October, 2017
Feature
Inspection News and Views from the American Society of Home Inspectors



Meritless Claims: How You Should Handle Them?

JOE FERRY

First, let’s define what constitutes a claim made against a home inspector. The distinguishing characteristic of a claim is a demand for money. Until there is a very definite request that you step up to the plate and rectify what the claimant thinks is the result of a faulty inspection, you do not have a claim. Any communication up to that point is merely an inquiry.

The overwhelming majority of true claims start out with a telephone call or an email wherein the claimant states that you inspected the house some time ago, something out of the ordinary has happened, and he or she would like you to rectify the situation. That is what is known as the “first notice” of the claim.

A Demand from the Claimant
When the first notice is a demand from the claimant, himself or
herself, either orally in personal conversations, or over the telephone or written in an email or a letter, the first order of business is to determine whether or not the claim has merit by asking these questions:

1. Is the claim for a defect that can be determined by a standard home inspection?

No? Then the claim lacks merit and should be denied because a standard home inspection would not be able to determine that defect.

Yes? Then the claim may have merit. Ask the next question.

2.Is the claim for something that is within the ASHI Standard of Practice (SOP)?

No? Then the claim lacks merit and should be denied because a determination of that defect is outside of the SOP.

Yes? Then the claim may have merit. Ask the next question.

3. Is the claim for a defect that was concealed at the time of the inspection?

Yes? Then the claim lacks merit and should be denied because home inspectors are not required to report defects that are concealed at the time of the inspection.

No? Then the claim may have merit. Ask the next question.

4. Is the claim for something that was disclaimed at the time of the inspection?

Yes? Then the claim lacks merit and should be denied because the inspector disclaimed responsibility for it at the time of the inspection.

No? Then the claim may have merit. Ask the next question.

5. Is the claim for something that was working at the time of the inspection?

Yes? Then the claim lacks merit and should be denied because the item was working at the time of the inspection.

No? Then the claim may have merit. Ask the next question.

6Is the claim for something that was discovered and reported at the time of the inspection?

Yes? Then the claim lacks merit because the inspector discovered the defect and reported it.

No? Then the claim has merit.

Once you have determined that the claim lacks merit, you have to disavow any responsibility for it, politely but firmly, in terms that the claimant cannot fail to understand. On the other hand, if you determine that the claim has merit, you need to ask another
question: Is there mitigation?

Claimants always think that their claim is worth much more than it actually is. They think that, if the inspector missed a roof defect, then they are entitled to get a new roof. They are not. The most that they would be entitled to is the cost of repairing the defect, which may not be very much at all.

Is there a Limitation of Liability Clause in the inspection agreement? If so, then the terms of that clause would determine the inspector’s maximum liability, providing that the jurisdiction in which the claim arose upholds such clauses.

Did the claimant comply with the Notice and Waiver conditions of the inspection agreement? If not, the inspector may escape liability altogether.

Is the claim timely? Was it made within the statutory or contractual time limit? If not, the inspector will have no liability. If an otherwise valid claim is untenable economically—that is, it is not worth pursuing notwithstanding its merit—for one or more of the reasons listed in this article, a settlement usually can be effected on terms that are not too punishing to the inspector, providing that the claimant is willing to sign a General Release that releases the inspector from all liability whatsoever arising from the inspection.

A Demand from the Claimant’s Attorney
Oftentimes, the first notice of a claim will be a letter from an attorney representing your client’s interests in having you rectify some adverse condition that has arisen in the property that you had inspected. Sometimes, this demand comes as a surprise because your client has given you no indication that he or she was in any fashion dissatisfied with the inspection. And sometimes, the client is simply upping the ante following your courteous, but firm, denial of his or her unmeritorious claim.

Regardless of its provenance, the mere fact that a demand letter was written by a lawyer confers no stamp of legitimacy on an otherwise meritless claim. On the contrary, very few of the hundreds of attorney demand letters to which home inspectors have asked me to respond betrayed any indication that the attorney had made any preliminary inquiry whatsoever to ascertain whether the claim had merit or not.

I used to find that to be astonishing because attorneys are required by the Rules of Professional Conduct to ascertain that a claim has merit before prosecuting it. Now, I simply ascribe it to the general decline in civility that characterizes the age in which we live.

Not only are these attorney demand letters generally devoid of any evidence of any prior investigation of the claim, they very seldom offer any legal theory under which the home inspector could be responsible for their client’s damages. This ellipsis I also continue to find astonishing because that is the first question that an insurance claims adjuster is going to ask the claimant or his or her attorney: What is your theory of liability? Actually, I have terminated a handful of claims merely by sending a letter asking what the attorney’s theory of liability was.

In any event, the approach to responding to a demand letter from an attorney is exactly the same. First, determine if the claim has merit by asking whether the claimed deficiency could have been determined by a home inspection, whether it was or was not within the SOP, whether the defect was or was not accessible, whether the defect was or was not disclaimed, whether the defect was or was not discovered and reported, and whether the defect was or was not functioning at the time of the inspection.

Second, determine what mitigating factors exist that also might invalidate the claim or render it less financially onerous and possibly not worth pursuing even if meritorious.

Once those two determinations have been made, the claim will either have merit or not. If it has no merit, you need to respond to the claimant’s attorney, outlining the reasons that the claim is unmeritorious with appropriate citations to the inspection report, the applicable SOP and the Pre-Inspection Agreement, as necessary. If a lawyer is responding to the claim, he or she should also include references to applicable statutory and settled case authority, as necessary.

If you have errors and omissions (E & O) insurance, you then need to send a copy of the responsive letter to your insurance company, with a cover letter stating that a prior client has asserted a claim against you, that you are enclosing your or your attorney’s response, and that you do not think the claim will resurface (so thoroughly has the response squeezed the life out of it), but that, in the unlikely event that it does, you want to put them on notice. That way, if the claim ever does resurface, regardless of how far down the road that might be, your insurance company will be obligated to respond. Your insurance policy will state precisely how you are to notify your insurance company of a potential claim. If the claim has merit and you have E & O insurance, the safest course is to simply turn the claim over to your insurance company representatives and let them sort things out. That is why you have E & O insurance.

If you do not have E & O insurance and the claim has merit, but there are mitigating factors, oftentimes you can negotiate a settlement based on those mitigating factors. If you have a valid and enforceable Limitation of Liability clause, for example, you could offer to pay whatever that amount is in exchange for a General Release. If the damages being claimed are greater than the law will allow, you might be able to negotiate a settlement based on what the law will allow in exchange for a General Release. Although you can certainly try to conduct these maneuvers by yourself, you are better advised to seek competent professional assistance.

Joe Ferry has specialized in protecting home inspectors against meritless claims for over 12 years. He has squashed 1,200+ claims made against home inspectors. His ClaimIntercept membership program and Pre-Inspection Agreement Audit services are ASHI-endorsed. Learn more at www.joeferry.com/ashi.