The purpose of any insurance policy, whether it is auto liability, homeowner’s liability, commercial general liability, or E&O, is to protect the assets owned by the insured, and protect the insured against the uncertainty of financial loss, or the financial loss sustained from an insured peril. Very few assets are protected by law. The Texas Constitution lays the foundation for protection of your homestead, (including up to 200 adjacent acres) and even cites specifically, how many chickens, cows, pigs and horses are protected. The tools of your trade are protected. However, in the event of a judgment rendered in a lawsuit, rental properties, weekend homes, non-adjacent land, bank accounts, and furniture are not protected. One might think, “My heirs will inherit my homestead when I die.” Not the case when we are gone; that property is no longer a homestead, and is no longer protected. The judgment needs only to be renewed every 10 years.
The premiums vary widely. The coverages (limits and deductibles) and exclusions (the most important part of the policy to read) vary even more widely. The policy language can be difficult to understand. According to TREC, an attorney can only tell you, “While I am not able to definitively interpret any provision of that policy (that would be for a court to do), it appears that the exclusion provision that refers to….” It is equally difficult to get a definitive answer from an underwriter.
Insurance agents and carriers are constantly competing for the E&O business by lowering premiums. This simply means they must decrease coverages (by way of exclusions) and subsequently reduce claims exposures. In some policies there is the exclusion regarding: any claim alleging, based upon, arising out of, or attributable to any actual or alleged warranty or guarantee as to the integrity, adequacy, or performance of any structure, fixture, system, or appliance, or any of their components or parts. That sounds pretty scary unless, of course, your inspection agreement specifically states you offer no warranties or guarantees.
An exclusion included in most policies eliminates coverage for a very important peril, Contingent Bodily Injury and Property Damage. Contingent BI/PD covers damage to the home or injury to the occupant caused from an error on the inspection, i.e.:
- The inspector misses a leak in a gas line. The gas caused the baby to get sick and go to the hospital or the home explodes.
- Overlooking a faulty wiring issue involving improperly sized breakers and inadequate electrical service and the house burned to the ground.
- The homeowner moved in, it rained, and water comes through the roof into the home. The inspector had not identified the nails used on the recently installed roof did not have washers. The leak caused additional damage to the home.
- A WDI inspector missed termites and more damage was caused over the next year. With this exclusion, the repairs for the error oversight will be covered (if the specific peril is not also excluded), however, the subsequent damages caused from the error, are not covered. Can your assets afford to pay for these types of damages, which are not covered by your policy?
What happens if the inspector leaves the water running in the house and is not aware there is a drainage problem. The sink overflows and floods the home. What if the inspector falls through the ceiling into the living room? E&O does not cover this peril. Any unintentional act by the inspector, which causes bodily injury or property damage, is only covered under a general liability policy, which is available from some companies for about $500. After considerable negotiations, this agent is the only agent permitted to write a Business Owners Policy for home inspectors in Texas, through Farmers Insurance, which will includes $1,000,000 general liability, and coverage for your tools and business computers (not covered under a homeowners policy), even if they are stolen out of your vehicle. The premium is only $600.
Cleary, this agent is not an attorney, nor interpreting law, however examines closely the policy language and offers only a laymen’s opinion. 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 are covered for every aspect of your inspections, 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 or want to know which policy can satisfy your business operations needs, please feel free to contact this agent at any time (903) 723-3202 or lbattarbee@farmersagent.com.
*** Note: Pure premiums indicated above may vary with circumstances and do not include applicable state taxes and fees.
