TOPIC: inspection question

Wow, I am catching up to these kinda late but thought I would offer my 2 cents worth.  I have read 2 different arguments as far as E&O insurance goes.  One, just set aside a certain amount from each inspection which eventually will add up to what you would have paid for a policy.  No matter how careful and precise you might be on your inspections, you will, without doubt, get a call from a client about some issue.  I have been called about missing window screens on a 1 million dollar house that was 25 years old.  As a matter of good business practice I offered a small settlement to appease them.  Guess what, now every inspection report has a disclaimer about window screens.  It is an ever learning profession.

I think the case that Dominic mentioned is rare but it also a good argument for carrying the insurance.  If your state licenses home inspector's you can almost guarantee that E&O will be mandatory.  The E&O can be beneficial if you have a major mistake.  Realtor's, and the public in general, is cautioned to make sure the inspector is licensed and insured.  Kinda like car insurance, the majority of us will pay a life time and never use it.  But what if?

Rob

Here are the comments from Darrel Hay who is a long time inspector in the Seattle area.  He writes a column for the Seattle Times on a fairly regular basis and is well respected in the area.

A Word About E&O Insurance

Many inspection companies like to tout the fact that they carry E&O insurance (errors and omissions).  E&O is presented to the public as an insurance policy for their benefit in case the inspector had a bad day and forgot to notice that the roof was missing or some other horrible nightmare. 

I wouldn't have E&O insurance if you gave it to me.

Say what?!

The cold hard truth is that E&O insurance is bought by inspectors to protect their assets.  It's not purchased out of the goodness of their hearts or for their customer's benefit.  Get real.  E&O benefitting the customer is just another nasty lie that this industry tells.

Let's say your inspector screws up.  Go ahead, I dare you, call the insurance company and ask them to give you $7500 for a new roof.  Won't happen.  This isn't like a fender bender in the parking lot.  You'll be forced to sue.  You may win in court or you may not.  But you will invest at least 20 G and more than a year of your life getting there. The insured inspector is not allowed to settle with you, since his insurance company has now taken charge of the claim.

Inspector E&O policies have about a $5000 yearly premium, and, to make the math easy, a $5000 deductible.  So any claim will cost the inspector 10 grand after all is said and done.  Plus he will have one supremely PO'ed client who will be bad-mouthing him up one side and down the other to anyone that will listen.  Doesn't seem the best business policy now does it?

Is there another way?
Let's say this same inspector pocketed the 10 grand he would have spent on insurance and deductible and simply put it in the bank, never handing it to the insurance company.  Now let's suppose this same customer calls up the uninsured inspector and says, "that roof you forgot to look at last week is missing".  Rather than the inspector saying "call my insurance company and good luck Chuck", followed by the insurance carrier responding with, "sue us bitch", what if the inspector said...."Oh my gosh, I have royally screwed up. Please take this $7500 and my profound apologies".  See the difference

Inspector is $2500 richer (each year), customer is happy as a clam, and tells everyone what a standup guy he is.  They call this a win-win.  Is it a warranty?  No, it's a business philosophy.

So your next question is, Darrell have you ever paid anyone?  Nope.  Never had the need to. 

He is absolutely correct, but here is another side of the big picture.  You can be self insured in everything if you have enough money!  You can be self insured with your auto, home, business, etc.  You just need to have the money!  Problem is, most people cant save $10000 much less keep a hold of it for what its suppose to be used for.

Darrel can run his business as he likes.  Carrying insurance is smart and the only way to do business.  ALL business have insurances...  that's insurances plural.

His statement that, "The cold hard truth is that E&O insurance is bought by inspectors to protect their assets," is not exactly revelation.  That is the definition of insurance.  Only a dope would expose himself (the word "exposure" is an insurance word meaning potential risk) and his assets to the litigious whims of a litigious society who have heard all the litigious stories of how litigious people got rich off of litigious circumstances.  Remember the lady and the hot McDonald's coffee?  What was that - I remember $7 mil, but could be off by a mil or two...

In this "I am entitled" society being created for us by government, you screw up and people will think that they are entitled to you and yours.  You want to take the chance otherwise, have a nice time.

Not me.

I don't know where Darrel has shopped, but my insurance does not cost me $5K a year, but $2100 for a million $$ in coverage - A. M. Best rated AA.  My deductible is $1500.  No big deal.  Have I ever used it?  NO. 

But I have two stories -->

Story 1 - 2 months after an inspection an agent called me to say my clients moved into a house and the clock did not work on the microwave.  But the microwave worked fine...  Hmmmm....   I frankly don't remember if the clock worked or not.  I do remember that the seller was present getting ready for an anniversary celebration and fixing dinner and I was literally working around her.  I distinctly remembered testing the microwave.  Maybe the clock worked and maybe not.  I did not grumble - I went to the store and bought them a very nice microwave, on sale, for $75.  Honestly, they probably gave it to their kids for Christmas, but I don't care.  And I have heard again and again from that agent for years since.  That $75 was a good investment.  Without spending it she would not have ever called back.

Story 2 - As is my habit, the first things I turn on are the dishwasher, furnace or AC, washing machine and dryer, and let them cycle.  Do I watch them until done?  Of course not.  I am there to test stuff...  During the inspection I went back downstairs to get something and the kitchen, living and dining room floors were full of water.  The laundry room was in the kitchen and there was water coming from UNDER the washing machine.  Not the hoses or door.  (I should say here that I check the WM hoses before I turn it on, every time)  The water also went downstairs and dripped all over the guy's home office - many computers, printers, etc.

My fault?  The seller threatened me up and down.  The realtor was VERY much on my side.  So was my insurance company.  Guess what?  After some interviews, it was found out that that washing machine had been broken for some time.  It was not used because it needed repairs that the seller had not gotten around to doing.  AND HE KNEW THAT.  HE HAD SET UP A BOOBY TRAP FOR ME, THINKING HE HAD ME AND COULD ROLL ME.  Did he leave a note not to test the washer?  Gee, no, he must have forgotten.

I may be a blob, but not an easy blob to roll.  Well, my wife and daughter can roll me, I am easy there, but not many others.

It cost me some stress, for about a week, but no money!!  Had that seller sued me, without insurance, he would have won.  How much would that have cost me?  After some lawyer was done with it probably many tens of thousands of dollars.

Things happen!

Why do you think we have things in our agreements like - we don't light pilot lights, turn valves on and off, are responsible for the condition of the house only on the day of inspection, etc, etc, etc...??

Darrel can worship as he may, but as for me and my house, we shall worship our asse(t)s.  Insert the "t" if you like...

To answer the original question of this thread -- the what do I do question -- do as thorough a job as you can.  Have the client see that you are in there fighting to protect their interests (asse(t)s) and family.  Get some toys so you can do as thorough a job as possible.  Demonstrate to them that you are a suspicious fellow.  Let the agent be present to witness how thorough you are, how interactive you are with the client(s), and how much you like your job. 

I can't, but if I could I would do this for free.  When I do an inspection, that is very obvious to my clients.

I get LOTS of call backs.

Your so good at telling stories. 

Jay,  Up here in Washington we have a requirement for performing Structural Pest Inspections.  The choice that many take is for a bond but when you have E&O and add in the Pest requirement, the prices skyrocket.  Seems the insurance companies don't like all the pests we have up here and they charge accordingly.

From the tone of your response, I would say you are an E&O proponent and carry it.  So the question is: Did you report the microwave issue to your insurance carrier as required? Probably not but you were supposed to.  But there will be some excuse or reason why you didn't follow the requirements of your policy.  Most likely you knew they would settle because of the price and you would end up paying for it because of your deductible anyway?  Right?  And then your would have a claim against you even though the insurance company didn't pay out a dime.  And when any of those little claims show up, guess what happens to your rates at the next renewal...  If they let you renew.

As for the McDonalds coffee lawsuit, read the facts about the case www.lectlaw.com/files/cur78.htm     While the original award was $2.7 Million, not $7 million, the award was lowered by the courts to $480k even though the judge called McDonalds conduct, reckless, callous and willful.

Each to his own but you won't find me with that big target on my back.  And yes I do set aside $10k in a 6 month CD.  Hardly any interest but I am earning something on my money, not paying it to someone else.  And no, I have never had a claim of any type.