Errors and Omissions Insurance Explained
As a home inspector, it’s essential to have good insurance coverage. The potential lawsuits from clients could leave you with crippling legal costs, so errors and omissions (E&O) insurance is vital to protect you.
Not every state requires home inspectors to have E&O insurance, but we recommend getting one. Mistakes happen and you need to be prepared for everything.
This article discusses the details of the average errors and omissions insurance and how it can protect you.
What is errors and omissions insurance?
Errors and omissions insurance is a protection against losses that are not covered by regular liability insurance. It protects you and your business if a client sues for negligent acts, errors, or omissions during business activities, including a home inspection.
What does errors and omissions insurance cover?
Most E&O insurance policies cover judgments, attorney fees, court costs, and settlements up to the policy’s limits.
- Judgments: Covers the decision of a court or judge, depending on your policy limits.
- Attorney fees: Covers your attorney fees for defending your business in court, up to your policy limits.
- Court costs: Covers your business defense costs up to your policy limits.
- Settlements: Covers the cost of settling a plaintiff’s claims out of court, up to your policy limits.
Even if a plaintiff’s claims turn out to be unwarranted, legal fees and other related expenses can add up quickly and cause financial trouble.
Sometimes, actions that caused a loss for a client could have occurred a few years ago. You might not know about it until a court summons arrives in the mail. If you want to safeguard your business from legal claims arising from the past, set the retroactive date on your policy as far as possible. The farther back the policy’s retroactive date, the more coverage and protection it has.
What type of errors and omissions insurance policy do I need?
When it comes to E&O insurance policies, one size doesn’t fit all. You should get a policy tailored to your business’s needs to ensure it has the best protection.
Errors and omissions policies vary from company to company. You can customize your policy depending on the most common risks and potential issues for your type of business.
When can a client sue a home inspector?
A client can sue a home inspector under several legal theories. But many cases are complicated. Whether a client has a viable claim against you depends on what you did or did not do during a home inspection and how it harmed them.
A client could file a claim for negligence if you deviated from the professional standard of care during the home inspection.
Negligence is the failure to act as a reasonable person in the same shoes would have acted, wherein damages result from the behavior. In the context of a home inspection, you, as a home inspector, have to deliver a report that often plays a role in purchasing a house. If your client suffers losses because the home inspection report contains incomplete or inaccurate information, it could be grounds for a negligence claim.
A client could prove that you were negligent by hiring other home inspectors who could check whether you should have discovered a specific issue or defect.
Breach of contract
A client might sue you for breach of contract if they had a written contract in which you agreed to perform certain services but didn’t do it.
The breach could lead to consequential damages if the contract required you to perform specific tests on the pipes, but you never did. That might be the cost of the water damage caused by the burst pipe.
If a client believes you have skipped a particular step specified in the contract, they could sue you for breaking its terms.
Other ways to mitigate the risk of getting sued by your client
It can be tough to avoid a lawsuit if a client wants to sue you. However, there are some things you can do to mitigate your risk. Always be thorough and as detailed as possible during the inspection and in your reports. Take photos of anything you find, whether a big crack in the foundation or seemingly minor issues like bubbling paint.
Never advise customers on how to make repairs; never tell them that specific safety-related issues are OK to put off or ignore. Be as honest and concise as possible, so you don’t open yourself up to scrutiny or accusations.
What factors affect home inspector E&O insurance cost
The following factors determine how much you will pay for E&O insurance:
- Business size: Home inspection companies with higher numbers of employees have more risks. Independent inspectors and small businesses have lower risks which can mean lower rates.
- Location: The city or state where your business is can play a role in the cost of your premiums. Your jurisdiction’s laws regarding minimum coverage requirements can also affect the cost.
- Claims history: If you’ve had lawsuits or filed claims in the past, your cost will be higher.
- Employee training: If you can show your insurance company that you provide employee training to reduce risk, it may lower your rates.
- Contracts: The insurance company will look at your client contracts and how they’re written. Specific verbiage can either increase or decrease your odds of liability.
- Coverage limits: As with almost any type of insurance, the higher the coverage limit, the higher your premiums will be.
- Revenue: Generally, the more revenue a business has, the higher the insurance premium costs are.
How much is errors and omissions insurance?
The average cost of E&O insurance for home inspectors is typically around $59 per month or $713 per year. Be prepared to pay between $500 and $1,000 annually for your errors and omissions insurance.
You may pay more if you have a larger company or live in a particular state with higher limit requirements. Some insurance companies will require businesses to pay a separate premium per employee.
Always read the fine print carefully and ask questions before signing the documents. It’s also a good idea to get several quotes or speak with a broker who can help you find the best policy for your home inspection business.
E&O coverage amount for home inspectors
You might wonder what your coverage amount should be when you get an errors and omissions insurance policy. Your coverage limits will depend on the insurance company and your specific policy. In most cases, errors and omissions policies cover approximately $250,000 up to $2 million.
Some states also have specific requirements for home inspectors regarding E&O coverage. Delaware requires a certificate of $50,000 per year for errors and omissions as a prerequisite for a home inspection license. Louisiana requires $300,000 per year for errors and omissions with a maximum deductible of $5,000.
Some states have policy coverage limits, so your actual coverage amount will vary. Remember that you must pay the difference between your insurance coverage amount and any remaining balance. The highest limit available is the best way to protect your business from devastating financial losses.
Errors and omissions insurance is one of the best ways to protect your business from devastating financial losses. Even if you never need to use it, this insurance is crucial if you want peace of mind. Include E&O insurance as part of your overall business insurance plan to stay protected from liability and lawsuits. At Inspection Support Network, we’re here to help make running your business easier. Check out our software features and sign up for your free trial today.