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Defending Home Inspectors for a Living

Interview with Geoff Binney
by Isaac Peck, Editor

As Vice President at OREP, a leading provider of home inspector E&O insurance for over 19 years, I spend a good part of my day speaking with inspectors, poring over claim documents, and sharing risk management advice and information with our home inspector insureds.

So it was especially rewarding to sit down and speak with someone who has been in the trenches defending home inspectors day in and day out for over a decade. Geoff Binney, Managing Partner at Gauntt, Koen, Binney & Kidd, LLP, is an experienced trial attorney in Woodlands, Texas.

Binney specializes in litigation work and has built his practice around construction defect litigation, first-party insurance defense work, and home inspector claim defense cases. Binney has been defending home inspectors for 15 years and it now makes up a significant part of his practice. He shares some valuable advice about home inspector claims and risk management. Enjoy!

Question: How did you get involved with home inspectors?

Binney: I began my career in the Army after graduating from the United States Military Academy at West Point. Once I got out of the Army, I went straight into the FBI and worked as an FBI Special Agent for eight years. It was in the FBI where I really got to hone my skills as an interrogator and witness interviewer. That prepared me very well to be a litigation attorney: being able to ask the right questions, read people, and ferret out the facts is an integral part of my litigation work. I went to night school and got my law degree when I was working at the FBI, and I decided to get out and practice law. I knew I wanted to be in litigation, I just didn’t know what area I was going to focus on.

I started working with home inspectors around 2005. I became friends with a home inspector working on a construction defect case. She was connected with the Texas Real Estate Commission (TREC), and she talked to me about representing home inspectors. A husband and wife home inspector team, who was associated with the Texas Professional Real Estate Inspectors Association, was sued and they called me directly. I got them out of the lawsuit pretty quickly and they introduced me to their insurance agent and carrier. I’ve been working with inspectors ever since and have built up my client list over time.

I really like representing home inspectors. They are decent, hardworking folks who are trying to do the best job they can. Oftentimes they are caught up by homeowners who get buyer’s remorse and just want to sue everybody in the transaction. So I especially enjoy being able to defend inspectors against these kinds of frivolous lawsuits. In my daily practice, my caseload varies from 25 to 50 percent home inspector defense, with the balance being construction defect litigation, personal injury, first party insurance defense work, and plaintiff and defense work.

Question: What are the most common home inspection claims you see?

Binney: The most common claims involve some sort of missed leak or water intrusion in the attic or behind walls, and then the mold that they claim it caused. The second most common claim is something wrong with the foundation. They’ll claim that the foundation is not level, has cracks in it, etc. We have a lot of movement down here in Texas because the soil is clay. The amount of rain and drought we get here means there’s some soil movement and the buyers will often try to blame that on the home inspector. The rest of the claims that I see are a hodge-podge of everything that could go wrong with a home: HVAC issues, sewer pipes leaking, plumbing, electrical, or just a combination of all those things.

Question: How has the legal environment changed for home inspectors over the last 10-15 years?

Binney: The one major change is that once The Texas Real Estate Commission (TREC) required home inspectors to carry liability insurance, the number of lawsuits against home inspectors went up. The interesting thing about that is that TREC is the same commission that licenses Realtors. It’s worth noting that Realtors are not required to have insurance, but home inspectors are. The Realtor lobby is much more powerful than home inspectors, so that probably explains it.

Question: What are the two or three top ways a home inspector can avoid claims and/or produce defensible reports?

Binney: The single most important thing a home inspector can do is to have a good inspection agreement that is signed by the client. The agreement should have a limitation of liability, a fair notice clause, and an attorney’s fee provision. If inspectors have those items in a signed agreement and they come to me with a potential lawsuit, I can get them out of the case almost every time, almost right away. The fewer of those things that they have, the longer it may take. If it’s not signed, I still have a good agreement, but it’s harder to prove the plaintiffs knew everything that they were getting into.

The second biggest thing inspectors can do is to take a ton of pictures. It’s amazing to me sometimes I see reports with only 10 or 15 pictures. Digital media is very inexpensive. Even if you’re not putting all the pictures in the report, if you take a ton of pictures and you save them, it can show that you did go in the attic and there were no water stains on the roof, and so on. If you don’t have those pictures, the plaintiff can say you never went in the attic, or you never looked at the roof. I see that a lot.

Another important thing is to make sure that you are consistent with what you write in the report and what you say to the client. If you tell the homeowners, don’t worry about the report, I’ve already talked to you about the major things—that’s a really bad thing to say. I’ve seen some home inspectors tell their clients “if you don’t buy this house, I will.” Those kinds of statements are an invitation for the client to not read the report. Lots of cases come down to he-said, she-said. These types of things come out in depositions. The plaintiff will say they had a conversation with the inspector that they think tells quite a different story than what is in the report. Most homeowners are going to listen to what you say and if you tell them everything’s great, they’re not going to read that report. Or they’ll say “I read it, but he told me not to worry about it.” As a home inspector, you should always tell the client to rely on the report and not the conversation that you have with them.

Home inspectors should also recommend experts where it’s appropriate. I don’t like to see a recommendation for a follow-up expert for every area of the home, but if you find some issues with a particular area, like the foundation, and there is evidence of prior repairs, you should recommend a follow-up foundation report. That’s your get-out-of-jail-free card if they come back to you with complaints about the foundation.

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Lastly, estimating useful life is risky and probably unnecessary. In most cases, it is going outside your scope as a home inspector. Your job is to perform a visual inspection of the property and report what you see and what’s wrong with the property. Predicting the lifespan or useful life of a particular home system is going outside your scope and asking for a lawsuit.

Question: How does a contract come into play in avoiding and defending claims?

Binney: First and foremost: have an agreement and get it signed. I’ve talked to inspectors who say they’ve been doing it for 30 years and they’ve never used an inspection agreement. Those people are just lucky. It’s just a matter of time before you get sued if you do this long enough. Some home inspectors have the agreement online and they can just email the client a link to sign digitally. That way it’s the first step to schedule the inspection and they have the client sign before the inspector even goes out to the house. I’d definitely recommend that.

As far as what’s in the agreement, the limitation of liability is probably the most important aspect. It has to be well-written and conspicuous to be enforceable here in Texas. I’m sure state laws vary, but the requirement that the clause be conspicuous means that it’s not good enough just to have the language in the agreement. It has to stick out. It has to be readily apparent to the reader. The plaintiff doesn’t necessarily have to initial it, but that helps. If you have a one or two page agreement and the limitation of liability is in there as the same font, not bold, not in a different color, then Texas courts are not going to enforce that. It needs to be set apart and it doesn’t take all that much. Either all CAPS, bold, a different font, color, a box around it, or something else to make it stick out. If it is conspicuous, it’s absolutely going to be enforceable.

If I have a signed contract with a conspicuous limitation of liability in it, I am usually successful at getting the claim dismissed. We will send a letter to the plaintiff denying liability and pointing out that pursuant to the agreement that the client signed, and that we’re willing to refund the amount of the inspection fee. We make it clear that if they decline our offer and pursue litigation, we will file a Declaratory Judgement action and pursue an affirmative claim against them. This creates a threat for the plaintiff that they may have to pay our legal fees if they continue down this road. If the plaintiff’s attorney explains this to the plaintiff, they now have some skin in the game and it will often make them think twice. It’s a really strong out of the gate response. As opposed to just saying “we just don’t want to pay it.”

Another useful clause is an attorney’s fees clause. Something that says: “if you fail to succeed on all claims alleged, you’ll have to pay my attorney’s fees.” Both the limitation of liability and attorney’s fees clauses allow us to let the plaintiff know that we will respond by filing a Declaratory Judgement. We would never file for this preemptively, but once the lawsuit is filed, we can seek a Declaratory Judgement, which is basically going before a judge and seeking summary judgement on these very narrow issues. If the judge rules in your favor on the limitation of liability question, for example, the plaintiff would have to pay your attorney’s fees.

In Texas, it always helps to have a Notice Provision in your contract as well. In other words, if the homebuyer finds a defect in the home they have to give the home inspector a notice bringing it to their attention. Failure to give notice to the inspector, and an opportunity for them to inspect it, results in a waiver of all claims. This notice is also required to be conspicuous here in Texas.

Another clause I recommend is one that limits the statute of limitations. State law here in Texas is that tort-based claims have a two-year statute of limitations and contract claims have four years. Therefore, Texas inspectors can limit all claims to one year, except breach of contract claims, which can be limited to two years. The reality is that most claims are going to be filed in under two years and educated plaintiffs will just file the breach of contract claim, but this is still a good way to limit the number of claims you’re fighting. Home inspectors in other states can consult their own state laws, but this type of notice provision is likely useful in other jurisdictions as well.

Lastly, I’ve seen cases where the husband signs the agreement, but his wife or girlfriend doesn’t. The plaintiff’s attorney will say, “well the wife still has a claim!” So, I added the following into the “Sample Agreement” I created: “The term Client shall include the undersigned representative of the Client, as well as any of Client’s past, present and future subsidiaries, divisions, parents, affiliates, assigns, related entities, successors, predecessors, representatives, employees, officers, shareholders, directors, agents, and any other person or entity that benefits from or relies on the Inspection Report.”

I’ve also seen cases where a home inspector signs the contract but the agreement is between the home inspection company and the client, and the plaintiff’s lawyers try to exploit that. So, I added this to my Sample Agreement: “The term Inspector shall include the undersigned representative of the Inspector, its past, present and future subsidiaries, divisions, parents, affiliates, related entities, successors, predecessors, representatives, employees, officers, shareholders, directors, agents, and assigns.”

Question: Do you have specific disclosures or disclaimers you recommend home inspectors to use?

Binney: Here in Texas, your report must conform with TREC rules. In both the inspection report and the agreement, you want to remind the client that the home inspection is limited to a visual inspection, that you’re not moving furniture or unhooking appliances, etc. Even though in Texas, inspectors are not required to report on mold or termites, I like to see them include that this is NOT a termite inspection and NOT a mold inspection and always recommended that you have a follow-up mold report or follow-up termite inspection.

You don’t want to be the inspector who recommends an expert in every area you’ve inspected, but don’t be afraid to recommend an expert if you see something. Because water penetration is the most prevalent claim that I see, it’s really good to have a catch-all phrase in your agreement and inspection report. In Texas, if there’s moisture, oftentimes there’s mold. Mold can leave a lasting negative stigma on the house. So, anything you can do to tell the homeowners that they need a mold inspection is a good get-out-of-jail-free card. I have two or three cases right now that are mostly mold related.

If you do offer ancillary mold inspections, or termite inspections, or test for radon, or offer any type of upsell test or service, it’s a great idea to offer that to the client, and if they decline it, to get them to sign a separate waiver that releases you from any liability and claims around that particular area. Even if you don’t have them sign a separate waiver, at a minimum, put that in the email when you send them the report, and put it in the report itself. Note that you had a conversation with the client about the added service and they declined it.

Conclusion
While state law differs with respect to what is and is not enforceable in a home inspector’s pre-inspection agreement (see Sharpening Your Pre-Inspection Agreement), many of the tips that Binney shares can be used in some form or fashion by home inspectors nationwide.

When faced with a claim or potential claim, home inspectors are advised to seek legal counsel that has experience defending home inspectors. If you currently carry insurance, be sure that your carrier selects counsel that is familiar with home inspectors. If you are using a program written exclusively for inspectors, like OREP’s, that will be the case. The difference between the defense you receive can be substantial. With his extensive inspector claim experience, Binney is on the roster of experienced lawyers that represents those insured with OREP’s primary carrier in Texas. OREP has been serving home inspectors with comprehensive E&O insurance, risk management, and pre-claims assistance for over 19 years. If you ever need risk management information, advice, or have any insurance questions, visit OREP.org or give us a call at 888-347-5273. Our extended hours are Monday-Friday from 5am-5pm PST.

About the Author
Isaac Peck is the Editor of Working RE magazine and the Vice President of Marketing and Operations at OREP.org, a leading provider of E&O insurance for appraisers, inspectors and other real estate professionals in 50 states. He received his master’s degree in accounting at San Diego State University. Reach Isaac at isaac@orep.org or (888) 347-5273. CA License #4116465.

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