Home Inspection Insurance
I would venture to say that one of the hardest parts of starting a home inspection business is choosing the right home inspection insurance. I have started 3 inspection companies, and each time choosing the right insurance was a challenge. I wish that someone had told me the right questions to ask, the right policy to choose, and which companies specialize in home inspection insurance.
Well, I want to share what we learned. In this blog post, we will go over some basic things that I wish we knew beforehand, questions I wished we had asked, general cost estimates of insurance, and some specifics that are pretty important.
If you are not interested in that part of things, then you can skip to the bottom where we share some of the home inspection insurance questions that you should ask, and some cost estimates provided by some of the companies out there.
To start off, let’s talk about the difference between GL (General Liability) insurance and E&O (Errors and Omissions) insurance. Knowing the difference between each of these is the most important starting point.
General Liability Insurance
General liability insurance (usually called GL) is an insurance policy that basically means that if you break something in someone’s house (while you are there) you are usually covered. At least, that is the short answer.
Most States that have licensing require GL insurance and is usually one of the basic requirements set out in the law.
So what does this insurance cover exactly? Well, that depends on the insurance carrier. But still, there are some basics of what it will and won’t cover for the most part. Let’s go over a couple of scenarios:
Scenario #1: Your Ladder Falls and Breaks a Window: I have always had that fear during a home inspection. I have one ladder that is really heavy and hard to handle and could easily fall and break a window (fortunately it has never happened). Will general liability cover you? Yes, typically it will.
There are a couple of reasons why. First, it was an accident, second, there was property damage, and third, you were on site performing your inspection. You were doing your job and something YOU did (or didn’t do) broke something. This is a pretty straightforward case.
Scenario #2: You Leave the House and Later That Day a Drain Leak Occurs: Are you covered? No, not really. A home inspection is a visual inspection, so likely you just looked at the drain – so how could you have broken it? Also, you were not on site when it started to leak. So unless the homeowner can prove that you damaged it while you were in the home, there really is no claim. It was likely an old pipe that was ready to break.
Scenario #3: You Run a Sink and Walk Away, and it Overflows Everywhere: Would GL cover this incident? Well… maybe. Insurance claims are not always straightforward. Is this a claim of an “accident” or “negligence”. Did you cause the issue, or did you just discover a defect during the course of your inspection?
General liability insurance does not usually cover negligence or errors on your part. The argument could be made that you walked away and caused the problem. The argument could also be made that the sink was clogged, so you just found a defect. Most insurance companies would probably talk about this one quite a bit before they paid out (if they ever did).
Scenario #4: A Month After Your Client Moves In, Their Heating Unit Fails and All Their Pipes Freeze: Every home inspector’s nightmare, right? But are you covered with General Liability? Nope, not even a little bit. General liability is for when you break stuff, not when stuff just breaks. As you read further in this blog, This is something that E&O insurance would cover, and not GL.
General Liability Insurance Claims
For the most part, general liability claims don’t happen that often (according to David Wicker, head of the home inspector insurance program at CH Insurance). David tells us that for the most part, GL claims just don’t happen that often, E&O claims are much more common.
Most home inspectors just pay for things they break unless it is something big. It is much easier to pay for something than to go through a claims process and have your premiums go up. For instance, if your leg goes through the ceiling in a home it is much cheaper and easier (usually) to just hire someone to fix it. If you drop your ladder on the seller’s new sports car – that is a different story. While it is common to just cover things yourself, be sure to check with your insurance company or an attorney first.
So do you need GL insurance? In most States, yes. Even where it is not required, it is a VERY good idea to have it. You never know when something will happen.
E&O stands for Errors and Ommissions. This is actually just an industry term. The proper name is Professional Liability Insurance. This is the type of insurance that doctors, engineers, and other professionals carry.
They carry it because their advice, findings, and opinions can later come back to have been wrong and adversely affect the life of others.
As home inspectors, what we say, put in our report, and our opinions can do the same. For instance, if we say that the roof was functional and someone buys a house based on that information. When they move in, they find out it was not.
That opens home inspectors up to liability and lawsuits. This is where E&O comes in. It covers home inspectors when we make errors, or fail to report on something. E&O insurance is required by some States, but most States leave it up to the individual inspector if he carries it or not.
Does having E&O insurance mean that you are completely covered no matter what happens? Not necessarily. We will go over this in some of the questions you should ask your insurance provider, but you should know your limits and what is excluded. For the most part, though, this is the top tier of insurance protection for a home inspection company. So let’s do a couple of scenarios here too:
Scenario #1: A month After Your Inspection, the Roof Collapses Because there were no Collar Ties: Are you covered? Yes, you are likely covered. You missed something and something bad happened. As long as your insurance limits are enough to pay for it, you should be all covered.
Scenario #2: Six Months After Your Inspection The Homeowner Falls Off The Roof: Are you covered? The answer: you don’t need to be, it has nothing to do with the inspection. People try to make claims for all sorts of crazy things. They get a bat in their chimney 2 years later, the paint on their house starts to peel, or their roof goes bad after 5 years. E&O insurance is not a piggy bank for the homeowner. Mos insurance companies will fight these meritless claims – and are very good at it.
Scenario #3: The Week Your Client Moves in, The Chimney Catches on Fire and Burns Their House and Injures Many: Are you covered? Well, it depends. This scenario has actually happened. There was property damage to multiple houses, injuries, and very expensive medical bills. The issue with the inspector’s E&O insurance was his limits. It was a multi-million dollar lawsuit, and he had very small limits on his home inspection insurance policy. So he was not really well covered. Fortunately for him, he was excused from the lawsuit because he had called out this safety issue in his report. But there is a lesson there though: your insurance is only as good as your policy limits.
E&O Insurance Claims
E&O insurance claims are more common than GL claims according to David Wicker. But not all States require you to carry E&O insurance. So if your State doesn’t require it, should you get it? There are two schools of thought on this.
The first says that having E&O insurance puts a target on your back. A lawyer once said, “you will only get sued for what you have”. So if you have E&O insurance, people are more likely to go after you for money. If you have no money and no insurance, then what will they sue you for?
The second school of thoughts says that not having money won’t stop people. Or, if you have money (your business is doing well), then people will still come after you. If you are barely scraping by, getting sued in small claims court or paying lawyer fees could finally “sink your ship” so-to-speak. Whichever school of thought you are, this is the basics of E&) insurance.
So now let’s go over some of the questions you should ask your insurance provider and some other suggestions.
Home Inspection Insurance: Questions to Ask
Below are some questions to ask your insurance provider when shopping for insurance.
What is Covered? This seems basic, but be sure to go over a comprehensive list of what is covered. Some insurance companies include damage to your tools or theft of them, and some don’t. Some include bodily injury, and some don’t. Be sure you know what is included and compare to others.
What is Excluded? Generally, a rule of thumb that some insurance providers use is that if it is not excluded, then it is usually included. So pay attention to the exclusions. Do you do septic inspections? If it is excluded, then you are not covered. Be sure that none of your services are in the exclusion list.
What Happens If I Switch Providers? This is an important one. If you have a provider for 2 years and then switch, will they still insure you for those months you were under that policy? Some won’t. There are many stories on the inspector forums (like InterNACHI’s) you will see of inspectors who switched home inspection insurance, only to find out they were not covered for those past years anymore.
Do You Cover “Prior Acts”? This ties into our last question. If you are switching policies, this is especially important. This basically makes your coverage retroactive in the past. Usually, most insurers will require you to have had the same basic type of insurance before them to be able to have this, but each insurer seems to have their own policies on this.
Is Bodily Injury Covered? This is important because when things break in a house, people can get hurt. If a deck collapses and people end up in the hospital, are you covered? Be sure to ask.
Are my Expenses Covered? Most questions about insurance talk about what covers the client. But what about you? Are you covered if you fall through a soft spot on the roof? What if the seller’s weight set falls off the shelf and hurts you? What if your ladder falls on YOUR vehicle and not someone else’s?
What About This Scenario? Give your insurance agent scenarios. Write a list of all the things that could happen and ask if you are covered. No policy is perfect, but it will help you narrow it down.
What are the Policy’s Limits? This is an important one.
How Much Does Home Inspection Insurance Cost
Please keep in mind that the cost of home inspection insurance varies widely. It all depends on what you want covered, how much experience you have, your insurance limits, your location, if you have ever had a prior claim, and many other factors. We gathered several quotes though, and these were the price ranges.
Please note that these prices were for single inspector firms.
For most GL Policies, we found the premiums to be between $500 – $1,500 per year. We saw that is was primarily on the low end of that range though, with most inspectors (even new ones) paying less than $800.
This is where the pricing went all over the place. We found that the baseline was $1,500 – $5,000+ per year. Obviously, if you only want $100,000 in limits, then it was the lower end. If you want more coverage – the sky is the limit.
Home Inspection Insurance – Conclusion
However you look at it, home inspection insurance can be a tricky area to navigate. That is why there are teams of insurance providers, lawyers, and others who help you navigate it.
As always, the information here is just from our experience and is just our opinion. You should always consult a qualified attorney before making any decisions. Have a different opinion than mine? Then leave your comments below.