Why Is Home Inspector E&O Insurance Cost So High?

By
Home Builder with RAW Chimney Sweep and Inspections
http://activerain.com/droplet/4YSh

The Home inspection profession can be somewhat of a risky business, customer's expectations are often very high.  Sometimes too high, elevated by television shows where homes are a literally torn apart during the inspection process, where infrared camera technology is presented to make one think they can almost see through walls. 

However, it is also a very rewarding profession, a Home Inspector must communicate well and take constant ongoing education.  However, if there is something they do not know, then admit it and then go find the answer.

Home Inspectors who guess can pay the price in the way of financial loss.  However, we do have E&O insurance to cover legitimate claims of errors or omissions.

However, why in Canada is this insurance so costly?  It is so costly in fact that a huge percentage of Home Inspectors are forced to operate without having any insurance at all.  I can guarantee the lower priced Home Inspectors have neither workers compensation coverage, or e&o insurance.

Normally the Home Inspectors General Liability and Errors & Omissions insurance are provided on the same policy to reduce gaps between the two coverages. Coverage can be extended to Real Estate Brokers and Agents where required for their referrals to the Home Inspector.

Home Inspector E&O Insurance in Canada used to be reasonably priced.  There appears to be no hard evidence ever provided, despite the Professional Associations requesting it, to justify the high premiums.  American E&O coverage remains reasonable.  Are Canadian Home Inspectors that much worse?  I don't think so. 

Going back in history, there was one case in British Columbia where a Home Inspector made a serious error, costing the insurance company a large sum of money.

In summary, in September 2006 Manuel Salgado and Nora Calcaneo hired Imre Toth to inspect their property at the recommendation of their Real Estate Agent.  Toth provided both a written and verbal report to Salgado and Calcaneo. Toth noted a number of structural deficiencies and told his clients that repair costs would be in the neighbourhood of $15,000 to $20,000. On that assurance, the buyers closed the deal.  However, after closing, the new owners discovered serious problems with the wooden structural beams of the house due to rot and moisture. As well, it turned out that the south part of the house was sitting on fill that had not been properly compacted and the structure itself was settling and unstable.

The buyers sued Toth, the sellers and the real estate agents. The case against the former owners was settled before trial and the claim against the agents was discontinued. The only defendants remaining at trial were Toth and his company.  After a five-day trial, Justice Grant Burnyeat awarded the buyers $192,920, representing the restoration costs of $212,920, minus Toth's original $20,000 estimate.

The judge ruled that Toth was negligent in not inspecting all of the structural beams and in failing to draw to the buyers' attention that the rot was much more widespread than he indicated to them.

As I mentioned earlier, this is not a business to guess at…if you do it may cost you dearly.

However, these huge cases are unheard of in the Canadian industry and one before or after has not been seen.  In fact it is widely believed there are few cases of actual litigation or even insurance claims in Canada that do exist, and there has been no evidence to suggest otherwise. 

Despite this apparent fact, insurance rates rose dramatically after this case and new Home Inspectors are now forced to pay in the area of $4000 or even $5000 per year for their E&O insurance policy.  As a new inspector, with often fewer inspections to perform, this often becomes prohibitive. 

Even experienced Home Inspectors will pay in the area of $2000 to $3000 per year.

Now, granted there are risks involved, and insurance companies hate risk.  However, given the apparent low claim rate, what justifies the premiums?  In fact, it was due to this that the provincial government has dropped the mandatory insurance requirements for Home Inspectors in the licensing proceedings that are ongoing.  Personally, I would have preferred if they put a cap on the maximum amount of damages that can be claimed, and forced insurance companies to provide reasonable rates to Home Insepectors.

I carry E&O, but did not used to when I began.  With our professional association, it is required.

Hopefull one day this will correct itself and be more favorable, as any Home Inspector who has coverage simply passes along to the consumer.    Nick Gromeko from InterNACHI has been working to have an American company provide e&o  coveage to Canadian Inspectors starting in 2017 for a cost of around somewhere around $1000 per year if I understand correctly, however so far I do not believe it is yet available nor have I seen the actual coverage.

Until that time, we will keep moving on. 

close

This entry hasn't been re-blogged:

Re-Blogged By Re-Blogged At
Topic:
Real Estate General Information
Tags:
home inspector
home inspection
home inspector insurance

Post a Comment
Spam prevention
Spam prevention
Show All Comments
Rainmaker
4,269,161
Barbara Todaro
RE/MAX Executive Realty - Franklin, MA
"Franklin MA Homes"

Good morning, Robin Wells  this is a topic I've never thought much about, but a home inspector's liability is just as severe as a real estate agent's.... to not have E & O insurance is a slippery slope.

Jan 17, 2017 04:40 AM #1
Rainmaker
2,396,962
Nina Hollander
RE/MAX Executive | Charlotte, NC - Charlotte, NC
Your Charlotte/Ballantyne/Waxhaw/Fort Mill Realtor

Hi Robin, never gave this issue much thought except to ensure that my inspectors carry E&O and liability insurance. Of course, I don't know if it's as pricey south of your border and then I would also expect there are huge variances in cost from state to state here, including whether or not an inspector is even licensed and/or required to carry insurance of any sort.

Jan 17, 2017 04:45 AM #2
Rainer
30,162
Haven Environmental
Haven Environmental - Syracuse, NY
Realtor Services

From day one we have had this coverage in place.  It gives our clients essentially an "insurance policy" on thier home inspector.  There are a lot of part time inspectors who do good work, but without the coverage, a mistake leaves the buyers vulerable and lawsuits don't do much good if there are no assests to collect on for restitution.

Jan 17, 2017 04:54 AM #3
Rainmaker
1,867,216
Andrew Mooers | 207.532.6573
MOOERS REALTY - Houlton, ME
Northern Maine Real Estate-Aroostook County Broker

People sue, there are lawyers that just sue lawyers. Doctors who become lawyers to sue doctors because they know how to. Sad huh? No honest mistakes or always someone to blame and pulling all the players in helps billable hours. The anger fueled by someone is going to pay.

Jan 17, 2017 05:17 AM #4
Rainer
220,131
Chris Lima
Atlantic Shores Realty Expertise - Port St Lucie, FL
Local or Global-Allow me to open doors for you.

I think that I should give up on real estate and get into insurance.  The timing of this post is unbelievable.  I just received a call from the owners of a property that I have listed.  The buyers had their home inspection on Saturday.  This morning the Mrs. went to pull something out of the freezer for dinner and low and behold she discovered the freezer was not running. It appears that when the inspector was testing gfi outlets he may have forgotten to reset the one in the garage that supplies the freezer with power. 

Jan 17, 2017 05:59 AM #5
Rainmaker
388,840
Scott Seaton Jr. Bourbonnais Kankakee IL Home Inspector
SLS Home Inspections-Bradley Bourbonnais Kankakee Manteno - Bourbonnais, IL
The Home Inspector With a Heart!

Been sued once, it was frivolous, and the buyer wanted money to repair a crack in the foundation that was discovered after he removed all the paneled finished basement walls. Settled for $3000 on lawyers advice. Big mistake. After the fact it was learned that he had also sued a previous realtor for not informing him he couldnt have a dog in the condo he was buying. He was a serial suer. It caused my rates to increase $600 annually and a $1500 deductible. 

Jan 17, 2017 06:07 AM #6
Rainmaker
231,653
Shirley Coomer
Keller Williams Realty Sonoran Living - Phoenix, AZ
Realtor, Keller Williams Realty, Phoenix Az

The information provided by a home inspection allows the buyer to make an informed decision on what is one of the biggest purchases of a lifetime.  Like any other service we buy, we need to look at reviews, get recommendations and information regarding a home inspector.  Most do a great job and in AZ they are required to be licensed by the state, which I understand is not the case in all states.  Licensing isn't the answer to everything but does cull out many.

Jan 17, 2017 06:22 AM #7
Rainer
40,863
Juan Jimenez
A House on a Rock Home Inspections LLC - Richmond, VA
The Richmond Home Inspector

I've read about that story many times over the years, but I did not know what it did to your insurance rates. Thats rough.

Jan 17, 2017 07:28 AM #8
Ambassador
3,586,728
Jeff Dowler, CRS
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude - Carlsbad

Hi Bob

This is an issue I haven't given much thought to, and I don't know how E and O insurance is handled for home inspectors here in CA. I'll have to ask a couple to find out. There certainly can be some huge liability issues.

Jeff

Jan 17, 2017 07:36 AM #9
Rainmaker
1,454,910
Gary L. Waters, Broker Owner, Waters Realty of Brevard, LLC
Waters Realty of Brevard, LLC - Rockledge, FL
... a small office, delivering big service!

Interesting topic. I had no idea the inspector insurance was so enormous!  But hen people want to blame someone else so it may well be the inspector and the real estate agent!

Jan 17, 2017 08:05 AM #10
Rainmaker
42,436
Virginia Kazlouskas (Gregory)
Harmony Real Estate, Inc. - Hudson, NH
Your Southern NH Realtor!

I believe E&O is a must in our businesses. No one likes to be sued but this is a sue happy world we live in and many are repeat offenders. We pay about $1500 a year so I can understand how that is cost prohibitive. However, I would think the possibility for error would be a higher risk on your end.

Jan 17, 2017 08:14 AM #11
Rainmaker
929,597
Corinne Guest
Barrington Realty Company - Barrington, IL
The Choice of Professionals for Luxury Home Buying

Wow that's a lot! Ours is based on production which seems fair to me. But it's still miles off those numbers. And we are not required to have it. 

Jan 17, 2017 12:53 PM #12
Ambassador
4,005,299
Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

Robin Wells - whether it is Real Estate agent or Home Inspector, I believe E&O is must! 

(And those stories of the inspector goof ups.... may cost us a lot!)

Jan 17, 2017 09:42 PM #13
Rainmaker
3,417,229
Dorie Dillard
Coldwell Banker United Realtors® ~ 512.346.1799 - Austin, TX
Serving Buyers & Sellers in NW Austin Real Estate

Good morning Robin Wells ,

Congrats on a well deserved featured post. E & O insurance is worth every penny in our litigious society. Barbara Todaro is right ..not carrying E&O could lead to a very slippery slope!

Jan 18, 2017 04:50 AM #14
Rainmaker
850,564
Sam Shueh
(408) 425-1601 - San Jose, CA
mba, cdpe, reopro, pe

The same applies to property management. Broker, credential and e&o plus umbella insurance. 

Jan 18, 2017 02:26 PM #15
Rainmaker
2,269,681
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

In America, it is well known globally even that we settle our disputes in courts of law making having insurance part of the business world. Shortly after my son became an attorney, he told me to cancel my E & O. My true strength was the fact that I do transparent & open business backed by paperwork. So far, so good

Jan 19, 2017 06:55 AM #16
Rainer
420,791
Sham Reddy
H E R Realty, Dayton, OH - Dayton, OH
CRS

Unfortunate but true!!!

Home Inspectors who guess can pay the price in the way of financial loss.  However, we do have E&O insurance to cover legitimate claims of errors or omissions.

Jan 22, 2017 05:20 AM #17
Rainmaker
81,728
Eugene Kanciar
EKAN Home Inspection - West Vancouver, BC
Our Experience, Your Peace-of-Mind

Robin, good review of the dispute and resolution! These type of occurances lead to further industry self-regulation. For example, in British Columbia our association is firm on making sure that the inspection scope of services does not include any cost statement on repairs and justifiably so. Unfortunately, the majority of our clients expect some cost info and are surprised when we in BC do not provide it.

It's really a question of the inspector's communication abilities, and the importance of managing expectations.

 

Feb 20, 2017 07:23 AM #18
Post a Comment
Spam prevention
Show All Comments

What's the reason you're reporting this blog entry?

Are you sure you want to report this blog entry as spam?

Rainer
91,961

Robin Wells

Giving Peace Of Mind One Chimney At A Time
Ask Home Inspector A Question
*
*
*
*
Spam prevention