Article: The Sinking Yard: A Home Inspection Insurance Claim

[InspectorPro Insurance]

Hi TIJ Readers!

Wondering how you can better prevent claims? Or what it would be like to have a claim? To try to help answer these questions, we publish details from actual home inspection insurance claims every few months. We hope you enjoy our latest case study.

Best,
Stephanie
 

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The Sinking Yard: A Home Inspection Insurance Claim

The following is a real home inspector case study from our insurance claim archives. In order to protect the insured's identity, all identifiable characteristics?including names, associations, and locations?have been omitted or removed.

"You have been sued. You may employ an attorney. If you or your attorney do not file a written answer with the clerk who issued this citation by 10:00 a.m. on the Monday next following the expiration of twenty days after you were served this citation and petition, a default judgment may be taken against you."

That was how home inspector Nathan Cross' letter from the state began. According to the state, former home inspection clients Patrick and Miranda Spence were suing Cross and the sellers for "deceptive trade practices," "breach of contract," "economic and actual damages," and "intentional damages by omissions."

The Complaint

Unbeknownst to Cross, the property used to have a swimming pool. The sellers had filled the pool in and covered it up prior to putting the house on the market. The sellers did not disclose the pool's existence to either the Spences nor Cross. So, when Cross performed his inspection, there were no visible signs of a pool in the backyard, nor were there any visible defects. Thus, Cross' inspection report did not indicate any issues in the backyard.

About a year after the inspection, indentations began to appear in the backyard. Upon investigating the property's tax records, the Spences discovered that a pool had existed prior to them moving in. (The covered pool was not in the sellers' disclosure.) They surmised that the sellers must have improperly filled the pool, which led to developing indentations. Now, a full year and a half after Cross' inspection, the Spences were taking legal action. The Spences demanded "monetary relief of $100,000 or less, including damages of any kind, penalties, costs, expenses, pre-judgment interest, and attorney fees."

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[Les]

not a difficult read and does contain some good advice for those that have appropriate insurance.  Thought it was interesting that the state bar got involved. 

 

[Jim Katen]

It's funny how meritless claims always seem to get negotiated to the amount of the deductible. 

[InspectorPro Insurance]

20 hours ago, Les said:

not a difficult read and does contain some good advice for those that have appropriate insurance.  Thought it was interesting that the state bar got involved. 

 

Yes, in this case, getting the state bar involved was our call. We were concerned that the claimants' lawyer wasn't doing his job in getting the suit dismissed, and we wanted to make sure all the loose ends were tied promptly. The state bar was our way to spur action.

15 hours ago, Jim Katen said:

It's funny how meritless claims always seem to get negotiated to the amount of the deductible. 

You're right that this case got settled for the amount of the deductible, but I wouldn't say that that's a general rule. When it comes to frivolous claims, our initial approach is always to attempt to get it dismissed at $0. And, because of how most of our policies are written, closing a claim at $0 means the insured doesn't have to pay at all--even to cover our claims team costs. We're actually able to shut down quite a few meritless claims at no cost to the insured, particularly if they used pre-claims assistance, which can get us on the defense earlier.

Now, if we can't get it to close at $0--often when an attorney is involved--our next goal is to settle for as little as possible and as quickly as possible. Smaller numbers and quicker closures on loss runs aren't just good for us; they're good for insureds because they protect their insurability and keep their rates lower come renewal time. Again, because of how most of our policies are written, if we can settle for less than the deductible, our insureds will only have to pay that lower amount, so we always try for that first. In this case, we pushed the lower settlement amount for several months before acknowledging that the claimants were not going to take the lower amount, which is why we increased. We all would have preferred closing the claim at $0 since the inspector didn't do anything wrong. But even our insured acknowledges that this was a good outcome because we settled far below the initial ask of ~$100k and the revised ask of $6k.

Now, I can't speak for how other insurance companies handle claims. We have a lot more control in selecting our claims team and process than most, if not all, of our competitors. But, that's how it works with us.

[Marc]

Do all insurance companies have an in-house claims team?

[InspectorPro Insurance]

On 7/2/2019 at 1:44 PM, Marc said:

Do all insurance companies have an in-house claims team?

Good question, Marc. In order to answer thoroughly, let's go over some definitions to make sure we're talking about the same thing when we say "insurance companies":

• Your insurance company—otherwise referred to as your insurance carrier or insurer—is the company that insures or “carries” the insurance policy that providers like us give you. Carriers you may have heard of in the space include AmTrust, Aspen, Hanover, Hartford, Lloyds, Nationwide, and United National. You can find the name of your insurance carrier on your binder and in your policy.

• Your insurance provider is a brokerage or agency like us, InspectorPro Insurance and our parent company, Citadel Insurance Services, LC. Our job is to match your business needs to the best insurance carrier. We also provide you with the extra benefits, like pre-claims assistance, customer service, and risk management education. 

So, to simplify the two definitions into a metaphor: Your insurance company is the umbrella while providers like us are the ones who hold the umbrella.

With these definitions in mind, let's return to your question:

On 7/2/2019 at 1:44 PM, Marc said:

Do all insurance companies have an in-house claims team?

Yes, insurance companies and carriers typically have an in-house claims team made up of claims adjusters, the people who investigate allegations, assign defense, negotiate settlements, etc. However, in-house claims teams don't always benefit home inspectors. Because insurance companies/carriers, often write a wide range of insurance products, most of their in-house claims teams don't specialize in any one industry. And that lack of familiarity can sometimes lead to less favorable claims outcomes for the insured just due to lack of experience/knowledge about home inspections.

We noticed this issue happening with some of our own insureds, which is why we negotiated a slightly different approach with our preferred carrier four years ago. While the insurance company we primarily use has an in-house claims team, we don't use them. Instead, we contract out a third-party company to handle all of our pre-claims and claims. That team of adjusters only works with home inspectors, and that expertise has helped us provide our inspectors with better defense. And while the third-party company technically works on behalf of the carrier, we have a lot more say on their approach than we do with in-house carrier adjusters, which has allowed us to advocate for insureds from our end more. (i.e. pre-claims assistance, deductible discounts, cheaper and more effective defense council, etc.)

That's a long explanation, so I hope it makes sense!

[Marc]

1 hour ago, InspectorPro Insurance said:

Good question, Marc. In order to answer thoroughly, let's go over some definitions to make sure we're talking about the same thing when we say "insurance companies":

• Your insurance company—otherwise referred to as your insurance carrier or insurer—is the company that insures or “carries” the insurance policy that providers like us give you. Carriers you may have heard of in the space include AmTrust, Aspen, Hanover, Hartford, Lloyds, Nationwide, and United National. You can find the name of your insurance carrier on your binder and in your policy.

• Your insurance provider is a brokerage or agency like us, InspectorPro Insurance and our parent company, Citadel Insurance Services, LC. Our job is to match your business needs to the best insurance carrier. We also provide you with the extra benefits, like pre-claims assistance, customer service, and risk management education. 

So, to simplify the two definitions into a metaphor: Your insurance company is the umbrella while providers like us are the ones who hold the umbrella.

With these definitions in mind, let's return to your question:

Yes, insurance companies and carriers typically have an in-house claims team made up of claims adjusters, the people who investigate allegations, assign defense, negotiate settlements, etc. However, in-house claims teams don't always benefit home inspectors. Because insurance companies/carriers, often write a wide range of insurance products, most of their in-house claims teams don't specialize in any one industry. And that lack of familiarity can sometimes lead to less favorable claims outcomes for the insured just due to lack of experience/knowledge about home inspections.

We noticed this issue happening with some of our own insureds, which is why we negotiated a slightly different approach with our preferred carrier four years ago. While the insurance company we primarily use has an in-house claims team, we don't use them. Instead, we contract out a third-party company to handle all of our pre-claims and claims. That team of adjusters only works with home inspectors, and that expertise has helped us provide our inspectors with better defense. And while the third-party company technically works on behalf of the carrier, we have a lot more say on their approach than we do with in-house carrier adjusters, which has allowed us to advocate for insureds from our end more. (i.e. pre-claims assistance, deductible discounts, cheaper and more effective defense council, etc.)

That's a long explanation, so I hope it makes sense!

Quite an education, at least for me.  My carrier is Scottsdale.  Different provider, so I wonder what I'm getting.

Edited July 5, 2019 by Marc

[InspectorPro Insurance]

1 minute ago, Marc said:

Quite an education, at least for me.  My carrier is Citadel.  Different provider, so I wonder what I'm getting.

InspectorPro Insurance's parent company is Citadel Insurance Services, LC. So, your carrier wouldn't be Citadel; that would still be your provider. However, in looking you up in our system, you don't appear to be a customer of ours.

If you are curious about how your claims handling works with your current provider, we'd still be happy to help. You can email over a copy of your binder and/or policy to weprotect@inspectorproinsurance.com and we can look it over and let you know who your carrier is and what we know about their claims handling. Or, for a more direct approach, you can always call your provider directly and ask who handles your claims and how.

[Marc]

1 minute ago, InspectorPro Insurance said:

InspectorPro Insurance's parent company is Citadel Insurance Services, LC. So, your carrier wouldn't be Citadel; that would still be your provider. However, in looking you up in our system, you don't appear to be a customer of ours.

If you are curious about how your claims handling works with your current provider, we'd still be happy to help. You can email over a copy of your binder and/or policy to weprotect@inspectorproinsurance.com and we can look it over and let you know who your carrier is and what we know about their claims handling. Or, for a more direct approach, you can always call your provider directly and ask who handles your claims and how.

I edited my post.  It's Scottsdale.

[InspectorPro Insurance]

21 minutes ago, Marc said:

I edited my post.  It's Scottsdale.

That makes more sense. If your carrier is Scottsdale, your provider is OREP or Target. Commenting on Scottsdale/Nationwide is tricky because:

• they're pretty new to the home inspection insurance space (~2 years)
• their claims definition, responsibilities, etc. are pretty vague in their policy
• neither of their providers (OREP and Target) have really published on their claims handling practices

But here are a few clues:

• Back in 2016, OREP's Senior Broker David Brauner did an article called "Insurance IQ" in which he talked about some of the highlights of their insurance coverage for appraisers. In it, he talks about how they offer pre-claim and claims help "through the carrier." If that's how they handle their appraiser book, it's likely that that's how they handle their home inspector book. (You can read his article here.)
• If you go to Target's website, it asks you to fill out a Claims Supplement form and submit it to either your agent or the carrier. If you have the option of sending it directly to the carrier, it's likely that you're submitting your claim to their in-house team. (You can see the claims page on Target's website here. Note that it doesn't look like they've updated the page since they switched to Scottsdale/National, so the Western Heritage carrier info is still on there.)
• It's more common to receive claims handling through the insurance company/carrier. So, if your insurance company hasn't explicitly talked about having a pre-claims or claims team separate from the carrier, they probably don't.

So, if you're curious who handles your claims and how on your Scottsdale/National policy, I'd recommend contacting your provider directly. Some questions you might ask:

• Who provides my pre-claims assistance? What qualifies them to provide pre-claims assistance? And what help are they able to give me?
• Who handles my claims? How often do they look at home inspector-specific claims? And how long have they been adjusting home inspector claims?

In case you're not sure who to contact, here are who I'd recommend talking to at each provider:

• OREP: David Brauner | 888-347-5273 | dbrauner@orep.org
• Target: Fausto Petruzziello | 862-286-3510 | FPetruzziello@targetproins.com