Risk Management: Inspection Basics to Manage Risk

We spend many hours each year learning through continuing education classes and meetings. But how often do we think about managing our risk each day? When is the last time you updated your contract? Do you think about what you do and say every day on the job with regard to risk management?

Editor’s Note: Managing risk should be front and center for inspectors each day: here are eight tips to help keep you out of trouble.

By Michael Casey, Casey O'Malley Associates & Una Lucey, Esq. Of Counsel to Casey O'Malley Associates

Most of us consider ourselves to be technically astute when in the field performing inspections. We spend many hours each year learning through continuing education classes and meetings. But how often do we think about managing our risk each day? When is the last time you updated your contract? Do you think about what you do and say every day on the job with regard to risk management? Maybe not; the following are a few of the common missteps we often see when evaluating claims that could have been prevented; or at least the exposure could have been reduced.

1) The Inspection Agreement (or contract): Bottom line; get a signed contract from the client. It is not enough merely to include language in your report, stating that “use thereof constitutes agreement with the policies herein and in the contract whether or not a signature has been obtained.” In these days of modern electronic communication it is easy to send an agreement to the client as soon as the inspection is scheduled. Email the contract or send the client to your website to download a contract to execute and return (fax, email scan, mail, etc.). In some states, a simple return email acknowledging agreement with the contract will work, as will the checked box “I agree” such as we see with software and other agreements. However, the old fashioned convention of obtaining a real signature on the document is always best. Without a signed agreement you risk denial of coverage from most E&O providers and possible non-enforcement of the agreement should the contract be questioned in a legal proceeding.

2) Reporting Inaccessible Locations: National Standards of Practice by associations and those adopted by states all require the inspector to identify systems, components or locations that are to be inspected, but were not accessible for any reason. Inspectors are usually adept at noting in their reports these locations, however, we recommend that language similar to the following be added to the note: We recommend that this (location, system, component) be made accessible and inspected by a professional prior to expiration of the inspection contingency period; hidden damage may exist. We have been seeing claims where the client indicates he/she was not alerted to this possibility.

3) Reporting Magnitude of Deficient Conditions: Be sure to alert your clients as to the severity of conditions discovered AND the potential implications for not taking action prior to the end of the inspection contingency period; including but not limited to the potential for hidden damage and significant cost, life safety implications and/or potential for continued damage. This is one of the most common claims – lack of understanding of the condition.

4) Deficient Conditions not Cross Referenced in Summary: Not much explanation needed here, if you prepare an inspection summary or action items, be sure to include all significant items (significant in magnitude by virtue of cost and/or safety) in the report. Unfortunately we see many times that important items do not make it into report summaries.

5) Relying upon verbal disclosure: Always write what you say and say what you write. If you mention anything to the client make sure it gets into the written report. At the end of the day all that matters is what made it into the report.

6) Identifying sewage disposal as public or private: We have not seen any state codified or professional association promulgated Standards of Practice that require the inspector to determine if sewage is handled by private disposal or municipal. Yet we see many reports identifying septic or municipal. Don’t do it. If you really must include such a determination, please identify where your information was obtained and include the proviso “verify with seller or municipality” with the public or private comment. Better yet “this information was obtained from ___ and was not verified. This information is considered reliable, however, client should verify all information provided by third parties” or a similar disclaimer.

7) Admitting Guilt: If a client calls or emails you with a complaint never write or say “I guess I missed that” or anything similar. Handle the complaint immediately and make sure to notify your insurance agent to get it on the record. After reviewing your report, go to the site to evaluate the claim, taking photos whenever possible, before providing a response to the claim. We’ll address the response in future newsletters.

8) Taking Photographs or Video: Many inspectors tell us they don’t take photos for fear of something being in the photograph they might have missed. Get some confidence, we have rarely, if ever, seen this occur! Visual documentation of the conditions at the time of the inspection has, much more often than not, immediately settled a dispute in favor of the inspector.

Disclaimer: This article is designed to be informative only and is not to be considered legal advice. Consult an attorney knowledgeable about the laws in your state for review and approval of your PSA.

COA 2012 Inspection Conferences

About the Authors
Michael Casey is partner with Casey, O’Malley Associates; a national A.M. Best recommended consulting and inspector training firm based in San Diego. Mike is a past president of the California Real Estate Inspection Association (1994/1995) and of the American Society of Home Inspectors (ASHI) (2002). He is multi-code certified by the ICC and IAPMO. He is also a licensed general, plumbing and mechanical contractor in several states and a Virginia Certified Home Inspector. Besides co-authoring several books in the Code Check series, Casey has authored many other books, has taught home and building inspection and has an inspector claims consulting practice throughout North America since 1987 and has been consulted regarding over 600 inspector claims. COA will launch its inspector risk management-technical advice subscription service in April, 2012 at www.homeinspectorsupport.com.

Una Lucey, Esq., is Of Counsel to Casey, O’Malley Associates. Ms. Lucey is a licensed attorney in CA and NY, is an accomplished insurance defense counsel and has been published in the “Pace International Law Review”.