Inspection Reports, Subrogation Claims, and Detrimental Reliance

Monday, February 17, 2014

We recently spoke to an adjuster for a homeowner’s insurance company that is asserting a subrogation claim against the inspector's E&O policy. In our opinion the adjuster is trying to squeeze some money out of the inspector’s E&O carrier because the  insurance company the adjuster works for had to pay a claim made by the homeowner.  What makes this claim so crazy is that the inspection report in question wasn’t even written for the homeowner that reported the claim. The inspection was for an entirely different potential buyer who elected not to move forward and walked away from the deal.

Subsequently, another potential buyer appeared and was given a copy of the inspection report. This person decided not to pay for another inspection. Naturally, after taking occupancy something broke and caused damages which the new homeowner’s insurance company paid to fix. Now, the homeowner’s insurance company wants the inspector’s E&O carrier to pay at least part of the losses they paid. Unfortunately, even after speaking with the adjuster, the homeowner’s insurance company is unwilling to budge because its legal department said it is possible to establish a claim for detrimental reliance based on someone reading an inspection report written for someone else.

A situation that could have been avoided

In reading and reviewing both the inspection agreement and the inspection report in question, one thing jumped out. This could probably all have been avoided if the first/cover sheet of the inspection report stated (directly under the name of the client) the following:

The contents of this report are for the sole use of the client named above and no other person or party may rely on this report for any reason or purpose whatsoever without the prior written consent of the inspector who authored the report. Any person or party who chooses to rely on this report for any reason or purpose whatsoever without the express written consent of the inspector does so at their own risk and by doing so without the prior written consent of the inspector waives any claim of error or deficiency in this report.

You may want to include this language in the inspection agreement also, but it is most important it appear on the report because when a copy of your report goes to the realtors or seller, it typically does not include a copy of the signed inspection agreement. As we all know, it is likely the seller’s agent copied the original inspection report (and may have even removed the original client name) and then gave copies to other potential buyers interested in the home, including the buyer whose claim for repairs started this ball rolling.

Even a frivolous claim will cost money and time to defend so taking a few minutes now to address an issue like this will save you in the long run. As lawyers like to say, you can pay a little now for advice on how to avoid a problem or you can pay me a lot later to fix the problem. 

Now it's your turn

Do you have a statement on the cover of your inspection report that details how can use the information and how? If so, how has it helped? Leave a comment below and let us know. 

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