Even seasoned home inspectors can be unaware of the nearly infinite number of hidden dangers in a home that can wreak both financial and physical damage to homeowners and occupants. Regardless of how thorough their inspection is, it is the home inspector that will be held accountable for the fallout from not identifying and reporting the problem. With so much on the line, every home inspector must understand the differences between General Liability and Errors and Omissions insurance to protect their business and reputation as well as the safety of the inhabitants.
General Liability vs. Error and Omission Insurance
General Liability and Errors and Omissions Insurance are both a type of Liability Insurance used by home inspectors. However, these two types of insurance protect you in different ways.
General Liability Insurance protects you from claims that include bodily injury or property damages. On the other hand, Errors and Omissions Insurance protects you from claims that arise for your negligence during inspections or errors committed at work.
While General Liability Insurance and Errors and Omissions Insurance coverage seem to overlap, it is the exclusions found in both that highlight the need to purchase both coverages from the same insurance company.
|Errors & Omissions
|Bodily Injury Claims
|Property Damage Claims
|Personal and Advertising Injury Claims
|Wrongful Act from Professional Services
Typical Exclusions In Home Inspector GL And E&O Insurance
Typical exclusions found in General Liability policies for home inspectors include Intangible Property (Computer data), Impaired Property (Loss of use) & Professional Services. E&O policies often have exclusions for Bodily Injury, Property Damage, Personal & Advertising Injury.
Types of Insurance for Home Inspectors
Insurance for home inspectors is extremely important, but proper coverage is equally important. Home buyers, arguably making the largest investment of their lives, rely on the professional home inspector for his/her expertise in determining the state of the home they are buying. Because this is such a large investment, the potential for someone to sue is much greater.
You will want to check what are the insurance requirements for home inspectors in your state. You’ll also want to decide if you are going to be providing ancillary services such as termite inspections, radon, infrared or pool and spa inspections.
In an effort to stay properly covered for all the services you offer, consider getting additional home inspection coverage even if it isn’t a state requirement. You should consider purchasing, at the minimum, Errors and Omissions (E&O) Insurance, and General Liability (GL) insurance.
E&O Insurance for Home Inspectors
Errors and Omissions insurance (or as it is called in the industry E & O Insurance) for home inspectors is by far the most utilized insurance for home inspectors. A majority of claims come from a buyer stating the inspector missed something of importance during the inspection. Many buyers forget that a home inspection is just a visual inspection at that specific moment in time and feel the inspector should have foreseen, for example, the hot water heater going out or the presence of water intrusion behind the drywall.
Errors & Omissions insurance is there to protect an inspector in the case of the buyer feeling something was missed, along with actual, accidental oversight. With so many areas inspectors are expected to cover during the course of a home inspection, it is natural that oversight can and does occur.
In the event the inspector omits an area of concern, E&O insurance is there to pay for the inspector’s defense and any potential payout to the inspector’s client. Since claims can range from as little as the inspection fee returned to $250,000 and up, E&O insurance can give peace of mind to an inspector. One oversight or misinformed client will not lead to their business closing.
General Liability Insurance for Home Inspectors
General Liability is fairly standard insurance for home inspectors. GL insurance is there to cover the bodily injury and property damage. For example, if an inspector were to fall through an attic or a young child climbs the inspector’s ladder and subsequently breaks their arm from falling.
No matter how careful you are, there is no guarantee on the job that everything will go smoothly. A majority of the time, unintentional property damage is the most common General Liability claim for home inspectors. Many builders and realtors may also require General Liability insurance in order to access a property to be inspected. Coverage should also apply to personal and advertising injury claims (libel, slander, invasion of privacy) and contingent bodily injury and property damage arising from a home inspection (for example, an awning collapses and injures a third party 6 months after an inspection. It is determined that the inspection failed to discover termite damage which caused the collapse).
What Types Of Insurance Do You Need Based On Different Claims?
Since different types of claims are covered by different types of insurance, it is very important to fully understand your insurance policy. The definitions shared earlier along with the following examples, will help you to get a clear picture about what types of claims are covered under and E7O vs. GL policy for home inspections.
- Mistakes or errors during an inspection that cause damage or injury are covered under E&O insurance.
- If any person such as your client, realtor, or seller is hurt or injured, it is covered under General Liability insurance.
- If any of the client’s properties such as furniture, walls, or ceilings are damaged during your inspection, it is also covered under General Liability insurance.
The vast majority of claims against home inspectors lack merit and are a result of the home buyer not understanding the scope of your inspection or, even more perplexing, they didn’t read your report, to begin with.
Here are some examples of real-life home inspection claim scenarios and which type of insurance coverage will protect you in the scenario –
- A recent claim against a home inspector was filed because the buyer noticed “an odor that had not been discernible prior to the purchase” of the home.
The insurance coverage needed for this type of claim is Error and Omission insurance.
In summary, the seller of the house had a few pets and there was considerable urine in the carpets and baseboards that were later discovered by a contractor using a black light. Common sense suggests if the odor was not present during any walkthroughs by the buyer, or when the inspection was done, the inspector is not liable for this “defect.” Furthermore, the applicable SOP (ASHI) does not require the inspector to identify or disclose the presence of pet urine or odors.
That notwithstanding, the home inspector received a demand letter from an attorney for $55,000. Fortunately, the inspector reported this matter immediately and the insurance company handled it on his behalf at no additional fees or even his deductible.
2. Another recent claim example is that an inspector accidentally turned on the stove when his tool bag unknowingly hit the knob as he was leaving the house.
The insurance coverage needed for this type of claim is General liability insurance.
The stove/range was severely damaged, the backsplash was ruined, and the cost to repair was roughly 12K. This situation could have been a LOT worse and the inspector’s out-of-pocket expense was a mere $250 (which was his deductible).
There are countless more examples of claims involving negligence, bodily injury, property damage, breach of contract, etc., and it’s important to be properly protected in situations where your client feels they have been harmed as a result of your professional services. EliteMGA has many years of experience helping home inspectors navigate through these situations to help you reach the best resolution possible.
Importance of Combining Both GL and E&O Insurance With The Same Insurer
Home inspectors need both E&O and General Liability insurance to cover negligence, bodily injury, and property damage claims. The absence of any of these two insurance leaves the home inspector vulnerable to potential claims such as a claim for property damage during an inspection (general liability) or a claim that they made mistakes or incomplete inspection (E&O).
In the case of a home inspector having two different insurers and a claim that encompasses some or all of the above exposures, the situation quite often becomes a finger-pointing exercise with both insurers looking for the other to respond to the claim. It would not be out of the question for both carriers to send claim denials for the areas that are excluded under their policy forms.
Discuss the advantages of combining both General Liability and Errors & Omissions insurance with an EliteMGA agent: (800) 355-1185.
What Happens if I Don’t Have Proper Home Inspector Insurance?
Home inspectors that do not have adequate insurance are taking a big financial risk as litigation is time-consuming as well as expensive. It is the responsibility of the home inspector to fully understand how General Liability Insurance, as well as Errors & Omissions Insurance, works in conjunction with every aspect of their professional inspection process. Only then can they work collaboratively with their insurance provider to craft a policy that offers the right amount and types of protection.
Why Do Home Inspectors Need Insurance?
Carrying Errors and Omissions (E&O) and General Liability (GL) insurance as a home and/or building inspector is important contrary to what some people might tell you. Like any form of insurance, E&O and GL are designed to protect you from unforeseen or unintended circumstances that result in some sort of loss or hardship for others. When a home buyer hires you to perform a home inspection, they are relying on your professional opinion before making one of the largest investments in their lifetime. But what happens if you make a mistake or oversight and your client is financially harmed as a result? What happens if you did NOT make a mistake, yet you are named in a lawsuit related to a real estate transaction where you were the inspector? You don’t want to find out the hard way if you’re not properly insured.
If you’re an inspector with all the latest tools and technology, drones especially, we have a cost-effective policy specifically designed for home inspector’s tools and equipment.
Choose the Right Home Inspector Insurance
Unfortunately, it is not a matter of if, but a matter of when you’ll be sued. As an inspector, you have enough to worry about between growing your home inspection business, customer service, continuing education, and actually performing a quality inspection. Make sure that you are protected with the right kind of insurance so that you can give your full attention to your clients and sleep better at night. EliteMGA offers both E&O and GL insurance specialized for home inspectors.