E & O insurance limits

[Ponyboy]

I am in the process of renewing my E&O insurance with BRP. I really hate it this year! What coverage limits would you pick and why; $500,000 or $300,000. A new offering from BRP is a $3,000 deductible instead of $5,000 deductible for a lower premium?

[TopSarge]

Hi,

Since there is no E & O requirement for home inspectors in Washington state, I'd go with OREP at a $100,000 coverage a $1000 deductable for $1600 a year.

Personally, I don't see the point of wasting money on E & O; it only paints a dollar sign on your back for attorneys and then you have that huge deductible to pay out even if the insurance company denies the claim but settles out of court for an amount far less than your deductible. Some profer the idea that if you don't carry an E & O policy that you're not being a responsible and professional business person; I think that's silly. If that's true, why doesn't every single profession require all business owners to have E & O coverage?

I've only had one instance where I'd ever called my insurance company about something - it was a flaky customer. The insurance company agree with me - that she wasn't owed a thing - but they charged me my deducible, just for talking to them about her.

That year, my E & O had cost me about $4200 and the five years before that I'd paid out a total of about $18,000 for E & O for a grand total of about $22,200 in six years. So, on top of all of those premiums paid to them, they charged me $1000 for talking to them. In the end, my total out-of-pocket costs for those six years was about $22,650 so they made a pretty good profit on that deal. Gee, I could have paid the refund out of pocket and been $23,650 less in debt if I hadn't been paying for an E & O policy! I dropped my E & O after that year.

I once heard that the average claim paid out in disputes with inspectors is $7500. I have no idea where I heard it so I have no idea whether it's accurate or not or even whether I'm remembering it properly. However, let's assume that I am remembering that properly; that would mean that $100,000 worth of coverage is way more than you actually need to carry. Look at my situation that I'd described above, if I had paid her out of my own pocket, I still would have been way ahead of where I'd have been with an E & O carrier.

So, instead of paying that money to an E & O carrier, why not bank the equivalent of what you'd pay out in premiums, and then deal directly with the unhappy clients when/if you must? At least that way you'll be earning interest on what's banked. Team up with a good attorney and keep anything paid out under that national average and you'll always be ahead.

Who pushes the E & O? Franchises push it - actually require it - and they require that they be listed as an "additional insured." The franchises are hedging their bets; sure they do a lot of training and have a proven system that they think is bulletproof, but they want to be covered if one of their franchisees screws up, even though that franchisee's - being an independent business owner - screwup, if it ever happens, will have absolutely nothing to do with them.

Associations push it 'cuz they know that, on the off chance that one of their members screws up, E & O will probaby settle out of court and that will help them avoid the unwanted negative publicity that would accrue if an uninsured member gets sued by someone who runs to the media.

Consumer groups push it, 'cuz they want to ensure that whoever they sue has deep pockets; otherwise, what'd be the point?

I've never had a situation where a legitimate claim has been made against me where I'd need the help of an E & O carrier and the number of times I've refunded a fee for a customer that has had his/her nose out of joint about something can be counted on one hand. I think that all one has to do is do a thorough and careful inspection. If you do that, you stay out of trouble.

Chris

[Scottpat]

Originally posted by Ponyboy

I am in the process of renewing my E&O insurance with BRP. I really hate it this year! What coverage limits would you pick and why; $500,000 or $300,000. A new offering from BRP is a $3,000 deductible instead of $5,000 deductible for a lower premium?

I would look at the $500K with the $5K deductible. This will afford you a good amount of protection if you ever need it. I would not even consider a $100K policy. For just a few hundred more dollars you can get the $500K. As for a low deductible, this is just a marketing ploy by the various companies. Look at the entire coverage and what is offered.

With BRP the include a GL policy, they cover radon testing, they also provide corporate coverage all under the same policy and for the same price. Also BRP is a Lloyd's product and will still be around if AIG fails or decides to get out of this type of business. Many of the other providers are using AIG products.

[jferry]

Home inspectors who operate in states that do not require that they carry E & O Insurance can perform the risk/benefit calculus and either insure the potential risk or self-insure it.

One factor that they should consider is that, while it is a popularly held belief among home inspectors that carrying E & O insurance "puts a bulls-eye on your back", the reverse is not true. Not carrying E & O Insurance does not remove the bulls-eye.

As a practicing trial lawyer for more than 20 years in Philadelphia, I can assure you that whether or not a defendant carries insurance has virtually no influence over whether or not to file suit. What does have influence is whether or not a. the claimant has damages and b. the defendant was negligent.

No insurance company will cover defamation claims. None. Yet, there is no shortage of defamation suits filed in this country.

An uninsured defendant is a much easier target as he more than likely will be unrepresented and thus very likely to miss deadlines that will result in default judgments or make damaging admissions in his pleadings. Collecting the judgment against such a defendant is easy if he has assets: autos, business equipment, home. Otherwise it is simply a matter of waiting until he needs a loan or a mortgage.

All lenders require that any outstanding judgments be satisfied before they will lend money.

So, buy E & O insurance or don't buy E & O insurance. Just make sure that you consider all of the factors with your eyes WIDE OPEN.

[Michael Carson]

Who is BRP, and do they have competitive rates?

Originally posted by Ponyboy

I am in the process of renewing my E&O insurance with BRP. I really hate it this year! What coverage limits would you pick and why; $500,000 or $300,000. A new offering from BRP is a $3,000 deductible instead of $5,000 deductible for a lower premium?

[qhinspect]

Originally posted by jferry

Home inspectors who operate in states that do not require that they carry E & O Insurance can perform the risk/benefit calculus and either insure the potential risk or self-insure it.

One factor that they should consider is that, while it is a popularly held belief among home inspectors that carrying E & O insurance "puts a bulls-eye on your back", the reverse is not true. Not carrying E & O Insurance does not remove the bulls-eye.

As a practicing trial lawyer for more than 20 years in Philadelphia, I can assure you that whether or not a defendant carries insurance has virtually no influence over whether or not to file suit. What does have influence is whether or not a. the claimant has damages and b. the defendant was negligent.

No insurance company will cover defamation claims. None. Yet, there is no shortage of defamation suits filed in this country.

An uninsured defendant is a much easier target as he more than likely will be unrepresented and thus very likely to miss deadlines that will result in default judgments or make damaging admissions in his pleadings. Collecting the judgment against such a defendant is easy if he has assets: autos, business equipment, home. Otherwise it is simply a matter of waiting until he needs a loan or a mortgage.

All lenders require that any outstanding judgments be satisfied before they will lend money.

So, buy E & O insurance or don't buy E & O insurance. Just make sure that you consider all of the factors with your eyes WIDE OPEN.

Not to change the subject but that is why it is important to separate your business from your personal life (LLC or Corp).

Even though there are some exceptions to that rule and laws can vary from state to state, it normally holds up.

[kurt]

Originally posted by qhinspect

Even though there are some exceptions to that rule and laws can vary from state to state, it normally holds up.

What's "normally"?

[hausdok]

Originally posted by Michael Carson

Who is BRP, and do they have competitive rates?

Originally posted by Ponyboy

I am in the process of renewing my E&O insurance with BRP. I really hate it this year! What coverage limits would you pick and why; $500,000 or $300,000. A new offering from BRP is a $3,000 deductible instead of $5,000 deductible for a lower premium?

BRP (Business Risk Partners) is one of this site's paid sponsors as is OREP (Organization of Real Estate Professionals - another E & O provider). In order to decide whether they have competetive rates, you'll need to do a whole lot of research because an E & O policy that's inexpensive is not necessarily the best deal.

Understanding insurance policies can be difficult; to me, they always seem to be written in a foreign language. If you have a local insurance agent that's helped you pick out life insurance, health insurance or disability insurance, I think it would probably be a good idea to pay that person to look at your business and then check out these various E & O providers and then tell you which is the best fit for your business.

ONE TEAM - ONE FIGHT!!!

Mike

[qhinspect]

Originally posted by kurt

Originally posted by qhinspect

Even though there are some exceptions to that rule and laws can vary from state to state, it normally holds up.

What's "normally"?

normal

nor·mal (nôr#8242;m#601;l)

adjective

conforming with or constituting an accepted standard, model, or pattern; esp., corresponding to the median or average of a large group in type, appearance, achievement, function, development, etc.; natural; usual; standard; regular

[jferry]

Originally posted by qhinspect

Originally posted by jferry

Home inspectors who operate in states that do not require that they carry E & O Insurance can perform the risk/benefit calculus and either insure the potential risk or self-insure it.

One factor that they should consider is that, while it is a popularly held belief among home inspectors that carrying E & O insurance "puts a bulls-eye on your back", the reverse is not true. Not carrying E & O Insurance does not remove the bulls-eye.

As a practicing trial lawyer for more than 20 years in Philadelphia, I can assure you that whether or not a defendant carries insurance has virtually no influence over whether or not to file suit. What does have influence is whether or not a. the claimant has damages and b. the defendant was negligent.

No insurance company will cover defamation claims. None. Yet, there is no shortage of defamation suits filed in this country.

An uninsured defendant is a much easier target as he more than likely will be unrepresented and thus very likely to miss deadlines that will result in default judgments or make damaging admissions in his pleadings. Collecting the judgment against such a defendant is easy if he has assets: autos, business equipment, home. Otherwise it is simply a matter of waiting until he needs a loan or a mortgage.

All lenders require that any outstanding judgments be satisfied before they will lend money.

So, buy E & O insurance or don't buy E & O insurance. Just make sure that you consider all of the factors with your eyes WIDE OPEN.

Not to change the subject but that is why it is important to separate your business from your personal life (LLC or Corp).

Even though there are some exceptions to that rule and laws can vary from state to state, it normally holds up.

What is the point you are making? That operating as a corporation will insulate you from liability?

If so, know this: it won't.

[qhinspect]

Originally posted by jferry

Originally posted by qhinspect

Originally posted by jferry

Home inspectors who operate in states that do not require that they carry E & O Insurance can perform the risk/benefit calculus and either insure the potential risk or self-insure it.

One factor that they should consider is that, while it is a popularly held belief among home inspectors that carrying E & O insurance "puts a bulls-eye on your back", the reverse is not true. Not carrying E & O Insurance does not remove the bulls-eye.

As a practicing trial lawyer for more than 20 years in Philadelphia, I can assure you that whether or not a defendant carries insurance has virtually no influence over whether or not to file suit. What does have influence is whether or not a. the claimant has damages and b. the defendant was negligent.

No insurance company will cover defamation claims. None. Yet, there is no shortage of defamation suits filed in this country.

An uninsured defendant is a much easier target as he more than likely will be unrepresented and thus very likely to miss deadlines that will result in default judgments or make damaging admissions in his pleadings. Collecting the judgment against such a defendant is easy if he has assets: autos, business equipment, home. Otherwise it is simply a matter of waiting until he needs a loan or a mortgage.

All lenders require that any outstanding judgments be satisfied before they will lend money.

So, buy E & O insurance or don't buy E & O insurance. Just make sure that you consider all of the factors with your eyes WIDE OPEN.

Not to change the subject but that is why it is important to separate your business from your personal life (LLC or Corp).

Even though there are some exceptions to that rule and laws can vary from state to state, it normally holds up.

What is the point you are making? That operating as a corporation will insulate you from liability?

If so, know this: it won't.

Wow! Great communication skills.

Even though you are involved with Nick from InterNACHI, I have a hard time believing that you know what the laws are for every state.

Even though there are some exceptions to that rule and laws can vary from state to state, it normally holds up.

The statement that I made above is true here in Indiana (Information obtained by my lawyer and another lawyer I worked with plus a lawyer my wife worked for).

How many home inspectors have you heard of that lost their house directly from a lawsuit? None that I know of. Working with Nick at InterNACHI, I would think you would have cases that will proves me wrong.

[Scottpat]

I do know of one inspector who did file bankruptcy after he lost a case and had a judgment filed against him. This kept him from losing his home, etc. This was about ten years ago.

The inspector did screw-up (not as much as the lawsuit claimed), but did not have E&O to pay for his screw-up. He closed up his company and became an fairly well known home inspector instructor who is still around today!

[qhinspect]

Originally posted by Scottpat

I do know of one inspector who did file bankruptcy after he lost a case and had a judgement filed against him. This kept him from loosing his home, etc. This was about ten years ago.

The inspector did screw-up (not as much as the lawsuit claimed), but did not have E&O to pay for his screw-up. He closed up his company and became an fairly well known home inspector instructor who is still around today!

Every situation is unique, that is why the human factor has to be applied when it comes to the courts.

When it comes to the person that filed for bankruptcy; there are so many things that he could have done that put him in that position besides screwing up the home inspection. He could have also gotten bad advice and filed for personal bankruptcy. Or, the personal bankruptcy could have been something he was looking at doing before that point and just did everything at once.

I don't want or need to spend a lot of time of this so I just posted some things I found really quick.

"An LLC is a newer form of business entity. It has advantages over both the corporation and the partnership forms of operating a business. The LLC’s main advantage over a general partnership is that, like the owners (shareholders) of a corporation, the owners (members) of an LLC are generally not responsible financially for the debts and obligations incurred in the course of the LLC’s business." (Bold & underline is mine)

http://www.ftb.ca.gov/businesses/bus_st ... pany.shtml

"Limited Liability: Owners of a LLC have the liability protection of a corporation. A LLC exists as a separate entity much like a corporation. Members cannot be held personally liable for debts unless they have signed a personal guarantee." (Bold is mine)

http://sbinformation.about.com/cs/ownership1/a/LLC.htm

Which is basicly what I wrote origially.

[jferry]

Wow! Great communication skills.

Even though you are involved with Nick from InterNACHI, I have a hard time believing that you know what the laws are for every state.

Even though there are some exceptions to that rule and laws can vary from state to state, it normally holds up.

The statement that I made above is true here in Indiana (Information obtained by my lawyer and another lawyer I worked with plus a lawyer my wife worked for).

How many home inspectors have you heard of that lost their house directly from a lawsuit? None that I know of. Working with Nick at InterNACHI, I would think you would have cases that will proves me wrong.

It's not true anywhere where English is spoken.

If you are doing the home inspection, you can be sued personally. If you are a corporate entity, it will be sued along with you.

You need to get a new lawyer.

If your car is owned by your LLC but you are driving it and you injure someone, you, the driver will be sued and so will your corporation.

And lose the hostility. I have helped more home inspectors than you ever will.

[qhinspect]

Why do many describe Corp and LLC as "...separate legal entity that can shield the owners from personal liability and company debt."?

http://www.mynewcompany.com/entity.htm

And lose the hostility.

Didn't mean to show hostility.

[Home Pride]

Originally posted by jferry

And lose the hostility. I have helped more home inspectors than you ever will.

.......

[jferry]

Originally posted by qhinspect

Why do many describe Corp and LLC as "...separate legal entity that can shield the owners from personal liability and company debt."?

http://www.mynewcompany.com/entity.htm

And lose the hostility.

Didn't mean to show hostility.

Well, it doesn't go far enough. The operative word there is "can". It can shield owners. It doesn't say "it will shield them."

It won't protect the owners if the owners are individual tortfeasors. If someone is a shareholder of a corporation operating an automobile on corporate business and kills a pedestrian as a result of his negligence both he and the corporation are going to be sued. The corporate entity will protect other shareholders from personal liability but not the tortfeasor.

Most HIs who have LLCs or Subchapter S Corporations are the ones doing the home inspecting. Their LLC or Sub S entity will not protect them because, as the tortfeasor, they can be sued individually.

Many doctors practice in professional corporations. If one of those doctors is sued for malpractice, the other doctors are protected by the PC. The PC does not protect the doctor who was sued.

I hope that that explains it.

If you didn't mean to be hostile, I am sorry that I took it that way. No harm, no foul.

Joe

[Bain]

Originally posted by jferry

Originally posted by qhinspect

Why do many describe Corp and LLC as "...separate legal entity that can shield the owners from personal liability and company debt."?

http://www.mynewcompany.com/entity.htm

And lose the hostility.

Didn't mean to show hostility.

Well, it doesn't go far enough. The operative word there is "can". It can shield owners. It doesn't say "it will shield them."

It won't protect the owners if the owners are individual tortfeasors. If someone is a shareholder of a corporation operating an automobile on corporate business and kills a pedestrian as a result of his negligence both he and the corporation are going to be sued. The corporate entity will protect other shareholders from personal liability but not the tortfeasor.

Most HIs who have LLCs or Subchapter S Corporations are the ones doing the home inspecting. Their LLC or Sub S entity will not protect them because, as the tortfeasor, they can be sued individually.

Many doctors practice in professional corporations. If one of those doctors is sued for malpractice, the other doctors are protected by the PC. The PC does not protect the doctor who was sued.

I hope that that explains it.

If you didn't mean to be hostile, I am sorry that I took it that way. No harm, no foul.

Joe

Joe,

Everything you've described is accurate, as I've learned from a couple of unfortunate situations. "Piercing the veil" isn't a terribly difficult feat to accomplish. That being the reality, is there anything an individual can do to distance himself from his corporation and perhaps shield his personal assets?

I'm the sole shareholder of my sub-S corporation, and the tax code requires me to pay myself a salary as an employee, so the relationship is self evident. Are there any options available to separate, or at least put some ground between, myself personally from my business?

[jferry]

Originally posted by Bain

Originally posted by jferry

Originally posted by qhinspect

Why do many describe Corp and LLC as "...separate legal entity that can shield the owners from personal liability and company debt."?

http://www.mynewcompany.com/entity.htm

And lose the hostility.

Didn't mean to show hostility.

Well, it doesn't go far enough. The operative word there is "can". It can shield owners. It doesn't say "it will shield them."

It won't protect the owners if the owners are individual tortfeasors. If someone is a shareholder of a corporation operating an automobile on corporate business and kills a pedestrian as a result of his negligence both he and the corporation are going to be sued. The corporate entity will protect other shareholders from personal liability but not the tortfeasor.

Most HIs who have LLCs or Subchapter S Corporations are the ones doing the home inspecting. Their LLC or Sub S entity will not protect them because, as the tortfeasor, they can be sued individually.

Many doctors practice in professional corporations. If one of those doctors is sued for malpractice, the other doctors are protected by the PC. The PC does not protect the doctor who was sued.

I hope that that explains it.

If you didn't mean to be hostile, I am sorry that I took it that way. No harm, no foul.

Joe

Joe,

Everything you've described is accurate, as I've learned from a couple of unfortunate situations. "Piercing the veil" isn't a terribly difficult feat to accomplish. That being the reality, is there anything an individual can do to distance himself from his corporation and perhaps shield his personal assets?

I'm the sole shareholder of my sub-S corporation, and the tax code requires me to pay myself a salary as an employee, so the relationship is self evident. Are there any options available to separate, or at least put some ground between, myself personally from my business?

Corporate entities do not protect inspectors who conduct or who are alleged to have conducted negligent inspections. They will be sued and their corporations will be sued.

There is no way to protect your assets if you are a professional providing professional services. That's true if you are a home inspector, a doctor, a lawyer, an appraiser or a dentist.

That is not to say that you can not manage the risk.

You can incorporate into your practice tools and techniques that will reduce your liability exposure. That is the subject of my seminar.

Even if you incorporate those tools and techniques, it will not prevent you from being sued. Anyone with a typewriter and $150 can sue you.

What it will do is prevent anyone who sues you from prevailing in that suit and provide you with a means of recouping your expenses in defending yourself.

To manage the expense of defending yourself, the best method is to always carry E & O Insurance. Get competitive quotes from a variety of sources and make your decision based on coverage, price and resistance to frivolous claims.

[Lewis Capaul]

Here's a link to an online book that you can order for free, it doesn't have all the answers but it is very informative, it can at least provide you with questions to ask your attorney when setting up a plan to protect your assets as best you can. There are other information sources available online, the trick is, at least it was for me, to learn enough about the subject so that you can ask half way intelligent questions.

http://www.rjmintz.com/apptoc.htm

[qhinspect]

Originally posted by Lewis Capaul

Here's a link to an online book that you can order for free, it doesn't have all the answers but it is very informative, it can at least provide you with questions to ask your attorney when setting up a plan to protect your assets as best you can. There are other information sources available online, the trick is, at least it was for me, to learn enough about the subject so that you can ask half way intelligent questions.

http://www.rjmintz.com/apptoc.htm

First, good information.

Second, I would like to correct myself when I mentioned "Corp". I have always been an LLC from the advice of my local lawyer for some of the reasons that were talked about in the article. The information I obtained since was referring to LLC only. So the comment that was written by Mr. Joseph Ferry, Esquire that commented only on corporations and not LLCs can be true.

What is the point you are making? That operating as a corporation will insulate you from liability?

If so, know this: it won't.

Third, the information that I just read about LLC given to us by Mr. Capaul basically tells us the same thing I originally wrote (first sentence).

Not to change the subject but that is why it is important to separate your business from your personal life (LLC or Corp).

Even though there are some exceptions to that rule and laws can vary from state to state, it normally holds up.

Fourth and final, I believe that Mr. Joseph Ferry, Esquire will still disagree with me since he did write about LLCs in later posts. All I have to say is that I hope that I'm right and he's wrong or I don't learn the hard way.

[MMustola]

I have a very good relationship with my attorney. He says in Michigan it is very difficult to get around the protection of the corporation and sue you personally. It order to do it, they have to prove you were negligent or fraudulent.

To prove you were negligent they must prove you did not meet the standard of care in your area. For example, if every inspector walks on roofs and you did not that would be negligent. You can be an idiot, or make a mistake and still be protected.

I know I am simplifying this issue but I believe Mr. Ferry is trying to scare people to sell seats in his classes.

[hausdok]

Originally posted by MMustola

I know I am simplifying this issue but I believe Mr. Ferry is trying to scare people to sell seats in his classes.

Hi Mark,

While there might be a little truth to that, he did state repeatedly that in cases of fraud or neglect it wouldn't shield you. That's the rub, the standard for fraud or neglect is different in different states so the success of the lawsuit really depends on what the laws are in your own state.

My philosophy, just inspect everything I inspect like I'm doing the job for my own mother; that way, I know that nobody is ever going to be trying to sue me for malfeasance.

ONE TEAM - ONE FIGHT!!!

Mike

[jferry]

The problem with receiving a demand letter from a former client or his lawyer is that it has to be responded to whether or not the claim has merit.

Most claims against home inspectors lack merit for one or more reasons. Generally, a meritless claim will fall into one of the following five categories:

1. It seeks damages for something that is not contemplated by a home inspection, something for which the home inspector is not responsible. In other words, the item for which the claimant is seeking redress is something that is beyond the ability of a non-invasive visual home inspection to determine.

2. It seeks damages for an item that is outside the Standard of Practice under which the inspection is being conducted.

3. It seeks damages for an item that was concealed from the home inspector's view at the time of the inspection.

4. It seeks damages for an item for which the home inspector disclaimed responsibility because of inability to access the area of the home that contained that item.

5. It seeks damages for something that the home inspector actually found and wrote up in

his inspection report.

There is a home inspector in New Jersey for whom I have written responses to three separate demand letters from former clients. All three of these claims were abandoned following my response.

This particular inspector happens to be an excellent inspector with vast experience and is extraordinarily busy. He conducts about 500 to 600 inspections a year. Not only is he an excellent inspector and highly reputable, he's an extraordinarily nice and generous

man. He mentors new inspectors.

Because he does so many inspections annually, he has greater exposure to becoming a victim of a meritless claim by sheer dint of the number of inspections that he is conducting each year. Just as a driver who puts 50,000 miles on his car annually is more likely to have an accident than a driver who only drives 10,000 miles, the more successful you are as a home inspector, the more likely you are to be a victim of one of these meritless claims.

One case involved the inspection of a property whose roof he reported was “nearing the end of its useful lifeâ€

[Jerry Simon]

Joe,

I enjoyed this post. TY for the interesting story.

Since I'm from IL, I looked at the seminar details. I really, really was going to sign up until I noticed that only NACHO members get a discount. Truly disappointing...that, and that I won't sign up because of that. (Yeah, I'm one of those ASHI folk.)

Still, sounds good, and I'm sure you'll be full.