Insurance Expert Shares Key to Limiting Liability

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By Ross Herlands, ESQ

Probably the single most important thing a home inspector can do to protect him or herself in the event of a lawsuit is to obtain a signed pre-inspection agreement prior to the inspection. Furthermore, one of the key provisions in such a contract is a limitation of liability clause.

Such a clause seeks to limit the amount recoverable from the inspector, if liability is proven, regardless of the actual damages caused. In many cases, such a provision means the difference between a quick resolution of a claim- via a return of the inspection fee, and protracted litigation.

Real World Examples

In one lawsuit against a home inspector, the inspector did not obtain a signed agreement because he had been misinformed that the limitation of liability provision was not enforceable in his jurisdiction. Although the inspector provided a thorough report, which contained references to all of the problem conditions that were allegedly missed, the lack of a signed pre-inspection agreement containing a limitation of liability clause prevented a quick resolution to the claim. Interestingly, a second claim in the same jurisdiction was withdrawn and the inspection fee returned based on the limitation of liability clause.

Do your Homework

It is important to note that some states proscribe the details of an enforceable limitation of liability clause via statute or case law. Inspectors should verify with an attorney or other knowledgeable resource whether a limitation of liability clause is enforceable in the state in which they do business and if so, whether there are specific elements that need to be included for the provision to be enforceable.

For example, Connecticut, Maryland and Ohio cases have been handled favorably based on the limitation of liability clause. However, in Maryland, the state requires that the limitation be in writing to be enforceable. Additionally, in New Jersey and Pennsylvania, the limitation of liability clause is enforceable provided that the provision specifies that the type of liability being limited is negligence. In Pennsylvania, by statute, a home inspector cannot limit his liability with respect to gross negligence.

Experience makes it clear that the difference between forestalling unnecessarily prolonged claims or lawsuits and becoming embroiled in a claim or legal action that can consume considerable amounts of time and energy, rests in obtaining a signed pre-inspection agreement which contains an enforceable limitation of liability clause.

About the Author

Ross D. Herlands, Esq. is Counsel and President of Insurance Services for a large claims settlement firm in Connecticut. He served as Chief Underwriting Officer and Claims Counsel for a large home inspector E&O insurance program on behalf of Lloyd’s where he oversaw underwriting and claims management ($20 million in gross premium). Herlands has practiced insurance law for over 16 years. He can be reached at rherlands@comcast.net.

This story is excerpted from Working RE Magazine, published by OREP, providing low-cost errors and omissions insurance for home inspectors (www.orep.org or 888-347-5273 toll free).