Sec. 1102.114. ISSUANCE OF LICENSE. The commission shall issue the appropriate license to an applicant who:
- meets the required qualifications;
- pays the fee required by Section 1102.352(a); and
- offers proof that the applicant carries liability insurance with a minimum limit of $100,000 per occurrence to protect the public against a violation of Subchapter G.
When asked for clarification, the Texas Attorney General offered the opinion this requirement is for Professional Liability or E&O Insurance to protect the public against a mistake on an inspection.
Since this legislative requirement, there has been an increase in the number of insurance carriers who offer E&O Insurance for Home Inspectors. The coverages (limits and deductibles) and exclusions (the most important part of the policy to read) vary even more widely.
Some of the exclusions which may appear include: code compliance; commercial; failure to detect natural gases; WDI and WDO; private or public waste disposal systems; septic systems; FEMA inspections; punitive or exemplary or multiplied damages; contingent bodily injury and property damage; swimming pool, hot tub, whirl pool, sauna, steam room, or similar apparatus; TRCC inspections; radon; lead; EIFS; referring AND EVEN attorney’s expenses.
The least expensive policy available today offers a base premium of $750 and excludes pools, spas, septic tanks, referring agent, contingent bodily injury and property damage, punitive or exemplary or multiplied damages, and code compliance. TREC has stated this policy meets the requirement. Each inspector must be aware of the exclusions. If they are performing any of these excluded services, they will be at risk. If there is a claim associated with one of these excluded items, not only will the inspector be on the hook for the damages and attorney fees, but possible at risk with his license, because the inspector was not properly insured for the activities performed.
A large number of Home Inspectors perform WDI inspections. The Texas Occupation Code requires Structural Pest Control Operators to obtain insurance:
Sec. 1951.312. LIABILITY INSURANCE; EXCEPTIONS. (a) The department may not issue or renew a structural pest control business license until the license applicant:
(1) files with the department a policy or contract of insurance, approved as sufficient by the department, in an amount not less than $200,000 for bodily injury and property damage coverage, with a minimum total aggregate of $300,000 for all occurrences, insuring the applicant against liability for damage to persons or property occurring as a result of operations performed in the course of the business of structural pest control on premises or any other property under the applicant's care, custody, or control;
(2) in the case of an applicant who has an unexpired and uncanceled insurance policy or contract on file with the department, files with the department a certificate or other evidence from an insurance company stating that:
(A) the policy or contract insures the applicant against liability for acts and damage as described in Subdivision (1); and
(B) the amount of insurance coverage is in the amount approved by the department;
(3) files with the department a bond, certificate of deposit, or other proof acceptable to the department of sufficient funds in an amount not less than $300,000 for payment of claims of damage to persons or property occurring as a result of operations performed negligently in the course of the business of structural pest control on premises or any other property under the applicant's care, custody, or control; or
(4) files with the department evidence satisfactory to the department of coverage under a general liability insurance policy, in an amount not less than $200,000 for bodily injury and property damage coverage, with a minimum total aggregate of $300,000 for all occurrences, if the applicant operates solely as a wood treater who treats wood on commercial property owned by the applicant.
Again, the legislature is silent on the definition of what type of insurance, with the exception of the requirement of “general liability” for a wood treater on their own property.
A large number of Home Inspectors and Structural Pest Control Operators perform WDI inspections. There are those who suggest the requirement of the statute should be interpreted as a requirement for general liability insurance only. Given the lack of a legal opinion, as was requested from the Texas Attorney General for the TREC statute, in my layman’s opinion, as an insurance agent, given 22 years working with insurance attorneys, the bottom line is a licensee must be insured against ANY and ALL “liability for damage to persons or property occurring as a result of operations performed in the course of the business of structural pest control on premises or any other property under the applicant's care, custody, or control.” AND the liability limit must be $200,000/$300,000.
“The business of structural pest control” includes use of pesticide/pollutants for applications, transportation of pesticides/pollutants, and can include WDI/WDO Inspections. Therefore, pollution coverage is required to be included in the general liability policy to meet the statute up to, and not less than, the required limits of $200,000/$300,000. With reference to WDI/WDO Inspections, this is very similar to the situation with TREC. The Texas Attorney General has stated the business of inspections under TREC requires Professional Liability or E&O Insurance to protect the public. E&O insurance is the only type of policy which will protect the public for WDI inspections. The requirement “$200,000 for bodily injury and property damage (BIPD) coverage, with a minimum total aggregate of $300,000 for all occurrences,” suggests the E&O insurance covering the WDI/WDO Inspections should also include Contingent BIPD. If a WDI inspector missed termites and more damage is caused over a time period until the error is detected, Contingent BIPD is needed to cover the additional damage caused after the inspection. Premises Liability should also be included for invitees.
Section (3) refers to “bond, certificate of deposit, or other proof…” This section also brings in the requirement of protection from the, “result of operations performed negligently in the course of the business of structural pest control..,” “Operations performed negligently” suggests not only general liability for pesticide applications and pollution, but E&O coverage is needed for negligent inspections.
The SPCS does not require E&O insurance. However, they do require the $200K/$300K coverage for bodily injury and property damage to cover all structural operations. While they do not tell an insurance agent how to write a policy, they do examine policies to ensure there is no language that would exclude an operation which the license allows or would limit the coverage to something less than the minimum limit required.
Given the lack of a legal opinion on the requirement of insurance, the insurance agent is ultimately responsible and is liable to meet the legislative requirements based upon the industry. Ladies and gentlemen, please understand the ramifications of this statement. If an agent provides a certificate of insurance to SPCS stating all possible business operations are covered, and there is a claim, which is not covered by the policy, the agent is subject to a $5,000 fine, because he submitted a fraudulent certificate of insurance, and a claim against his insurance agent E&O policy, and the loss of his insurance license, and if you were not covered for the claim, you could loose your license and be liable for the expense of the claim. How well do you trust your insurance agent?
From the insurance company standpoint, E&O insurance is the only type of policy which will protect the public for WDI inspections and the operator from claims. If your business operations include WDI inspections, and the agent knows this (as it was stated on the application), but does not offer you proper coverage, which is available, the agent can be sued through his E&O policy for not doing so. The insurance agent’s E&O policy could also be on the hook for any subsequent claim, as well.
WDI is the source of the largest claims in this industry. Most claims start at $25,000 in damages. I have seen $80,000 to $500,000 paid for damages. A general liability policy will not protect you against these judgments. Can you afford this?
The three most common exclusions appearing in policies for Pest Control operators are:
- Sub-limiting the exposure for functions performed, i.e. a limit of $25,000 for pollution and/or in-transit pollution (this agent observed an in-transit pollution claim recently which cost $490,000), or $5,000 for WDI inspections;
- Excluding any violation of federal, state, or local laws. In Texas, the chemical label instructions are law. If you violate the law, the claim could be denied; and,
- Completely excluding WDI inspections.
Some inspectors perform WDI inspections and do not perform any pesticide application. Current Pest Control/WDI insurance carriers today, set a limit on the income percentage for WDI inspections. i.e. If your WDI income is more than 25% of your Pest Control business Gross Income (100% WDI), they will decline the application. This has POSSIBLY forced some inspectors, performing only WDI to actually misrepresent the facts on the application, stating they are performing pest control, when they are not doing so. Any claim could be denied because of fraud or misrepresentation on the application.
The SPCS does not license individuals or businesses to only conduct WDI inspections. They issue a license such as in Termite which allows that business or individual to purchase, apply and charge a fee to identify and treat a termite infestation. They require the license holder to be insured for all operations that the license permits. If the individual elects to use that license for inspections only, the insurance is still required for the pesticide operation as well.
This agent has negotiated with a carrier to insure the inspector performing 100% WDI inspections and no pesticide applications, to satisfy SPCS and the WDI will be covered under the Home Inspector policy. If performing 100% WDI under Home Inspection, a combination of these two policies will satisfy both SPCS and TREC.
For the Structural Pest Control operator also performing WDI inspections, we have policies which cover the WDI and charge approximately the same premium, or less, than the policies which exclude WDI.
The bottom line is simple. Examine your operations. Read all of the exclusions in the middle and at the end of the policy. Make sure you understand what the policy is stating and how it impacts your business. Make sure your business is covered for every aspect of your business, and have liability limits high enough to protect your assets, and the value of the home or business you are inspecting, for a premium fitting your budget.
Should you have any specific questions about policies, and which policy will better satisfy your business operations needs, please feel free to contact me at any time: phone (903) 723-3202 or fax (903) 723-3436.
