January, 2003
Feature
Inspection News and Views from the American Society of Home Inspectors



Common Reasons for Claims Explained

BUSINESS RISK PARTNERS

As home inspectors are undoubtedly aware, the two most common reasons for claims are 1) the identification of a problem condition without fully explaining its significance, and 2) not having a signed pre-inspection agreement. Both of these situations appeared in a recent actual claim against our insured home inspector. In light of the circumstances, the case became all but defenseless – the inspector quickly agreed to tender his or her de-ductible, and rather than spending defense costs on a case that would be very difficult to defend, we recommended that settlement be pursued up to $15,000 to settle the claim.

The defenseless case

The inspection involved a $128,000 home. The prospective purchaser was an elderly woman, who claimed structural damages to her home in the amount of $20,000. The plaintiff claimed that although cracks in the walls and garage floor were noted in the inspection report, the consequences of these cracks were not dealt with in the report.

Upon the call-back, the plaintiff admitted that significant cracks did not appear until after the inspection. The inspector documented this admission. The plaintiff proceeded to hire contractors and fix the damage.

The inspector’s defense was that the cracks were common and did not evidence a red flag that structural damage existed, especially since there was no other physical indicia of a problem (e.g., the doors were not uneven, etc). The inspector argued that it was not reasonable for him to recommend a structural inspection in this case, since the cracking appeared to be so immaterial.

From a risk management perspective, the home inspector was probably not correct. It is imperative that the inspection report proactively deals with potentially problematic situations, and assumes that a problem will arise.

Insurer’s recommendation

Our recommendation is that if cracking is noted, since this may or may not be a sign of a more substantial problem, that the inspector in each case explain this fact, and recommend further professional attention. This is especially so in cases involving the structure of the building, since these situations can typically involve large damages. In the claim here, there was a problem lurking and the lack of anticipation of this fact, along with the actual subsequent damage, left this case indefensible.  

Lack of agreement compounds claim


The claim was compounded by the lack of a signed pre-inspection agreement. There was no ability to point to the limitation of liability or other contractual defenses in order to, at the very least, further negotiate the amount of the settlement.

We hope that this real life situation raises awareness of some important issues so that they can be avoided by others in the future.