RISK MANAGEMENT Myths and Facts – Busted

Inspection Agreements Insurance

Presented by Robert Pearson – Allen Insurance Group

The Disclaimers: This presentation is based on the presenter's experience. It is not legal advice and should not be relied upon in place of consultation with a locally experienced attorney who can review your particular situation. This presentation includes claim prevention techniques that are designed to minimize the likelihood of being sued for professional malpractice and to help with the defense of a malpractice claim should one be initiated. This material is not a complete analysis of the topic and does not create a standard of care in the industry.

Risk The possibility of suffering harm or loss; danger. When ever you walk out the door to perform a home inspection you are creating a Risk for yourself. Every time you write a report you are creating Risk for yourself. Risk can be Managed, but not Eliminated.

Risk The possibility of suffering harm or loss; danger. Necessary in Report: • Correct documentation what you did, time in, time out, who was there, weather, photos of what’s wrong and representative of nothing wrong (photos not necessary in report, keep in the file “just in case”) – consider video

• Insurance company, claims consultant and/or attorney need to know facts to make decision. Often if photo shows condition we can get out early

Common Report Problems • Lead is buried (important information always first) • Summary page excludes items found • Failure to give direction (what to do-who to call) • Failure to relay magnitude of condition • Failure to relay time urgency (e.g. prior to close) • Failure to note inaccessible areas and/or why • Failure to note hidden damage may exist • Internal inconsistency • Commenting outside of your scope or expertise • Failure to change boilerplate to unique house • Contract and report inconsistent

• Failure to actually discover the condition on behalf of the inspector is often not the problem…..

Common Report Problems The Comedian

Common Report Problems Failure to Document Inaccessible Areas

Illegible Handwriting

Write an accurate report do not gloss over issues for the sake of the agent. Quote – “I know I could have worded it more strongly” Callouts must be clear, provide direction and time is of the essence for investigation

Document everything, no matter how patent

Document everything, no matter how patent

Here, all of this damage resulted from ONE bad pipe collar - Three pieces of 1/2" CDX plywood were needed to correct the sub-roof

Give your self some ammunition for when this happens

4 W’s – What, Who, When and Why

What the issue is………… Poor condition pipe collar Who should look at it……. Licensed Roofing Contractor When they should do so… Prior to the close of escrow or any

inspection contingency period. Why……………………….. Might be costly hidden damage

Take a photo

Document this condition:

4 W’s – What, Who, When and Why

What the issue is………… Cracked tiles at master bath shower Who should look at it……. Licensed Tile Contractor When they should do so… Prior to the close of escrow, settlement or any

inspection contingency period. Why……………………….. Might be costly hidden damage and leak

Take a photo

Document damage, potential for more and direct

Additional Thoughts

It is just as important to report on what could not inspect as it is to report on what you did inspect

Mold – “There is water damage and black discoloration at the corner of the window sill. A qualified environmental person should be contacted regarding the black discoloration. We are not qualified to state whether this is mold or not and mold is outside the scope of our inspection. Note that hidden damage may exist and more investigation is necessary to determine extent of damage.” Big ticket items – Health and Safety Think “Water Penetration”!!!!! Its not necessary to offer an opinion as to whether a defect is cosmetic or not.

Myths (or how to get your self in trouble)

So Sue Me! Who cares, I am a corporation

they cannot get to me!

Wrong

Whether you are a “LLC”, “S” or “C” corporation it makes no difference – You are still personally

liable for your inspections and professional acts/omissions.

However, • Incorporating is important to help protect you from personal exposure, but is not an absolute shield • You must follow corporate protocol, such as annual meetings and minutes, no co-mingling personal and company assets, etc. • If no corp. and a big hit you could face personal bankruptcy which will affect your family AND business – corp. is a speed bump to personal assets

I have no assets so who cares everything is in my Wife’s name.

Wrong

As any Lawyer would tell you “Follow the Money”

I sent you a check for my inspection fee to cover the problem with the water heater and wrote on

the back “By cashing this check you release us from any

and all future claims” and you cashed it so don’t be calling me now

about the roof leaking.

Wrong Unless you get a signed release which releases you from everything forever you are still on the

hook for future issues whether or not they cashed the check.

And no it does not work to write on the check that “By cashing this check you release me …..”.

You have no right to rely on the inspection

You Never Paid Me Remember Business Law 101

“No Consideration – No Contract” So take a hike!

Wrong

You just have a Receivable, your problem; not your clients problem – they can still come after

you for what ever they want.

Facts (or how to really protect yourself)

Get your inspection agreement signed

prior

to performing the inspection.

Consider obtaining time signed as well.

What about third party signatures?

In this case attorney for client

VERY IMPORTANT: An agreement must be signed by both the client and home inspector prior to the inspection. Failure to do so can negate all contractual defenses. The Standards You Inspect To (be sure to indicate state codified if applicable) Limitation of Liability or Liquidated Damages Dispute Resolution – Arbitration Clause Environmental Issues

1. INSPECTION AND DUTIES The Company agrees to perform a limited visual Inspection of the systems and components included in the inspection as they exist at the time of the inspection and for which the Client agrees to pay a fee. The Inspection will be performed in accordance with the Standards of Practice of the (name of association or state whose standards you inspect to), which are attached, and is limited by the limitations, exceptions and exclusions so stated in the Standards of Practice and this Agreement. You agree that if the Company recommends further evaluation of a condition noted in the Inspection Report that you will do so before the end of any inspection contingency and prior to closing.

TEMPLATE LIQUIDATED DAMAGES – LIMITED LIABILITY CLAUSE

Due to the nature of the services we are providing, it is difficult to foresee or determine (at the time this Agreement is formed) potential damages in the event of negligence or breach of this Agreement by us. Thus, if we fail to perform the Services as provided herein or are careless or negligent in the performance of the Services and/or preparing the Report, our liability for any and all claims related thereto is limited to the fee paid for the Services (unless contrary to state law), and you release us from any and all additional liability, whether based on contract, tort, or any other legal theory. There will be no recovery for consequential damages. You understand that the performance of the Services without this limitation of liability would be more technically exhaustive, likely require specialties and would cost substantially more than the fee paid for this limited visual inspection. You understand that you are free to consult with another professional if you do not agree to this provision. X_________________________________ By signing here, the client agrees to be bound by the provisions of this limitation of liability provision.

TEMPLATE DISPUTE RESOLUTION - ARBITRATION CLAUSE (Must be at the end and in 12 point)

Any dispute, controversy, interpretation or claim including claims for, but not limited to, breach of contract, any form of negligence, fraud, or misinterpretation arising out of, from or related to, this contract or arising out of, from or related to the inspection or inspection report shall be submitted first to a Non-Binding Mediation conference and absent a voluntary settlement through Non-Binding Mediation to be followed by final and Binding Arbitration, if necessary, as conducted by Construction Dispute Resolution Services, LLC or Resolute Systems, Inc. utilizing their respective Rules and Procedures. If you would like to utilize the Mediation or Arbitration services of another dispute resolution provider other than one of those so stated please submit your recommendation to us for our consideration. If the dispute is submitted to Binding Arbitration, the decision of the Arbitrator appointed there under shall be final and binding and the enforcement of the Arbitration Award may be entered in any Court or administrative tribunal having jurisdiction thereof. NOTICE: YOU AND WE WOULD HAVE A RIGHT OR OPPORTUNITY TO LITIGATE DISPUTES THROUGH A COURT AND HAVE A JUDGE OR JURY DECIDE THE DISPUTES BUT HAVE AGREED INSTEAD TO RESOLVE DISPUTES THROUGH MEDIATION AND BINDING ARBITRATION. CLIENT INITIALS X____________ (Required in TN and others)

TEMPLATE ENVIRONMENTAL AND HEALTH ISSUES The Client specifically acknowledges that a Property

Inspection is NOT an Environmental Survey and is not intended to detect, identify, disclose or report on the presence of any actual or potential environmental concerns or hazards in the air, water, soil or building materials. Such environmental concerns and hazards include but are not limited to asbestos; “Chinese Drywall”, radon; lead; urea formaldehyde; mold; mildew; fungus; odors; noise; toxic or flammable chemicals; water or air quality; PCB's or other toxins; electro-magnetic fields; underground storage tanks; proximity to toxic waste sites; carbon monoxide. You agree to hold the Company and Inspector harmless for any injury, health risk or damage caused or contributed to by these conditions.

Types of Business Insurance General Liability Errors and Omissions

There are two types of exposure in each:

Property Damage - damage to real property Bodily Injury - an injury caused to a third party (not you)

GENERAL LIABILITY: Basically this covers "accidents" that happens during an inspection It has an exclusion as follows:

"This policy does not cover claims arising out of the rendering or failure to render professional services."

For example:

You overflow a bathtub during a functional flow/drainage test - GL claim? It is alleged that your flushing of a toilet caused a toilet to overflow and

which continued to overflow after you left the inspection - GL claim? Your ladder blows over and scratches the agents BMW or hits the agent -

GL claim? You back into and knock over a curio case full of expensive vases - GL

claim?

ERRORS & OMISSIONS: E&O covers claims arising out “the rendering or failure to render professional services.” There are two types of E&O policies:

Claims Made Occurrence

You gave your inspection fee back and now you are getting ready to sit in front of him

Lastly, purchase Professional Liability and General Liability. It is expensive and times are tough but it is your last line of defense.

And yes you are a target with or with out insurance – the question is do you want to be in front of the judge by yourself? Note: in many states if you are incorporated you cannot represent yourself and must hire counsel!

It’s not usually the defect or actual claim, it’s the cost to defend!

For Risk Assessment information check out COA’’s www.homeinspectorsupport.com

That’s All Folks! Bob can be reached at bob@allenins.com