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Risk Management: Protecting Against the Unexpected
By Isaac Peck, Editor
Usually, the punch that does the greatest damage is the one you never see coming. A good insurance policy will protect you against issues that come up in your home inspection business that you can anticipate, as well as those you can not. Take pest inspections for instance- if you exclude it in your contract and don’t inspector for it, you probably expect that this is one problem you will never have to deal with, right? Read on please.
Not all home inspectors do pest inspections. In fact, the contracts of many home inspectors specifically exclude wood destroying insects/organisms (WDI/WDO). After all, a pest inspection is usually conducted (and sometimes mandated) by a licensed, professional pest inspector. This leads many home inspectors to decline to offer the service and to specifically exclude it from the scope of their inspection with language such as this in their contract:
Symptoms and items which are EXCLUDED from this inspection include…the presence or absence of pests and wood destroying insects. The client is urged to contact a reputable and licensed specialist if identification and extermination of excluded pests is desired. Any comment regarding excluded systems or items are for information only and are not part of the inspection.
However, despite clear language in your contract that specifically excludes the service, nothing prevents an irate homeowner from suing you if a problem arises- say six months after they move in when they open a wall for a new remodel. If that happens, you’ll want what’s sometimes referred to as incidental coverage, for a service you don’t provide and would never anticipate needing coverage for.
According to David Brauner, Senior Broker at insurance provider OREP.org, it’s common sense that an inspector who doesn’t inspect for WDI/WDO probably is not going to pay extra for the coverage- why would they? However, if they do face a lawsuit that involves pests or pest damage, not having this coverage included in their policy might affect how and to what extent the insurance company responds. They may cover defense and settlement costs; maybe just defense costs- maybe neither. I would understand if you stopped your reading right now to call your E&O agent to ask whether you have coverage!
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Assuming you’re back, a scenario like this is possible, according to Brauner. “We have seen a new homeowner move in and begin a remodel only to find termite damage that was hidden behind a wall. It was unseen and unreported by the inspector who doesn’t inspect for pests,” said Brauner. “The first instinct of the homeowner is to try to recover some of the expense from the home inspector and maybe get a free remodel.”
In this scenario, the inspector or someone representing them responds with their scope of work and agreement, signed by both parties, which limits the report to what is “readily visible” and specifically excludes WDI/WDO or pest inspections. That’s great, says Brauner, but what if that does not stop the homeowner? The inspector may have to be prepared to further prove his or her case and it may or may not be without the help of their insurance carrier, if coverage for the service is excluded. This reveals a key point that many home inspectors may not realize. Even if they do not perform a particular service, such as inspecting for pests, rodents, lead paint, or EIFS/stucco issues, and even if their inspection contract specifically excludes such items, their insurance policy may not extend coverage if a claim arises.
That’s why inspectors should shop for a policy with the broadest possible coverage. “A broad policy that includes coverage for many services is a great value because it protects you against the unexpected,” says Brauner.
The trick for inspectors is finding broad coverage without paying an arm and a leg. “The unexpected is not so unusual in this business, unfortunately. Insurance is about peace of mind and having coverage when you need it,” Brauner said. “If you’d like to know more about the broad policy we’ve designed to protect our insureds, please call or visit OREP. We’ve been providing insurance protection to inspectors for over 17 years and we take your business as seriously as we take our own.”
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Claims and Complaints: How to Stay Out of Trouble
Presenter: David Brauner, Senior Insurance Broker OREP
David Brauner, Senior Broker at OREP, shares insights and advice gained over 25+ years of providing E&O insurance for inspectors, showing you how to protect yourself and your business. Watch Now!
About the Author
Isaac Peck is the Editor of Working RE magazine and the Director of Marketing at OREP.org, a leading provider of E&O insurance for appraisers, inspectors and other real estate professionals in 50 states. He received his master’s degree in accounting at San Diego State University. He can be contacted at firstname.lastname@example.org or (888) 347-5273.
Note: The Summer 2018 issue of Working RE Inspector mailed to over 20,000 home inspectors nationwide. OREP Insureds enjoy guaranteed delivery of each print magazine and many more benefits.