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Causes of Action:  
    * negligent inspection
    * breach of contract
    * Defects latent, not detectable by reasonable inspection
    * Standard tort defenses
    * Standard contract defenses
Statute of Limitations:
Under general California law a person has four years to bring an action on a contract. Code of Civil Procedure § 337.1
Under the Business and Professions Code § 7199 the time to bring an action against a home inspector for “breach of duty arising from a home inspection report shall not exceed four years from the date of the inspection.”
Leko v. Cornerstone Building Inspection Service, 86 Cal.App.4th 1109, 103 Cal. Rptr.2d 858 (2001)
A home purchaser sued the Realtor for failing to disclose defects in a property.  The Realtor brought in as third-party defendants the home inspection company hired by the purchasers and a home inspection company hired by a prospective purchaser who had also considered purchasing the property but whose purchase never materialized.
The home inspection company hired by the prospective purchasers filed a motion for judgment on the pleadings contending that even if it were negligent - as alleged in the pleadings - it cannot be held liable as a matter of law because it had no relationship with the purchaser.  The lower court granted the motion and the Realtor appealed.
It is important to understand first what stage of litigation this case is in. The Court was ruling on an appeal from a lower court's granting of a Motion for Judgment on the Pleadings in favor of the home inspection company.
Held: You can be held liable to third-parties who reasonably rely on your reports.
This court even quoted favorably a case where an appraiser was held answerable [note: not liable - a jury would have to make that determination] to a third-party investor who relied on the appraiser's report notwithstanding the appraiser's disclaimer that only the person for whom the report was prepared could rely on it.
The Leko court is NOT saying is that when all the evidence is in, the home inspector will be held liable. In this instance, that will depend on whether or not the third-party's reliance was reasonable.
Moreno v. Sanchez, 106 Cal.App.4th 1415, 106 Cal. Rptr.2d 684 (2003)
Purchasers brought suit against home inspector, alleging breach of contract, negligence, and negligent misrepresentation.  The home inspection contract had a provision limiting the time within which the client could bring a suit against the home inspector to one year as well as a provision for liquidated damages.  The purchaser, a lawyer, objected to both provisions and the home inspector agreed to remove the liquidated damages provision but insisted on retaining the one-year limitation on suits.  The purchaser acquiesced.  The purchaser subsequently discovered that the home had defects that they claimed should have been raised in the home inspection.
They filed suit more than one year after the inspection.  The home inspector filed a demurrer to the complaint, citing the contractual limitation on the vitality of suits after one year.  The lower court sustained the demurrer and the home purchasers appealed.
Held: Cause of action in tort against a home inspector accrued, and one year limitation period in the inspection contract began to run, on the date that the purchasers discovered, or with the exercise of reasonable diligence, should have discovered the inspector’s breach and that the inspector could be held liable in tort despite a written contract.