Thread: E and O insurance or Gen. Liability

I passed the NHIE over the weekend and have started the process of getting licensed in my state. In Indiana the requirements state" Applicants for licensure must have obtained insurance with General Liability coverage of at least $100,000 issued by an insurance company or legal entity..." No mention of E and O.
I understand what the gen. liability covers but what is the difference between E and O and Gen Liability?

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Originally Posted by Chris Parker

I passed the NHIE over the weekend and have started the process of getting licensed in my state. In Indiana the requirements state" Applicants for licensure must have obtained insurance with General Liability coverage of at least $100,000 issued by an insurance company or legal entity..." No mention of E and O.
I understand what the gen. liability covers but what is the difference between E and O and Gen Liability?

"E & O", Errors and Omissions, is for professional screw-ups. Like, for instance, you didn't notice and/or report that bulging foundation with a large horizontal crack that is now going to cost your client thousands of dollars.

Originally Posted by Chris Parker

I passed the NHIE over the weekend and have started the process of getting licensed in my state. In Indiana the requirements state" Applicants for licensure must have obtained insurance with General Liability coverage of at least $100,000 issued by an insurance company or legal entity..." No mention of E and O.
I understand what the gen. liability covers but what is the difference between E and O and Gen Liability?

If you break Aunt Harriet's antique chamber pot with your ladder while going up into the attic, your GL will help to cover the cost. Or if you leave the upstairs tub on and it overflows and floods the bottom floors and the ceilings drop then your GL will come to the rescue. Or if you leave your ladder up and your client goes up on the roof and falls and breaks their leg and sues you then your GL will help you.

E&O pays to defend you when you screw-up inspecting/reporting and your client sues you.

With GL you need to take out $1,000,000 and not the minimal state requirement.

Originally Posted by Scott Patterson

...screw-up ...

Originally Posted by John Arnold

...screw-ups....

Great minds think alike.

Great minds think alike.

John in his office?

http://www.youtube.com/v/58ozRAfDP5k

Aaron

Lots of arguments about whether or not to get E&O...

It comes down to this:
If your net worth is low, don't bother with it, but you could end up with a judgement against you that you will pay on forever.

If your net worth is good:
You better have E&O to keep it.

Don't think your inspection agreement will always save you.
Don't think you won't ever miss something.
Don't think you can only be sued for reasonable issues.
You can even get sued over an item you did report as a problem.
You can get sued for an item that you did not even get paid to inspect.
Don't think the maximum loss for a 200k house is 200k, it can be 5 times that when you factor in punitive damages and legal fees.

So, where will you be getting your E&O?

If your licensing authority does not specifically require that you obtain E&O insurance I suggest that you speak with your attorney about asset allocation instead. It is much less expensive and much more effective against the typical frivolous lawsuit where they sue the seller and buyer, both agents, the title company, surveyor, appraiser, builder and the frog that was hopping through the yard on the day of the inspection.

Aaron

Originally Posted by Scott Patterson

If you break Aunt Harriet's antique chamber pot with your ladder while going up into the attic, your GL will help to cover the cost. Or if you leave the upstairs tub on and it overflows and floods the bottom floors and the ceilings drop then your GL will come to the rescue. Or if you leave your ladder up and your client goes up on the roof and falls and breaks their leg and sues you then your GL will help you.

E&O pays to defend you when you screw-up inspecting/reporting and your client sues you.

With GL you need to take out $1,000,000 and not the minimal state requirement.

Something I heard in a class once sticks in my mind and I've never really investigated if completely.

They said if you overflow the tub or leave the range on and burn down the house that it's covered under your E&O not the general liability. Something about it occuring within the scope of your work.

Basically, if you knock over China cabinet it's an accident. If your there testing the tub and leave it on it's not really an accident or at least not unrelated to what you were doing.

It never really made sense and granted, the people giving this info were basically selling E&O insurance.

So, has anyone ever burned down a house? If so, who paid?

Originally Posted by Matt Fellman

Something I heard in a class once sticks in my mind and I've never really investigated if completely.

They said if you overflow the tub or leave the range on and burn down the house that it's covered under your E&O not the general liability. Something about it occuring within the scope of your work.

Basically, if you knock over China cabinet it's an accident. If your there testing the tub and leave it on it's not really an accident or at least not unrelated to what you were doing.

It never really made sense and granted, the people giving this info were basically selling E&O insurance.

So, has anyone ever burned down a house? If so, who paid?

It would be your GL. E&O is for your work product, it is malpractice insurance.

Hey Chris, what area of Indiana are you from?

I carry both E&O and GL and highly recommend that everyone does the same.

Operating under the umbrella of a LLC will protect you somewhat, but not if it is determined that you showed gross negligence (you missed something big that should have been obvious). However, your name and reputation is what sets you apart from your competition. If you work for 2-3 years building your reputation, then fold up the LLC to avoid a lawsuit, you have to start over again with a new name and re-build all that you lost. In the end, it would have been better if you had the E&O and stood behind your reputation and responsibilities.

There are many different companies offering both E&O and GL. Some companies offer a combination of both and include other coverages, such as WDI and Radon.

Chris,

E&O insurance is a personal risk management choice if it is not required by licensing. I did not have E&O in the beginning and would not be without it now. It has saved me a lot of money in defense of claims. I don't feel E&O is that expensive for a full time inspection business.

As far as general liability, check with FREA. I just got a new business owners general liabilty policy that covers tools (I have a lot of expensive tools) and computers offsite as well as some businees interruption coverage for the same price as just general liability.

Chris I persoally recommend getting E&O. I shopped around for the best prices and what I felt to be reliable and professional company. I found that North American Professional Liability Insurance Agency (NAPLIA) had some of the best rates, but more importantly they could answer my questions that pertain to Washington State insurance requirements for home inspectors.

Here is a link to there site North American Professional Liability Insurance Agency - Errors & Omissions Insurance

All of you have raised good points, especially you Bruce.

Here's the deal... there can be gray area between what is a GL claim versus an E&O claim. So if you're going to carry both, I'd highly recommend that you have the same carrier.

If you seperate the two with different carriers, it leaves the the door open for two insurance carriers to fight over who is responsible for paying the claim. If you consolidate the insurances with one carrier, it makes no difference. They are on the hook for it.

Ben

Chris, as a new inspector, you will miss things during your inspections. Hopefully the missed items will be small things but in case it is something big, E&O can save your hide.

Originally Posted by Ben Garrison

All of you have raised good points, especially you Bruce.

Here's the deal... there can be gray area between what is a GL claim versus an E&O claim. So if you're going to carry both, I'd highly recommend that you have the same carrier.

If you seperate the two with different carriers, it leaves the the door open for two insurance carriers to fight over who is responsible for paying the claim. If you consolidate the insurances with one carrier, it makes no difference. They are on the hook for it.

Ben

Ben, brings up a good point about two carriers. If your E&O is canceled, I wonder how safe the GL policy would be with a single carrier? I guess you won't know until it happens or unless you can get it in writing, but for some reason I don't think that will happen.

Ben is a good guy and has helped many with insurance and questions.

Originally Posted by Scott Patterson

Ben, brings up a good point about two carriers. If your E&O is canceled, I wonder how safe the GL policy would be with a single carrier? I guess you won't know until it happens or unless you can get it in writing, but for some reason I don't think that will happen.

Ben is a good guy and has helped many with insurance and questions.

Thanks Scott -- Great question. You bring up a point that I never even thought of. Both would probably be in jeopardy if your E&O gets cancelled. With the way FREA operates, if we did not renew your E&O, you lose your GL along with it.

Now, let me say this... VERY, VERY seldom do we not renew inspectors. I would guess some carriers have a formula for who the do and do not renew. We recognize that the litigious society we live in and therefore try to be extremely rational when it comes to renewing.