By Craig O’BrienIn the residential real-estate

market, many purchasers erro-neously believe that when theyobtain a pre-purchase homeinspection for a few hundred dol-lars, they are purchasing anenforceable guarantee that thehome is free of any and all defect.When a defect is discovered subse-quent to purchase, the homeinspector is sued in negligence andbreach of contract, with the allega-tion that the home inspectorshould have uncovered the defectin the course of inspection.

The success rate of claimsagainst pre-purchase home inspec-tors remains relatively low, but thevolume of claims is causing signif-icant challenges to the homeinspection industry. Thedeductible on insurance policiesfor home inspectors often equatesto the gross income from ten homeinspections and one unmeritoriousclaim can easily negate months ofprofit.

From a purchaser’s perspective,the reasons for including the homeinspector in a claim for homedefects are self-evident. Vendorsare liable for latent defects ofwhich they were aware and did notdisclose to the purchaser. Thehome inspector is liable for patentdefects they failed to uncoverduring the course of inspection.The purchaser and their counselrationalize that any defect uncov-ered after closing is either latent orpatent. If latent, they deduce thatthe vendor should be responsible.If patent, the home inspector isnegligent or breached the contract.Either way, innocent purchasersbelieve they will recover damages.

Contrary to this belief, there is asignificant gap between the latentdefects known to the vendor andpatent defects that the homeinspector should have identified.Neither a vendor nor a homeinspector is liable for a latentdefect unknown to the vendor atthe time of sale. Purchasers andtheir counsel often forget or ignorethe fact that the gap between latentdefects known to the vendor andpatent defects apparent to theinspector remains the municipaladdress of caveat emptor.

Home inspector negligencecases are invariably fact-driven,but the matter of Rayne v. Martin[2006] B.C.J. No. 2040 is an aptexample of the many claims bypurchasers for defects that fallwithin the caveat emptor category.The plaintiff purchased a mobilehome and later discovered exten-sive water and structural damagethat made it worthless. The vendor

testified that she was unaware ofthe defects, and the defects werenot uncovered during the course ofinspection. The vendor’s evidencewas accepted and the court foundthat furniture and a false ceilinghid the water damage. As a result,the vendor was not liable as shedid not know ofthe defect and thehome inspectorwas not liable asthe damage wasnot readilyapparent during avisual homeinspection.

The standardof care owed by ahome inspector isthat of a reason-ably prudenthome inspector, and these stan-dards are codified in the standardsof practice of the profession’s reg-ulatory bodies, based on CanadianAssociation of Home and PropertyInspectors standards.

For instance, Brownjohn v.Ramsay [2003] B.C.J. No. 43, heldthat home inspectors are notrequired to be experts in pest infes-tation, and the inspector was notliable for failing to uncover signsof an active termite colony. Thepre-purchase residential homeinspection is a visual inspection ofaccessible systems intended touncover patent defects such aswater staining, cracks in founda-tions, or improper or inadequateinsulation that may be indicationsof serious deficiencies.

Home inspectors are specifi-cally instructed not to undertake“destructive” or “invasive” inspec-tions, as there is a risk that theinspection itself could cause prop-erty damage for which theinspector would be liable. In Li v.Baker Street Home Inspection Ser-vices Inc. [2005] O.J. No. 3846,the court held that a homeinspector was not required to openan attic hatch that was paintedshut; to do so would cause damageto the vendor’s premises. He wastherefore not liable for failing touncover cracking and splinteringroof joists that were readilyobservable had the attic beenaccessed. In Martin and Brown-john this meant that the homeinspector was not required to movefurniture, roof panels, cabinets orbaseboards as part of an inspec-tion.

As a result of the increasednumber of suits against homeinspectors, inspection reports nownormally contain robust limitationof liability clauses, descriptions ofthe purpose and scope of the pre-

purchase home inspection, andlists of systems explicitly not cov-ered by the home inspection. Toofrequently home inspectors fail toinsist that the purchaser read theseportions of the agreement prior tothe inspection, only to have ajudge rule them unenforceable as a

result. In Brownjohn, the exclu-sion clauses were rescindedbecause the inspector did not drawthe purchaser’s attention to theseclauses, whereas in Martin thehome inspector ensured that thepurchaser read the inspection

agreement and was able to rely onits contents. Home inspectorsshould ensure that the purchaserreads the agreement prior to pro-ceeding with the inspection.

The standard form agreementof purchase and sale was intendedto reduce the number of pur-chaser’s claims by limiting ven-dors’ liability for subsequently dis-covered defects to latent defects ofwhich the vendor was aware andfailed to notify the purchaser in thedeclarations portion of the form,and by stipulating that the formsupercedes any oral warranties or

guarantees. The form

therefore pro-vides purchasersthe opportunityto obtain a homeinspection totheir satisfactionprior to pur-chasing a resi-dential property.This is intendedto allow the pur-chaser to satisfy

him or herself of the residence’scondition prior to purchase and toobviate the need to rely on thevendor’s statements. The resulthas not been a reduction in claimsbut rather to add the homeinspector to the list of defendants.

Purchasers think of homeinspection services as an insurancepolicy, but as often occurs with theinsurance policy they don’t readthe limitations and exclusionsclauses until it’s too late. As inMartin, Brownjohn, Li and an amyriad of others, purchasers mustbe mindful that the principle ofcaveat emptor still has a role toplay in residential real estate.

Craig O’Brien is an associatewith Nelligan O’Brien Payne inOttawa and practices in the areasof insurance defence, personalinjury and civil litigation.

I N S U R A N C E

Home inspectors found liable for defectsif exclusionary clauses not read by buyer

Craig O’Brien

“Purchasers and their counsel often forget orignore the fact that the gap between latent

defects known to the vendor and patent defectsapparent to the inspector remains the municipal address of caveat emptor.”

Reproduced from the August 10, 2007 issue (p. 9) of The Lawyers Weekly with the permission of LexisNexis Canada Inc., 75 Clegg Road, Markham, Ontario, L6G 1A1