Home Inspectors Insurance: What to do with Claims

[hausdok]

By David Brauner, Senior Broker at OREP.org (David Brauner Insurance Services)

Editor’s Note: There are good reasons for reporting claims and incidents when they happen. Here is vital information, that even seasoned inspectors may not know, to save you anxiety, frustration, money and maybe even your business.

The Initial Letter

The return address on the envelope is from a local attorney and as you open the letter your stomach begins to tighten. Unfortunately, your instincts are right: you’re being sued. It’s an inspection you did 14 months ago. Whew! You had errors and omissions insurance coverage at the time, so no problem, right? Not necessarily.

As you dig for the report the interaction with the client comes back in bits and pieces. The client seemed nice. He called upset that his roof was leaking six months after he moved in. You looked up the report, called him back and pointed out where you indicated that the roof showed signs of wear and your recommendation that an expert be called in before the purchase. It looks like you did everything by the book. You offered to come out and take a look. He said it was okay, “Don’t worry about it.â€

[Jim Katen]

Yes, but you answered question seven on the renewal application “No,â€

[Rick Bunzel]

David,

After reading your article its still not clear to me when to notify the insurance company. Does every phone call that generates a second look justify a notification to my insurer? Or is it a demand letter? Does an e-mail demand letter count?

Although it doesn't happen frequently how long does the insurer maintain a loss reserve? In a bad year I could see a lot of your loss reserve being tied up....

Please clarify for all of us,

//Rick

[Richard Saunders]

I think the moral of the story is that OREP is going to try to weasel out of any claim against them. David is just telling us this upfront so we can't come back later and say he didn't warn us. Like Jim says, list every inspection you ever did.

[David Brauner]

Hi Rick,

This is David Brauner. What I would say/recommend (as per the story):

1. What is a claim and when to report is a gray area.

2. If it is in writing from an attorney- absolutely. If it is an angry call or letter from a homeowner, use your judgment and monitor the situation.

3. Contact your agent if you’re unsure- we are here to help.

4. There is very little downside of reporting an issue and plenty of upside, as I say in story, for most home inspectors including coverage of the claim if it pops up later and support and help in dealing with the complaint from experienced claims managers.

5. Loss reserve: I’m not sure about whether you mean a bad year for an inspector or for the insurer. There is no clear answer about how long they hold the reserves. They are bound by law to maintain reserves to assure solvency. That is why they do it. As I say, the amount they put on reserve does not make sense to the layman (or to me) - it’s usually double what anyone would think the issue might cost. This and EVERYTHING I’ve written about here goes for every insurer I’ve ever worked with and there have been many in my 17+ years. After a period of inactivity, your loss history is cleared if nothing comes of it but sometimes they do need a nudge. If you are not switching companies and your premium doesn’t go up, it’s irrelevant. If the loss reserve has been there awhile and the issue is obviously dead, and you request a “loss runâ€

[Rick Bunzel]

Thanks for the clarification. One question I didn't ask but will now is how will the loss reserve reflect against the total value of your coverage?

For example if I carry a $500K policy and my insurer is carrying a $300K loss reserve against a potential claim does that mean my coverage is reduced/ reserved by that amount?

If this is not true then how does the loss reserve potential affect me if I am staying with the same insurance company?

thanks

//Rick

[David Brauner]

Hi Rick- good questions. I think I understand what you're asking.

Current coverage should not be effected (reduced) but if you have $500k limit, that is the limit for all claims and defense for that year once they begin spending. It is a hypothetical question and I've never seen it play out in real life, so it's hard to say anything for sure but I do know you have the one limit for all claims and defense for the year. The loss reserve is just set aside in case it is needed.

As I say, if your premium doesn't go up, the loss reserve doesn't effect you at all unless you decide to move coverage and then a "new set of eyes" at the new carrier will take a look. They may want to see what the claim was about too in addition to the loss reserve. That's why it's good to get the loss reserve removed after it's clear that it will not be needed.