Professional liability is defined as "the area of law concerning lawsuits brought against a professional in the course of their profession".  Home inspectors, like other professionals, are vulnerable to professional liability actions. When a client is dissatisfied with an inspection, typically because some defect is discovered after closing, the knee-jerk reaction is often to blame the inspector. Second only to the inspector comes placing blame on the Realtor, especially if the inspector was recommended by them. 

What can a professional home inspector do to protect himself from frivolous claims?  Home Inspectors can purchase E & O Insurance which protects them for claims arising from allegations of wrongful acts, errors and omissions in their inspections. Whether or not an inspector decides to carry E & O insurance is a personal decision unless the state the inspector lives in requires it.  Even if the inspector decides to carry E & O, how does he/she protect themselves if there is a gap in their coverage?  What about if the inspector provides ancillary inspection services such as radon testing, termite inspections and mold inspections? These services are not covered by a normal E & O policy; often a separate rider is required.  E & O premiums cost several thousand dollars/year and in the case of a dispute, the inspector often has to settle the claim by paying out of his/her deductable.  So even if an inspector carries E & O insurance, he/she is still out of pocket thousands of dollars should he/she be named in a lawsuit, even when he/she has done nothing wrong.

The problem with E & O insurance is that it often paints a target on the inspector's back.  E & O does not protect the consumer for the majority of payouts are from the deductible that the inspector carries, anyway. E & O insurance is also an expense that few part time and rural inspectors can afford and often puts them out of business. If an attorneys gets involved, the next thing you know, you receive service to answer a complaint. Even if you are in the right and have done nothing wrong, you need to either represent yourself, tender the claim to your E & O carrier (and relinquish all control), or hire your own attorney.  The matter tends to get expensive in a hurry.  

How can an inspector  avoid the potential high costs of litigation? Arbitration is a well-recognized alternative to the court system.  Even though some arbitration firms can be rather costly, they are still less expensive than legal services.   It would be most beneficial to both parties involved in an inspection dispute (the inspector and the home owner) if the professional arbitrator has inspection-industry knowledge because these experts can provide perspectives and insights not previously considered by the attorneys. There is no learning curve when using Industry experts. They provide additional support for both sides because they have extensive technical and field experience and access to expert witnesses specifically targeted to a particular set of issues. An inspection industry professional arbitrator can provide significant benefit by educating both sides about the specific technical and practical aspects of the issues in question. Access to someone that fully understands both sides of the dispute provides a real  value any kind  of  dispute. 

Home  inspectors are the most knowledgeable professionals involved in the real estate transaction.  They carry the most liability, however, they  are  often paid the least.  Inspectors are relied on by the client, and are often the final say in whether a deal goes through or not.  Unfortunately,  home  inspectors  also  often have the largest target painted on them.    

By Joe Farsetta, CMI  
© Copyright 2009