Every home inspector understands that it is imperative to have E&O insurance coverage to protect them and their business. The challenge comes in having an understanding of that E&O insurance policy so that the inspector knows what he is protected against and what he is not protected against.
Errors and Omissions (E&O) is the insurance that covers the home inspector and their company in the event that a client holds them responsible for a mistake or omission from the final report that results in additional costs due to property damage or injury. Most E&O policies cover judgments, settlements and defense costs. Even groundless allegations can cost thousands of dollars in legal defense that can bankrupt a home inspector and their business. A well-constructed E&O policy provides coverage to guard against these costs in the event that a lawsuit is filed.
Although an inspector may think it is the responsibility of the insurer to thoroughly lay out all aspects of the E&O insurance policy in a way that they can understand, that responsibility actually falls on the inspector. It is the home inspector’s responsibility to read every line of the policy and ask questions until they thoroughly understand each item. This is the only way to ensure that they know what is covered and what is not covered. Just like a home buyer should read every page of the inspection report, a responsible home inspector will read every page of his or her policy to have a thorough understanding of what their policy covers and what it excludes.
That being said, the best E&O insurance providers will be skilled in providing the answers before they are asked by the inspector and work to ensure that they have a complete understanding of each aspect of the E&O insurance policy. This begins with an explanation of whether the policy covers Claims Made and/or Occurrence.
What Type of Policy Do You Have?
In a Claims Made policy, the insurance company is obligated to pay any claims that occur while the policy is in effect. An Occurrence policy operates in much the same way as it obligates the insurance company to pay for events that happen while the policy is in effect.
The primary difference is that while this covers events that happen while the policy is in effect, the coverage remains effective regardless of when the event is reported. Although Claims Made policies are standard and less expensive, it is important for a home inspector to understand the nature of an Occurrence policy and determine whether that is the best option regardless of its greater expense.
Are You Covered for Both Types of Exposure?
The two types of exposure that a home inspector must be insured against include bodily injury and property damage. Bodily injury is when the inspector’s actions or alleged errors in their inspection report result in someone being physically harmed. Property Damage is when the inspector’s actions or alleged errors in their inspection report result in damage to the property or loss of use of the property. A home inspector needs both types of coverage to be protected.
What’s the Difference Between General Liability Insurance and E&O Insurance?
While general liability coverage is an important consideration, the claims are infrequent and usually of a low dollar amount. General Liability policies have more restrictions, which results in a less expensive policy. The major restriction is called a “Professional Liability” exclusion that reads “This policy will not cover claims arising out of the rendering or failure to render professional services.” This is why an E&O insurance policy is often referred to as professional liability insurance.
Most major claims that a home inspector will face come from an alleged failure in the rendering of professional services. In other words, Errors & Omissions (E&O) claims. This is why an E&O insurance policy provides greater specificity of coverage in terms of bodily injury and property damage.
Are You Fully Protected?
With a basic understanding of home inspector insurance, it’s possible to tie all the components together. To be fully protected by insurance, a home inspector is best served by having both General Liability and Errors & Omissions coverage with sufficient coverage for Bodily Injury and Property Damage exposures. This is why it is of vital importance that the inspector understands exactly what they are purchasing and ask for the answers in writing.
Requirements for having general liability insurance and an E&O insurance policy vary from state to state, with some requiring neither of the two. It is imperative to understand what is required in the inspector’s home state as a baseline so that they can make determinations about what they will need in addition to fully protect themselves and their business. Although expense will always be an important factor, the inspector must weigh the costs of what is covered in their E&O insurance policy verses the costs of a potential lawsuit.
It is important to remember that a home inspector’s insurance policy can have a variety of endorsements. Some of these include mold, termite, radon, septic, pool and spa, mortgage field services, code, lead, wind mitigation, EIFS (Stucco), and carbon monoxide.
The key to getting the right coverage that protects the home inspector and their business is to first read every line of the proposed policy. At that point, the inspector must ask any and all questions they may have to be sure that they understand the policy thoroughly before purchasing it.