Inspection Oversight

Claims and litigation against home inspectors can give rise to losses under general liability (GL) and errors and omissions (E&O) policies.

One issue is that home inspectors do not always detect problems that could be costly to a real estate buyer. While inspectors require detailed knowledge of components of homes, most provinces do not have licensing requirements and training standards vary.

Canada’s hot housing market has been a boon to the home inspection industry, but inspectors may find themselves at considerable risk.

Many have entered the profession with the promise of steady work brought on by the high volume of property transactions. For some inspectors, it is a second or third career with the benefit of flexible hours and control over their own schedules. For others, it is a first act in what may be a long and broad career in real estate or property management.

To be successful, home inspectors require basic construction knowledge. They also need to understand how extended use- and age-related deterioration of components can impact a home’s systems. Inspectors require detailed knowledge of electrical and plumbing systems, heating and cooling systems, roofing and attic structures, as well as interior components and structures. In addition, a working knowledge of components that are obsolete yet still in service in older homes is required.

In part, it comes down to experience to be able to recognize a condition or defect that may become a future problem in a home.

The growth of the home inspection industry is expected to continue, as national home sales are projected to reach 498,600 in 2016, reports the Canadian Real Estate Association.

BUYER BEWARE

Despite its growth and popularity, the home inspection industry remains fairly unregulated. For consumers, it is “buyer beware” when it comes to selecting an inspector. Consider that in British Columbia and Alberta, home inspectors must be licensed, and that Ontario does not have mandatory training or technical requirements for home inspectors, although Consumer Protection Ontario is reported to be considering changes.

Read More – Home Inspector Licensing Legislation Tabled in Ontario

In the absence of regulation, standards among inspectors may vary. Several industry associations (including the Canadian Association of Home and Property Inspectors and the Ontario Association of Home Inspectors) have emerged to promote continued education among inspection professionals and advocate on behalf of the industry.

EXCITEMENT AND EMOTION

When an offer to purchase depends on the results of an inspection report, inspectors find themselves playing a critical role in a real estate transaction.

They also face considerable GL and E&O risk simply by carrying out their jobs. Inspectors frequently find themselves facing clients who expect them to be able to detect every potential issue within a home. However, it is not always realistic to expect an inspector to detect every potential issue.

Many conditions and situations limit the ability of the home inspector to perform up to the client’s expectations, and when the client’s expectations are not met, claims and litigation can ensue. When a successful purchase or sale hangs on the result of a home inspection, the inspector frequently finds himself or herself in the centre of an emotionally charged situation.

With so much in the balance, it is critical that inspectors have adequate protection against financial losses from a range of scenarios, such as an injury that results from a ladder left against a house after a roof inspection or water damage that was overlooked in an inspection report.

A good home inspection policy will likely consist of at least two separate coverages: GL to protect against claims related to running a business, and E&O to protect against claims of unsatisfactory service or frivolous claims from a client. Examples of incidents that could give rise to a claim from a home inspector include the following:

• During a winter home inspection, an inspector shuts off the power to the home’s furnace to inspect the furnace. After completing the inspection, the inspector neglects to turn back on the furnace’s power. The property owner returns to the home a few days later to find the furnace off and the water pipes frozen. The pipes burst as a result of freezing and cause thousands of dollars in damage. With a policy that includes E&O, the inspector will be protected against related damages that might otherwise have ended his business.

• A home inspection company in Alberta or British Columbia is growing quickly. The firm hires an individual who is believed to be a licensed home inspector. The licence, however, is revoked shortly after accepting the job. A claim is subsequently filed against the home inspection company as a result of the inspector’s alleged negligence. A mere oversight in hiring could have cost the home inspection company significantly, but for its E&O insurance.

• During the roof assessment portion of a full-home inspection, a home inspector fails to notice that a chimney is in need of repair. After deciding to purchase the home based on the inspector’s assessment and final report, the new owner is required to repair the chimney. The new owner holds the inspector responsible for the cost or the repairs. In this case, the inspector is covered under an E&O policy.

• A home inspector was sued for punitive and compensatory damages for failing to detect mould and visible evidence of moisture. The costs related to defending the lawsuit were extensive and could have put the business in jeopardy. With E&O insurance, the inspector was responsible for only the policy’s deductible.

The property-buying process can be emotionally charged and fast-paced, while homes are increasing in both value and complexity. A mistake on the part of a home inspector, or a failure to notice an issue, could give rise to a claim under a liability or E&O policy.