to water damage, collapsed porch, etc.) or bodily injury to the occupants of the home (failure to note unsafe conditions resulting in an accident). Without contingent BI/PD coverage, these claims could be denied.
If you do code inspections or termite inspections, be sure these areas aren't excluded.
Insureds with good risk management procedures in place will find that any claims presented to their carrier will be resolved more quickly.
Claim areas of "high interest" (i.e., with plaintiff action) include mold and mold events, chemical sensitivities/odors and insect infestation.

Preventive approach. Working with an established agent. There are differences in policy language, coverage limits, covered exposures, and underwriter experience with the home inspection industry, not just premium cost. You are best served by working with an insurance agent who has experience in this line of coverage and established relationships with quality underwriters. The professional agent will assess your potential exposures and help you develop risk management protocols, in addition to sourcing the best policy. In tight insurance markets, or should a claim arise, the agent becomes an even more valuable resource.

Overall, as we have indicated, strong programs of risk management, along with sound GL and PL coverages, not only protect individual home inspectors, but also elevate the standing of the home inspection industry within the real estate community and with consumers.

Jeremy Phelps is president of MVP Financial Group, a financial management firm based in Rocklin, Calif. Phelps can be reached at (916) 783-7872 or via e-mail at jeremyp@mvpfinancialgroup.com. Don Kasper serve as manager of the Denver, Colo., office of Burns & Wilcox, the nation's largest independently owned specialty insurance managing general agent. He can be reached at (800) 888-9701 or dlkasper@burns-wilcox.com

National Association of Certified Home Inspectors

COMPREHENSIVE GENERAL; PROFESSIONAL LIABILITY COVERAGES ESSENTIAL FOR MODERN HOME INSPECTION PRACTICE

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