November, 2011
Feature
Inspection News and Views from the American Society of Home Inspectors



5 Key Items Every Inspector Should Have in His Contract

MARIEL FOIS

The following article is provided as a service by Business Risk Partners, Inc. and their claims administrator, Professional Claims Managers, Inc. This article is intended as a general discussion involving the home inspector and should not be construed as legal advice. As laws differ from state to state, and because the law related to industry changes regularly, please consult with an attorney in the proper jurisdiction to obtain legal advice on any particular matter.

1. Client's signature.
Every home inspection contract should have a signed agreement. Without a signed agreement, you lack an enforceable contract. We recommend that you do not perform the inspection if you do not have a signed contract, and avoid waiting until the day of the inspection to get the contract signed. Furthermore, obtain the signature of the actual client(s) rather than accepting a signature from the real estate agent, friend or family member. Finally, it is important to remember that your insurance policy may require you to obtain a signed contract as a condition precedent to coverage.

2. Limitation of liability clause.

A limitation of liability clause limits the amount of recoverable damages in case of a dispute arising from your inspection services. Some limitation provisions may limit the recoverable damages to the cost of the inspection, while others may limit the recoverable damages to a multiplier of the inspection cost (e.g., 5 times the inspection cost). A limitation of liability provision often serves as a good risk-management tool and, where enforceable, allows you to limit the amount of exposure in the event of a claim. Because the enforceability of such provisions varies from state to state, we recommend you have an attorney licensed in your state review any proposed limit of liability provision.

3. Shortened statute of limitations clause.

A shortened statute of limitations clause limits the amount of time a client has to file a lawsuit against you. The benefit of such a clause is it shortens the time within which a client may pursue a claim, thereby providing you a viable defense to those claims asserted due to defects discovered or which manifest themselves years after you performed the inspection. As with the limitation of liability clause set forth above, a shortened statute of limitations clause is not enforceable in all states. As such, we recommend you have an attorney licensed in your state review your clause or assist you with the drafting of this contract provision.

4. Alternate dispute resolution provision.
An Alternate Dispute Resolution (ADR) provision in a contract is a provision that requires that any dispute between you and your client arising out of your services will be subject to the ADR process, rather than the traditional judicial process. ADR provisions include mediation and/or arbitration provisions. Mediation is a process wherein the parties use a neutral mediator who seeks to facilitate a voluntarily resolution with the parties involved. Arbitration requires the parties to submit the case to a single arbitrator or a panel of arbitrators rather than proceeding through the judicial system.

Including a binding arbitration clause in your contract allows you to remove the case from a judge and/or jury and place it in the hands of independent arbitrators. Arbitration typically is less formal and less costly that traditional litigation and can help you avoid having to litigate a case in an unfavorable venue. Arbitration provisions vary widely in scope and nature, and also may not be enforceable in all states. Therefore, we recommend you obtain input from an attorney licensed in your state to assist you in selecting the appropriate ADR language.

5. Scope & limitations of services provisions.
Your contract should contain provisions that clearly outline the scope of the services you intend to provide and any limitations of such services. For example, your contract should clearly set forth the applicable standard of practice followed (e.g., that the inspection is pursuant to ASHI guidelines, where applicable) and set forth that the inspection is visual only, and that it does not cover latent or hidden defects. It also is beneficial if the contract identifies any specific areas or items you do not intend to include as part of the inspection process (e.g., mold, radon, drywall, termite/pest, lead pipes, engineering, code compliance, etc.). Having such language allows you to refute claims arising out of item(s) that you did not inspect and which the contract clearly states fall outside the scope of the inspection. It also serves to temper expectations and make it clear to clients, upfront, that the inspection process is not all-inclusive.

Mariel Fois is with Business Risk Partners, Inc., which features an ASHI-Endorsed program for E & O insurance. Did you know Business Risk Partners risk management hotline includes contract review? If you are insured through BRP, take advantage of this service now. Call our risk management hotline, 866-654-1103, today with your policy number. If you are not insured with BRP, go to www.inspectorinsurance.com and apply today. J. Brian Hobbs and Eric Snyder are with Professional Claims Managers, Inc.