Interesting article from the NJ Law Journal:
Unique Issues Arising in Claims Against Home Inspectors
John B. Mullahy and John J. Leo III
01-05-2011
Frustrated homebuyers increasingly resort to litigation and include home inspectors among the parties they sue. New Jersey courts have recognized home inspectors’ professional status, required expert testimony to prove they were negligent, and included them as professionals exempt from the Consumer Fraud Act (CFA).
Courts have also enforced arbitration agreements between inspectors and homebuyers, permitted shortening the statute of limitations for claims against inspectors, and would likely permit a reasonable limitation of liability as to those claims.
Standards of Practice
The American Society of Home Inspectors (ASHI) and the National Association of Home Inspectors (NAHI) have established Standards of Practice and a Code of Ethics in response to homebuyers’ demand for professional expertise distinct from construction, engineering, architecture and municipal building inspections.
According to these professional standards, home inspectors must: (1) examine readily-accessible and visually-observable systems and components; (2) report systems and components that are not functioning properly or are deficient, unsafe or near the end of their service lives; (3) recommend that homeowners correct (or monitor for future correction) the deficiencies reported or items needing further evaluation; and (4) identify systems and components that were not inspected and the reasons they were not inspected.
The standards also state that home inspections apply to the following 10 broad categories: structural components, exterior, roofing, plumbing, electrical, heating, air conditioning, interiors, insulation and ventilation, and fireplaces and solid-fuel burning appliances. Inspectors discuss all of these areas in their written reports. See ASHI Standards of Practice and Code of Ethics, at 2.2; www.homeinspector.org.
A few examples of the things inspectors examine include the foundation, framing and grading; roofs and decks; the water supply and drainage systems; the heating, air conditioning and electrical systems; and all interior structures and installed appliances. Inspectors are not required to operate central air conditioning equipment when the outside air temperature is below 60 degrees (or when conditions could damage the equipment), or to activate heating systems when ambient temperatures (or other circumstances) are not conducive to safe operation. See NAHI Standards of Practice, at 12.3.5, 11.3.8; www.nahi.org. Nor are inspectors required to offer or perform engineering or architectural services, to discuss the adequacy of structural systems, or to identify concealed conditions or latent defects. See ASHI Standards of Practice and Code of Ethics, at 2.2.B-C, 3.2, 13.
In cases against home inspectors, the plaintiffs must prove that the inspectors were required to inspect the defective parts of the homes in question, that the inspectors deviated from ASHI or NAHI standards (or another appropriate standard), and that those deviations caused damages. See Grzymala v. McKeon , 2007 WL 2188633 *4 (N.J. App. Div. July 31, 2007).
The Consumer Fraud Act
The CFA outlaws commercial practices involving deception, fraud, false pretense, misrepresentation, or the knowing concealment, suppression, or omission of any material fact concerning the sale or advertisement of merchandise. The statute penalizes violators with treble damages and liability for the aggrieved consumer’s reasonable attorneys’ fees and costs. See N.J.S.A. 56:8-1 to 20. Brokers, agents and persons representing sellers of real estate are subject to the CFA. Strawn v. Canuso , 140 N.J. 43, 60 (1995).
However, the CFA exempts licensed professionals and semi-professionals subject to testing and regulation under statutory and administrative code provisions. And at least one lower court has ruled that home inspectors are learned professionals and that when they act in their professional capacity, they are not subject to CFA claims. See Cheret v. Sure Home Inspections, et al. , 2009 WL 1641441 (N.J. Super. Ct. Law Div., May 15, 2009) (finding that home inspectors are subject to testing, licensing, regulations and other legislative provisions that ordinary commercial sellers of goods and services are not).
Arbitration Clauses
An arbitration clause in the home-inspection agreement is enforceable and arbitration is binding where the controversy falls within the scope of the agreement and its terms are unambiguous. See Meglio v. Taylor Real Estate, Inc. , 2006 *WL *31534326 (N.J. Super. Ct. App. Div. Nov. 6, 2006). In Meglio , the plaintiffs were provided a home-inspection report indicating the home had no major structural concerns. The report was attached to a contract that included language for binding arbitration to resolve all relevant claims.
After closing, the plaintiffs started remodeling the home and discovered evidence of fire damage. They sued for the difference between the initial estimate and the estimate after discovery of the damage. The lower court issued an order compelling arbitration, and the plaintiffs appealed, arguing that the agreement was unfair and contained no language stating that they waived their right to a jury trial. The Appellate Division ruled the agreement was enforceable because the intent to arbitrate was clear, the claims fell within the parties’ agreement and the parties made no showing of fraud or unconscionability.
Shortening of Statute of Limitations and Limitation of Liability Clauses
Claims against home inspectors fall under the six-year statute of limitations for claims based on contracts or injury to real property. Such claims are enforceable and the agreed-upon time (even one year) is reasonable, provided the court views the parties as being at arm’s length in negotiating them. See N.J.S.A. 2A:14-1; A.J. Tenwood Associates v. Orange Senior Citizens Housing Co. , 200 N.J. Super. 515, 523-524 (App. Div. 1985) (finding one-year limitation period in construction contract valid and enforceable).
Courts have also used the reasonableness standard in ruling on limitation of liability clauses in home-inspection agreements. See Lucier v. Williams , 366 N.J. Super. 485 (App. Div. 2004). In Lucier , the home buyers hired an inspector, agreed to limit his liability to the lesser of $500 or 50 percent of the fees they paid him, and then sued to recover around $10,000 in costs to repair the house’s roof. The Appellate Division found the provision limiting the inspector’s liability unenforceable as written and under the facts there. However, a more reasonable damages clause could pass judicial scrutiny.
New Jersey courts recognize home inspectors as professionals. Home buyers bringing suits against them will encounter statutory, procedural, evidentiary and substantive hurdles to imposing liability on them. Counsel representing homebuyers and home inspectors should be prepared to address home inspection agreements, especially clauses mandating arbitration and limiting both the time to file a claim and the inspectors’ liability. Counsel should also be prepared to address the CFA and the need for expert testimony to prove such claims.
