In many complaints or claims against home inspectors the real culprit may be the seller of the subject property. Many times the seller, in an effort to get the maximum price for the property, may omit disclosure of certain defects or in some cases (gasp) may even have tried to hide a defect or two to make discovery by the inspector or buyer more difficult, if not impossible. Sometimes this happens with the help of the listing agent and one or two local contractors.
The failure to disclose or even the occasional intentional deception may not be discovered until months or years later and by that time the seller and the sale proceeds are long gone.
Unfortunately, the inspector is still around and usually has E&O insurance (otherwise known as a deep pocket). This means the buyer goes after the inspector because he has no other choice and because the buyer’s attorney knows it will probably be cheaper for the inspector’s insurance company to settle than to fight.
This means the inspector ends up with a claim on his or her record and probably a higher premium for E&O in the years ahead. So, what’s the point here? Well, it may be the best way to respond to a claim by a buyer where the real culprit is the seller is to convince your E&O carrier to “invite everyone to the party”. Admittedly, this may be difficult because it can cost more to send out invitations than to settle early, but we think taking a hard line Is not only right, but it will also result in fewer claims against inspectors in the long run.
If you believe you are being targeted for something the seller failed to disclose or something the seller intentionally hid from you and the buyer, the first step is to put your thoughts in writing when the claim comes in. Next, and also in writing, ask your E&O carrier to defend you by filing a third party complaint against the seller and anyone else who may have known about the defect or tried to hide it. For example, think about naming the listing agent and any contractors hired by the seller to “spruce up” the place before the inspection. The reason you do this is to make it clear you want to make the real parties pay for the problem even if they don’t have any cash right now. The best way to do that is to get a judgment against them right now. In addition, if any of the third parties have E&O (like real estate agents) you may actually find the money to get the buyer’s problem solved without the entire burden of solving the problem falling on your insurer and/or you.
The goal would be to prove fraud or intentional concealment because then the responsible party may be liable for not only all of the damages, but also the legal fees for everyone else (including you) and even punitive damages for getting you named in the claim in the first place. Be advised your E&O carrier won’t necessarily want to pursue a third party complaint due to the cost, but an argument can be made that the duty to defend requires it. In the end, what you really want is no increase of your E&O premium due to being dragged into someone else’s mess. So, if the carrier agrees your premium won’t increase in exchange for the carrier not having to spend money going after the real culprits, you still win.