Legal Defense Fund discussion. Should we try again?

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POSTED WITH PERMISSION:

----- Original Message -----
From: Above Par Inspections
To: FastReply@nachi.org
Sent: Tuesday, June 06, 2006 4:37 PM
Subject: Attn: Nick Gromicko

Nick,

Probably every inspector who has been in business for any amount of time knows that it is only a matter of time before we get sued, are threatened to be sued, or the inevitable happens and we miss something that we feel we are responsible for and pay out of our own pockets.
Many of us carry E&O insurance, which as you well know, is very expensive. Many of us also offer personal guarantees for our work, promising to pay up to a certain dollar amount for items that may have been missed during a inspection. Many of us offer limited third party warranties with our inspections.
*The sad truth is that none of these warranties, insurance, or guarantees work out well for us. *
Most of us have a high deductible for E&O insurance and quite frankly are scared to turn anything in to them, afraid our already high premiums will escalate. In our company, we include a third party limited warranty with every inspection. We have had two claims turned in to this home warranty company in the past three years and sadly they have found a way to exclude the problem and not take care of our customer, leaving us to do what we thought we were paying them for! Personal warranties are fine, but don’t carry the marketing clout that an insurance or home warranty company provides to guarantee our work.
I think all of us have paid for something out of our own pockets that falls into one of the following categories:

1. We made a mistake or missed something, feel bad about it, and pay for it.
2. We feel we didn’t make a mistake, but are being threatened by legal action, knowing that any legal action will cost us more in the long run than the claim, and we pay for it.
3. We feel like we didn’t make a mistake, but it is not worth fighting about, let alone damaging our reputation, and we pay for it.

Sometimes its just a cracked roof tile or some other $50 disaster that comes back to bite us, but sometimes its a $1500 roof repair where it really hurts to write that check, especially when it is slow or out of season. Many of us are not part of big companies or franchises with deep pockets, we are small business owners and entrepreneur’s just making a living for our families. In our minds, we are helping people, doing our jobs to evaluate their prospective home and help set their minds at ease.
Unfortunately, we live in a world that is highly litigious and almost anyone will sue us at the drop of a hat for some perceived wrongdoing, real or imagined.
I am proposing creation of an organization, run by Home Inspectors for Home Inspectors to fill this Grey area between our checkbooks and our E&O insurance. For a small monthly fee or a yearly fee, we could pool our resources and take care of our brothers and sisters in our profession when these unexpected claims happen.
As the founder of NACHI, I believe you saw a need and acted on the need for the benefit of all inspectors. As a Home Inspector, I see the need for this type of organization, and am asking for your opinions on acting on this need to benefit our brothers & sisters in our profession. Any input would be greatly appreciated.

J. Penny
NACHI member # 04111683

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While this appears to be a commendable idea on the surface, would not much of the same desired effect be accomplished by enrollment in ADRS for $90 a year?

I feel comfortable with that as a “cushion.” I can imagine that, perhaps, those who turn much more volume than I would want a fund.

My thoughts are that a fund may get depleted before getting to any size, and also it may encourage sloppiness in some cases . . .
I don’t know.

  1. In the event of a claim against INSPECTOR, CLIENT agrees to supply INSPECTOR with the following: (1) Written notification of adverse conditions within 14 days of discovery, and (2) Access to the premises. Failure to comply with the above conditions will release INSPECTOR and its agents from any and all obligations or liability of any kind. CLIENT agrees to submit, in lieu of litigation, any disputes which may arise in connection with the Inspection of the subject property, to mediation / arbitration under the Rules of the National Association of Certified Home Inspectors’ Alternate Dispute Resolution Service (www.nachiadrs.com). The Client and Inspector acknowledge that they are bound by the Terms and Conditions of the Inspection Agreement, and that the outcome of any mediation and/or arbitration may be based upon those very Terms and Conditions, and with substantial compliance with the Standards of Practice of NACHI. The Client further agrees to be responsible for all costs associated with the request for mediation/arbitration. The Client understands that, under the Terms of this Agreement, mediation and arbitration proceedings shall be governed and followed as prescribed under the Rules for Mediation, and the Rules for Arbitration, are set forth by ADRS. Proceedings shall first attempt to reach a voluntary settlement under the Rules for Mediation. Should mediation fail to produce a voluntary settlement, and based upon information conveyed during the proceedings, ADRS shall then render a final decision as to the outcome of the action sought under its Rules regarding Arbitration. Both Parties agree to hold the Mediator / Arbitrator, NACHI, and ADRS, harmless from the results of any sought action, or resolution reached through the process.
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Hi to all,

Nick, maybe I am missing something here, but if the insurance companies are charging us $2,500- 4,000 p.a. to carry this risk then it is based on claims made. Yes I know they have overheads to cover and mke profits from the transaction but I don’t see how self insuring would lower costs.

Also there is the issue of the licensed states who mandate some levels of insurance.

Personally I don’t like my own potential liabilities and sure as hell don’t want a piece of anyone elses :frowning:

Regards

Gerry

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I think the dispute resolution system is entirely different, Russ. Mediation is a method of processing a dispute, not a method of offsetting the cost when liability or responsibility has been accepted.

This sounds like it is meant to help financially rectify cases where the deductible is high or the repairs are less than the deductible, but still hard to take on.

I also think a fund may be depleted before it becomes sustainable.

Like, Gerry, I do not wish to share in others’ liability.

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Please don’t forget who has control of ADRS and where the money goes.

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Where does the money go?

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Yet another reason NOT to join. I think I will stick with the BBB dispute resolution system - better marketing tool, too.

8

Maybe CMI’s should qulify for free adrs membership, and internachi. …

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Come on, Ben - they wouldn’t need it: They’re Masters!

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With the benefit of marketing as a master, they probably have deep pockets anyway…

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Joe M is correct in that any arbitration/mediation service is no substitute for E&O insurance. ADRS was born out of a request of a major carrier NACHI was courting when selecting who would offer the best deal for NACHI inspectors seeking E&O. That’s not to say, however, that mediation and arbitration is not a good idea.

To the notion of any legal defense fund, consumer recovery fund, or the like: the idea was hatched in Canada a while back, and any true financial analysis reveals, time and time again, that such a venture would simply not be able to sustain itself. Aside from the logistics, and human intervention, there is also the reality that, as envisioned, any consumer recovery fund, which would be needed to indemnify the inspector, may be considered as insurance by any number of state agencies. That brings along any number of regulatory headaches.

Additionally, as I recall, the numbers being bandied about way back when, was in the area of approximately $3k per annum, per inspector who joined. Even at that, the legal costs, admin fees, and potential rewards, could deplete any surplus, again and again.

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Any cost higher than my E&O deductible makes it essentially worthless to me, but there are some who choose not to carry E&O. That is their choice though, and I don’t see the wisdom in providing a fund for that.

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I’m in agreement with not doing it. There is a reason it failed before. The only thing we might consider is have E&O insurance policy holders at NACHI form a Fund (for those who want to participate) whereby they could all raise their deductible which would lower the premium they all pay, and then put a portion of those savings into a fund to pay the premium in full when one files a claim. That would make some mathmatical sense anyway and would not be difficult to administer (no decisions to make).

It would be more of a Deductible Payoff Fund.

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I think that we ran the numbers the first time and they just didn’t make sense to us. We figured out that we would deplete the fund very quickly and without a way to add funds back to it.