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
