In a time when many Americans are finding themselves in financial peril, court officials in Manatee and Sarasota counties are encouraging residents to seek free mediation offered in the 12th Judicial Circuit before filing lawsuits to collect debts. Read the full story here
For the home inspector, documentation is a key area of protection. This would include documenting the conditions encountered during the inspection process especially when you come across conditions that block the inspectors view or access. This would also include situations where, in the inspector’s opinion, conditions may be unsafe for him/her to enter a section of a dwelling. Remember, it is your life at stake. For the multi-inspector firm the risk can be higher as OSHA rules and regulations for safe working environments, practices, policies, equipment, and training prevail. Sending an employee onto a roof can be more dangerous than one can imagine. Confined space entry is another common situation the inspector may encounter. Cover your bases. Protect yourself and the employee.
As to one of the hottest issues facing the home inspector today, clear communication and setting proper expectations is an absolute must. We are speaking of mold. As a matter of practice, it is probably advisable to include a brief paragraph in one’s inspection agreement informing the client that all homes contain some degree of mold infestation and to have the client initial this clause. Mold is a fact of life, unfortunately. It is probably a good idea to include a brief paragraph in your inspection reports explaining mold and other toxins. Again, the purpose is to correctly inform the client of the realities of mold, to explain that a home inspection is limited in scope and non-invasive, to inform them that mold problems can be easily covered up by a seller, and to set their expectations relative to mold. Of course, always refer back to the mold clause you include in your inspection agreement.
http://capecoralhomeinspector.blogspot.com/2008/01/don-get-sued.html
http://www.nachi.org/commongood2005.htm
The top ten best practices that home inspectors can use to prevent being the target of a lawsuit and to put them in the best possible position to defend themselves if a lawsuit is filed.
http://www.homeinspectorliability.com/Top_10_ways_to_stay_out_of_court.html
Find Out Why…
Many times, in an effort to afford ourselves the maximum protection permitted by contract law, inspectors include everything but the “kitchen sink” in their inspection agreements. In this particular case, and in addition to some unforeseen consequences in the follow-on processes associated with the arbitration clause, one inspector found himself forced back into court.
Arbitration clauses are generally thought of as enforceable within common contracts. Many contracts contain arbitration clauses, and most folks don’t give them a second glance. Such was the case of a Mississippi inspector and his client in 2003. In the case at hand, the inspector spoke to his clients via telephone, discussed the inspection process and services offered, and agreed on a price. A time and date was set to perform the inspection. After the inspection, and prior to the delivery of the inspection report, the inspector asked the clients to sign an inspection agreement. Contained within the agreement was an arbitration clause. The clause compelled the client to utilize the services of the American Arbitration Association in the event the client brought an action against the inspector. The agreement was signed and the report delivered. As with many inspection-related disputes, defects were discovered several months later. The clients sued the inspector, and the inspector moved for summary judgment against the clients, as the inspection agreement compelled them to binding arbitration. The courts initially upheld the enforceability of the arbitration clause. However, the story did not end there, as the clients appealed the lower court decision, and eventually had the judgment overturned in 2005. That’s two-year worth of litigation and legal expenses. How could this happen? Well, there were several reasons.
A number of factors were weighed by the appellate court, resulting in the overturn of the lower court’s ruling. One of the first things examined was the initial conversation between the inspector and client. Most inspectors consider the initial contact and discussion over price and scope as a simple sales pitch; why one should choose your firm in favor of another. However, the court considered this discussion and agreement over price, and a notice to proceed, as an oral contract. In that initial discussion between the parties, an arbitration clause was never mentioned to the client. Further complicating the matter was the fact that the actual inspection agreement was signed after the inspection had been performed. So, with these initial, but important steps, the notion of unenforceability reared its ugly head, in that arbitration was neither discussed during oral negotiations, nor pointed out in an agreement signed after the fact. An important concept is noted here, in that the court was starting to look at whether one party lacked the opportunity to study the contract and to inquire about the contract terms. Considering that the majority of home inspectors meet their clients immediately before the inspection begins, this situation technically is the norm, as opposed to the exception. The concept of an oral agreement is also most interesting, as the court brings another common practice of home inspectors into the mix.
The court also found that the inspector and client were not in equal standing as far as knowledge and bargaining power. Indeed, the contract itself may have contained inconspicuous print (beware the fine print) and complex legalistic language. Indeed, the “sophistication” of the parties also weighs into a determination as to whether something may be enforceable. This very argument is often heard of late as it pertains to sophisticated terms involving the refinancing industry and the mortgage crisis, which is precisely why such contracts have a window or time for review and re-consideration. Not so, typically, when it comes to home inspection agreements.
Beyond these initial findings, other clauses ultimately made the court decide that the contract was unconscionable. A lynch-pin in the client’s argument, and the appellate courts findings, was that the arbitration clause, barring all else decided so far, was one-sided.
How so? Well, on one breath, the Inspector limited the client to binding arbitration, yet allowed the inspector to utilize the courts to recover money from the clients in the event of non-payment. This contradiction may be more common than anyone realizes. The old saying “what’s good for the goose is good for the gander” had never been heard so loud and decisively. The fact was that the inspector included a term which offered him certain rights available at law and equity, while barring his client from seeking relief in a court of law. The courts found this clause to be oppressive.
Further, the inspector had a limitation of liability clause in his contract. Again, these clauses are almost universal in inspection agreements, except where they may be barred by law. Often, these clauses are found to be enforceable, and often they are not. In this case, not only did the court find this clause to be unconscionable, they further went on to tie it into the arbitration clause itself.
In the agreement, the client was compelled to utilize the services of the American Arbitration Association, which is a fine firm, it also has a specific fee structure. At the time of the inspection, American
Arbitration Association used a sliding fee schedule, based on the value of the suit. In this particular case, the fee to arbitrate far exceeded the value of the inspection. At best, based on a limitation of liability, the client could only recover $265. The cost to arbitrate at that time was at least $500, which was undisclosed in the contract clause.
Beyond this, the inspection agreement also contained a statute of limitation clause, limiting any action by the parties to one (1) year. Unfortunately, this clause ran contrary to public law (Mississippi), which set an actual statue at three (3) years.
In essence, the contradictory language contained within this agreement ultimately gave the court enough latitude to conclude that it was oppressive and unconscionable. The decision of the lower court was overturned, and the clients were allowed to seek redress in a court of law.
Keep in mind that the case hadn’t even been discussed yet. Whether or not it had merit was a discussion for another day. The events described were all based on the applicability and interpretation of contract law as it pertained to clauses contained within an inspection agreement.
If anything is to be learned from this expose, it is that rarely is anything guaranteed in this world. Another important lesson is one of enforceability of any contract. Often, inspectors include fine print. Many things contained in that fine print contain legalese. Most clients have no opportunity to examine what they have signed. Many times, an oral agreement of sorts is made via telephone. Inspectors are often lax in when the agreement is signed. Agreements often contain limits of liability clauses, which may be thrown out later. Indeed, there are many provisions that inspectors include specifically designed to protect us, which may be contradictory or not provide equality of avenues of relief for the parties. An inspector’s own arbitration clause and “undisclosed” process and fee structures may hamstring them in the end.
When choosing an arbitration clause or service, be sure that the process and fee structures are not onerous to the client. Ensure that both parties utilize a service that is qualified, cost-effective, and fair to everyone involved. Ensure that the inspection agreement is disclosed at the time of discussion, that it is signed prior to the engagement, and that the arbitration clause is initialed by the client.
These are starting points for helping to ensure the enforceability of any inspection agreement.
BY JOE FARSETTA, CMI
http://www.inspectionarbitrationservice.com
© Copyright 2009
Professional liability is defined as “the area of law concerning lawsuits brought against a professional in the course of their profession”. Home inspectors, like other professionals, are vulnerable to professional liability actions. When a client is dissatisfied with an inspection, typically because some defect is discovered after closing, the knee-jerk reaction is often to blame the inspector. Second only to the inspector comes placing blame on the Realtor, especially if the inspector was recommended by them.
What can a professional home inspector do to protect himself from frivolous claims? Home Inspectors can purchase E & O Insurance which protects them for claims arising from allegations of wrongful acts, errors and omissions in their inspections. Whether or not an inspector decides to carry E & O insurance is a personal decision unless the state the inspector lives in requires it. Even if the inspector decides to carry E & O, how does he/she protect themselves if there is a gap in their coverage? What about if the inspector provides ancillary inspection services such as radon testing, termite inspections and mold inspections? These services are not covered by a normal E & O policy; often a separate rider is required. E & O premiums cost several thousand dollars/year and in the case of a dispute, the inspector often has to settle the claim by paying out of his/her deductable. So even if an inspector carries E & O insurance, he/she is still out of pocket thousands of dollars should he/she be named in a lawsuit, even when he/she has done nothing wrong. The problem with E & O insurance is that it often paints a target on the inspector’s back. E & O does not protect the consumer for the majority of payouts are from the deductible that the inspector carries, anyway. E & O insurance is also an expense that few part time and rural inspectors can afford and often puts them out of business. If an attorneys gets involved, the next thing you know, you receive service to answer a complaint. Even if you are in the right and have done nothing wrong, you need to either represent yourself, tender the claim to your E & O carrier (and relinquish all control), or hire your own attorney. The matter tends to get expensive in a hurry.
As an inspector who carried E & O for many years, the specter of a lawsuit weighed pretty heavy in the back of my mind. I have always prided myself in performing thorough inspections, and consider myself to be an educated and competent inspector. I am not alone in this. There are literally thousands of competent inspectors who pride themselves in performing quality inspections for their clients.
In an effort to quell my concerns about litigation, I started to think about how I could avert a lawsuit before it happened and thought about arbitration. Through my research on arbitration as an alternative to the courts, I found that arbitration services tend to be rather costly, even though they are often still less expensive than legal services. Some arbitration firms charge over $1000. The other reality, I soon discovered, was that none seemed to specialize in inspection litigation which means that in cases where a dispute arises between a home owner and an inspector, there would be a learning curve while the arbitrator became educated about the inspection industry which would likely raise the cost of this arbitration. This is where, I believe, a need existed for a low cost, fixed-price mediation and arbitration service dedicated exclusively to the inspection industry, with neutrals that are intimate with the workings of the inspection industry.
The challenge is to keep the cost down. Inspection Arbitration Services (IAS) does it by making the service subscription-based, as opposed to pay as you go. The other item which makes us unique is that we are Internet-based. We concentrate on inspection mediation and arbitration ONLY. Our neutrals are experts in their respective fields, all relevant to our industry. If a dispute goes through the court system or is arbitrated by someone other than an inspection industry expert, those who will be ruling on inspection dispute cases have no inkling of the inspection business. They are easily fooled and swayed from arguments on either side….they are simply looking for the cheapest way of resolving the issue for the provider. Neither side can expect “justice” and, in that respect, neither side is actually “protected”.
IAS requires that the consumer make the first serious move. They have skin in the game, and have a burden of proof that many cannot achieve. We have a record of over 50 potential cases that never went to arbitration or file when we coached the complaining party how to prepare their case. Unlike the insurance company who is looking to get out of the mess as inexpensively as possible, the claimant must gather and put forth his evidence.
Arbitration is NOT like insurance. It is a means to provide cost-effective alternatives to traditional litigation. An arbitration clause is useful in that it is there for BOTH parties. Inspectors can’t lie to our neutrals, because they are extremely knowledgeable regarding contracts, contract law, construction, and inspection. Inspection arbitration is all we do. We are absolutely neutral, and the service is non-binding, which still leaves disputants the option to sue in the event they do not like the outcome. It’s like mediation, with evidence, discovery, and a mock trial. It is cost-effective. Should the decision be rejected by either side, and it goes to trial, the first thing a judge will ask is whether you tried to settle differences out of court. What do you think the judge (and law clerk) will think when it is revealed that you went out of your way to avoid clogging the court’s calendar, and have a fair decision which is being ignored by the plaintiff?
There is no lost time from work, no court costs, no face-to-face intimidation, and no travel. It’s is fairly simple to analyze a complaint remotely; it comes down to the SOP, the contract, and the report.
It is my belief that inspectors are the most knowledgeable professionals involved in the real estate transaction. We carry the most liability. We are often paid the least. We are relied on by the client, and are often the final say in whether a deal goes through or not.
Unfortunately, we often have the largest target painted on us. I believed that the time had come for inspectors to have an alternative to the high price of traditional litigation and arbitration. I launched Inspection Arbitration Services to answer this need. We are experienced and independent, and are one of the best kept secrets in the inspection industry today.
By Joe Farsetta, CMI
© Copyright 2009
When a home inspector gets sued, several things tend to happen. At first, the inspector is often dumbfounded; did he miss something on the inspection? Well, the Client apparently thinks so! But, what happens next?
Well, if the inspector carries professional liability insurance, such as an Errors and Omissions policy, the inspector may need to immediately tender the complaint to his carrier. Depending on the coverage and terms of the policy, the inspector may be on his/her own at that point, or may relinquish all rights to their insurance company.
Sometimes, if the carrier feels there is risk, or that the costs of defending the claim may be high, they will often offer a settlement. Sometimes that settlement comes from the inspector’s deductible. In essence, the inspector loses, and never gets to tell his or her side of the story.
Where the inspector has no E&O, they may try to contact the Client and see what the dispute is about. In some cases, the inspector may offer to take care of a problem, or may offer money to make things go away. Sometimes this works, but often the inspector retains an attorney, at an hourly rate. Bingo… the legal bills start to pile up.
But, what if there was another way to resolve disputes… say via an alternate dispute resolution service? We’re speaking of mediation and arbitration. Well, in order to take this path, both parties would need to agree to it. This is why if you intend to compel arbitration and mediation, it is imperative that it be included in the inspector’s inspection agreement, and clearly agreed to by the client prior to the start of the inspection.
To ensure a fair outcome for both parties in the dispute, it is equally as important to choose an arbitration firm that specializes in the home inspection industry. Not fair, you say? There will be bias in favor if the inspector? Well, in reality the knife cuts both ways. Inspectors and those intimate with the industry know what performing an inspection legitimately takes and includes. It’s hard for either party to embellish the facts with any degree of believability when an expert neutral is involved.
Arbitration is an alternate means of dispute resolution, which in theory expedites the process, helps clear the court calendar, and helps plaintiff and defendant avoid the costs associated with a trial. But, what happens when the decision of the arbiter is just plain wrong in your opinion? What if he erred in his assessment? What recourse do you have? That depends on if the arbitration was binding or not. In binding arbitration, there is typically little recourse for the losing party.
In non-binding arbitration, things can be different. While some believe that non-binding arbitration is a waste of time and money, from my perspective it is not. If the cost of arbitration is reasonable, and produces a product (not necessarily result) which is beneficial, it has served its purpose. In many cases, non-binding arbitration as the next effect of its binding counterpart.
First of all, if the costs are reasonable and proportional, the clauses compelling arbitration may not be deemed onerous. Secondly, if the result of the arbitration is not necessarily final, the process may not be deemed as oppressive. As to the notion of the process being a waste of time, I couldn’t disagree more. Think of the process as a sort of mock trial. In the worst case, the results of the arbitration decision, along with all presented in the evidentiary phase are returned to both sides. If priced correctly, it is like cheap discovery. At the middle of the road, each party gets to see how strong or weak a case they are really presenting. In the best of scenarios, if appealed to the courts for trial (as it is non-binding), a judge may accept the documentation and decision of the arbiter when considering the merits of the case.
All these concepts are key when considering disputes regarding allegations of defective home inspections. When a home inspector is accused of negligence, the most common recourse is a conventional lawsuit. While some attorneys may proceed on a contingency basis, other may not. In fact, for the plaintiff, there is typically some capital outlay. Even where they think they have a strong case, they may discover that they do not a few thousand dollars into the proceeding, and most often after discovery. For the inspector, the costs of defending one’s position may be costly from the get-go. So what’s a happy medium? Mediation and Arbitration. Inspection Arbitration, more specifically.
Some arbitration services offer a sliding scale of fees, based on the value of the case. Others have rather high fees associated with a case, at fixed prices. Most offer only binding arbitration. A majority do not specialize in inspection-related cases.
Inspection Arbitration Services is a bit different, in that it offers low-cost, fixed-rate mediation and arbitration services for inspection disputes exclusively. Our neutrals are contract, construction, and inspection industry experts. Inspection related disputes are the only cases we consider. Administrative fees are paid for out of subscription fees which inspectors pay up front for. In other words, if one does not subscribe in advance, they cannot take advantage of the low cost and experience level that the service has to offer.
Potential homebuyers can also subscribe in advance of having an inspection, and compel the inspector to bring disputes to the service first, though this would be quite a rarity.
The service is not association-based, and is available to all residential and commercial inspectors regardless of association status. Neutrals are not exclusively from the inspection profession, and include construction experts, real estate attorneys, inspection professionals, and construction contract specialists.
