What is E&O and why do you need both to survive in the dog eats dog world.
Whether you just got your license or you’ve been inspecting for 25 years, you’ve probably heard fellow home inspectors debate whether insurance is a worthwhile investment. Some argue that the cost of most complaints is less than what you’d pay for continuous insurance coverage. Others argue that inspecting uninsured isn’t worth the risk since one big claim could put you out of business. Full disclosure: We’re an insurance program that sells exclusively to home inspectors, so you can probably guess where we stand on the issue. However, we want our insureds to make well-informed decisions about the coverage they receive so that their businesses have the protection they need. In this article, we aim to inform them by exploring why inspectors choose to carry insurance, what coverage is available, and why it’s smart to carry both errors and omissions and general liability insurance.
Why carry insurance.
Insurance protects inspectors against risks (claims) by providing them with defense, including an attorney and legal costs, and with indemnity, or any payout at the end of litigation.
There are many reasons inspectors choose to carry insurance. From our survey of over 450 home inspectors, we found that the top three reasons home inspectors carry insurance are (1) to avoid large payouts for claims (2) to receive claims handling and defense, and (3) to fulfill licensing and state requirements.
“I’ve been in this business for 28 years, and I’ve had some claims. You need someone to help you with that,” said Brian Thomas, President of A-Z Tech Home Inspections, Inc. in Pennsylvania. “No matter how experienced you are, no matter how long you’ve been doing this, your brain doesn’t work properly when you’re under than kind of stress.”
Thomas particularly appreciates having insurance providers and claims professionals ready and able to assist him when claims arise.
“You guys are on my side and you help me, and that’s the way it should be,” Thomas said. “You hope you never need [insurance], but you want it to be there when you do.”
E&O vs General Liability
Insurance professionals recommend that home inspectors carry two forms of coverage: E&O and general liability. For a brief comparison, check out our explainer video above. Find a more in-depth description below.
The most common of the two coverage types, errors and omissions (E&O) or professional liability coverage protects you when your clients accuse you of missing something during their inspection—or, at the very least, leaving it out of your report. In other words, you’re protected when clients accuse you of not doing your job right. Typically, E&O claims arise from accusations of:
negligence, meaning you allegedly failed to find or report a defect.
breach of contract, meaning you didn’t meet the terms specified in your inspection contract.
failure to provide appropriate recommendations for reported defects, meaning what you recommended wasn’t right for the situation or you didn’t make recommendations at all. Any claims for optional services, like mold and pest, hit your E&O coverage. Note that just because you don’t provide an optional service, like radon inspections, doesn’t meant that a client cannot sue you for a radon-related issue. That’s why it’s important to carry endorsements for any service for which you’d like insurance coverage and to get a thorough pre-inspection agreement signed prior to every inspection.
General liability (GL) coverage protects you when your clients make broad allegations against you. Unlike E&O claims, GL claims don’t typically question the quality of your home inspection or service. Rather, GL claims involve any bodily injury or property damage that result from the inspection. According to Adam McGary, owner of Capital Claims Management, LLC, which handles all InspectorPro claims and pre-claims, the vast majority of GL claims result when inspectors leave water running or step through the ceiling.
Why carry both
Most of the inspectors surveyed say that the reason to carry both E&O and general liability insurance is to protect everyone, including the inspector, business, and client. As they know, inspectors don’t have full protection unless they carry both E&O and GL coverage. Failure to carry both coverage types leaves inspectors open to specific types of allegations: allegations that they missed something during an inspection (E&O) or allegations that they damaged something or hurt someone (GL).
“We’re in a tough business and need to be careful,” Thomas stated. “One [coverage] is the belt and one’s the suspenders. You’ve got to make sure your pants don’t fall down.”
George Hallaron of Bienvenue Home Inspections, LLC in Mississippi agrees that both E&O and general liability coverage are necessary precautions.
“No matter how compliant the inspector is with the standards of practice, some home buyers believe that an inspection should be a guarantee,” Hallaron wrote. “A perfect home inspection isn’t possible, but that won’t stop some disgruntled customers from filing a claim.”
For Jimmy Watson of Dallas Realty Services, Inc. in Texas, it’s the ambiguous nature of every home inspection that makes both coverage types necessary. “You never know what can happen at the next house,” Watson said. “If you miss something, hopefully you are covered with E&O. If you damage something, hopefully you will be covered with GL.”
How to buy
Our survey revealed that inspectors value the following three insurance policy features most: (1) E&O and general liability in one policy, (2) low price, and (3) strong claims handling. Here are our tips on how to make sure your provider has each one.
E&O and GL in one policy
Lucky for home inspectors, most policies now include both E&O and GL coverage. However, how they provide both types of coverage can vary.
Be mindful of policies that come with shared limits or combined single limits. If your policy has shared limits, your limits of, say, $500,000 / $500,000 apply to both your E&O and GL claims. That means, if you receive an E&O claim that uses $400,000 of your limit, there’s only $100,000 left for both E&O and GL claims that year.
When seeking the most coverage, be sure to purchase split limits that include an occurrence and aggregate limit for your E&O coverage and a separate occurrence and aggregate limit for your general liability coverage.
The only way to evaluate a provider’s price is to compare it against multiple providers. But when you do, be sure you’re comparing apples to apples.
Most often, the culprit responsible for large price differences is the policy’s exclusions. While all home inspection insurance carries the same basic coverage, policies defer based on the long list of situations and hazards they won’t cover. The more an insurance company excludes in their policy, the cheaper they can sell the policy.
Before jumping for the lowest premium, carefully review the policy’s exclusions and any sublimits. If you purchase a cheaper policy that won’t cover claims filed against you, you’ll end up spending far more than you saved.
Strong claims handling
When looking for strong claims handling, it’s helpful to ask your provider the following questions:
Do you offer pre-claims assistance at no additional charge when I purchase a policy?
How quickly do your claims professionals and adjusters respond to my questions?
Does your policy offer a simple deductible so that I may get claims help immediately?
Does your policy also include a vanishing or depreciating deductible to reward me for my consecutive years without claims?
Claims are far less stressful when you have a knowledgeable and responsive claims team at your side. It also helps when the policy, particularly the deductible, gives back to the insured whenever possible.