Thread: Limitation on liability

Several of the standard contracts that I'm looking at have a provision for the client to pay an additional fee to have the limit of liability (refund of fee paid) removed from the contract. How many of you have this in your contract and what would be a reasonable/customary fee to charge to remove this limitation? Should I just re-write my own contract leaving this option out or is this something that I should address with my E&O carrier?

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I think all of the E&O providers require a copy of your agreement therefore changing the agreement without their knowledge and approval will give them a reason to deny a claim.

Excellent point! I'm going to contact my carrier first thing in the morning because they never asked for a copy of my contract in thie first place.

I don't have that provision (and I probably won't add it it either). I have only had to return the inspection fee a few times in 13 years.

Originally Posted by Ed Moore

Several of the standard contracts that I'm looking at have a provision for the client to pay an additional fee to have the limit of liability (refund of fee paid) removed from the contract. How many of you have this in your contract and what would be a reasonable/customary fee to charge to remove this limitation? Should I just re-write my own contract leaving this option out or is this something that I should address with my E&O carrier?

Ed, the Limitation of Liability will not work in Mississippi. It has been beating down several times in court. If you have E&O it is really a non-issue, but with that said it does not hurt to have it in your contract. It is a bluffing tactic that might or might not work.

Have an attorney write your contract. Give them what you want in it and then let the write it. Home inspectors are generally some of the worst writers on this planet and unless you have been schooled in contract law, I would stay away from writing my own contract.

As you are in Hernando,MS., I assume that you will be getting a TN license as well. TN and MS have reciprocity and have just about the same requirements. You will also need a contract for TN. TN requires a contract, MS does not.

Just some advice...

The fee to remove the limit of liability - somewhere in the contract there is a paragraph that limits the inspector's liability to the fee paid for the inspection. The option to remove that limit is made optional with a special clause where the client pays an additional sum to remove the limit of liability. You put something very high in there. I use $2,500.00 which is the deductible for my E&O coverage. No one has yet taken the option. You could put anything there. Heck put in $7,500, which would cover the deductible and pay for an independent video recording service to record everything said and done.

Don't overlook arbitration. My E&O requires a Binding Arbitration paragraph. My standard real estate transaction pre-printed contracts have it but the maintenance and new construction (pre-drywall) contracts didn't. I included an arbitration addendum to those contracts.

Another way, which I used to use, was to offer a "Technically Exhaustive Inspection" (which would mean me bringing in all trades and structural engineer and going over the house as much as we could, and each trade is now on the hook along with me) for 6% of the sales price or $7,500, whichever is greater.

My theory was, and still is, that if it is worth 6% to SELL a house, then it certainly is worth that same 6% to INSPECT the house to the extent possible.

Never had anyone take me up on it, which was more or less the point of it.

BUT, sure, I would love to have done a Technically Exhaustive Inspection on a $10,000,000 house ( x 6% = $600,000). I could live off one of those a year, or even every couple of years.

Thanks all for your comments!
Currently I'm using a standard ITA contract that came with one of their "Matrix Deluxe" inspection reports that I received in class. To my understanding, this contract was written and reviewed by the fine folks at ASHI. One of my instructors commented that he had removed that option from his contract. To my way of thinking, it helps reduce the complexity of an already lengthy and confusing contract.
Just so everyone knows where my head is at...
Yes, I am currently licensed in MS and plan on getting my TN license shortly.
I attented the ITA/Kaplan classes in Nashville. (Very good IMHO!)
ITA/Kaplan subscribe to the teachings of ASHI.
Both MS and TN subscribe to the teachings of ASHI.
My E&O carrier offers discounts for ASHI members.
My contract therefore should follow ASHI guidelines as well.
Maybe I'm wrong but I prefer to stand under one umbrella when it rains rather than try to handle two or three.