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Occurrence vs Claims made


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Time to renew so I am shopping and wanted to get your opinions on the two. Here is what I have found:

Occurrence

Advantages:

Fixed Cost. Coverage for a policy period is fixed. You need not worry that on renewal your carrier might not be writing Home Inspectors any more or offered a price you cannot afford.

Long-term Protection. Specific policy periods will provide protection into the future.

Mobility. The occurrence policy makes it easier to change insurance companies without additional costs or potential gaps in coverage.

Peace of Mind. If you have an occurrence policy and you need to cancel it, you forget to make a payment and are canceled, your insurance company decides not to renew you, or they decide not to write home inspectors any more you need not worry - you are still covered for 4 more years for inspections performed while the policy was in force.

Disadvantages:

Cost. Initially more expensive than a claims-made policy.

CLAIMS-MADE COVERAGE

Advantages:

Cost. Initially less expensive than an occurrence policy.

Disadvantages:

Future Costs. Should the policy be discontinued by you or your insurance company you will need to buy “extended reporting coverageâ€

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I think that the vast majority of us who have E&O have a claims made policy. Last I heard Allen was the only one still writing an occurrence policy, but I'm sure others might do it as well.

As for tail coverage; I see little need in it. When I close shop my company will be dissolved and it will be dang hard for anyone to find me! [;)]

I see little to no benefit in paying extra for an occurrence policy. Of course I also have only term life insurance. I look at an occurrence policy as the whole life insurance of the E&O market!

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I think that the vast majority of us who have E&O have a claims made policy. Last I heard Allen was the only one still writing an occurrence policy, but I'm sure others might do it as well.

As for tail coverage; I see little need in it. When I close shop my company will be dissolved and it will be dang hard for anyone to find me! [;)]

I see little to no benefit in paying extra for an occurrence policy. Of course I also have only term life insurance. I look at an occurrence policy as the whole life insurance of the E&O market!

Scott - Anybody can be found these days. Especially a high profile guy like you.

Claims made is all you need. Occurrence is a waste of money, if you are staying in business and are continuously insured, i. e., no gaps in coverage.

You do not need occurrence coverage to change companies. Your new company will cover you back to the original date [your retro date] that you became insured. You must indicate what your retro date is on the application to your new insurer.

You only need tail coverage when you leave the business. And it only covers you for 3 years. Generally, that is enough. Sixty percent of all claims are presented within a year of the inspection. Ninety percent within two years.

You can imagine how meritorious a claim is that is presented two years after the inspection.

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I think that the vast majority of us who have E&O have a claims made policy. Last I heard Allen was the only one still writing an occurrence policy, but I'm sure others might do it as well.

As for tail coverage; I see little need in it. When I close shop my company will be dissolved and it will be dang hard for anyone to find me! [;)]

I see little to no benefit in paying extra for an occurrence policy. Of course I also have only term life insurance. I look at an occurrence policy as the whole life insurance of the E&O market!

Scott - Anybody can be found these days. Especially a high profile guy like you.

I plan on using my Indian name![;)] Large Blading Eagle of the Choctaw nation!

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I think that the vast majority of us who have E&O have a claims made policy. Last I heard Allen was the only one still writing an occurrence policy, but I'm sure others might do it as well.

As for tail coverage; I see little need in it. When I close shop my company will be dissolved and it will be dang hard for anyone to find me! [;)]

I see little to no benefit in paying extra for an occurrence policy. Of course I also have only term life insurance. I look at an occurrence policy as the whole life insurance of the E&O market!

Scott - Anybody can be found these days. Especially a high profile guy like you.

Claims made is all you need. Occurrence is a waste of money, if you are staying in business and are continuously insured, i. e., no gaps in coverage.

You do not need occurrence coverage to change companies. Your new company will cover you back to the original date [your retro date] that you became insured. You must indicate what your retro date is on the application to your new insurer.

You only need tail coverage when you leave the business. And it only covers you for 3 years. Generally, that is enough. Sixty percent of all claims are presented within a year of the inspection. Ninety percent within two years.

You can imagine how meritorious a claim is that is presented two years after the inspection.

I'm a little confused. I was told that (at least in some states) the home inspector/owner can be personally liable for any problems that should have been reported and has resulted in costly repairs. Since he is the home inspector and the owner of the company, that owner's/home inspector's personal assets are at risk if he doesn't have insurance. So with a Claims made policy, if you quite doing home inspections and you get a lawsuit from a job that was done 4 months before, isn't that home inspectors/owner's personal assets at risk besides the cost of a lawyer dealing with the accusation(s)? I remember having a conversation about how Corp and LLC does not protect the owner's/home inspector's personal property.

Even though it is in most of our contracts that we have to re-inspect the complaint first or the home inspector and the company will not be held financially responsible. If you close up shop, I would think that part of the contract can be thrown out and they can go straight to their lawyer.

We can be held personally liable but yet we don't need tail coverage, it sounds like they are two conflicting statements.

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Your assets are at risk with or without E & O coverage.

You still have to pay the deductible, which is sometimes more than what will ultimately be awarded by the insurance company, and if you screw up and notify the insurance company enough times they'll drop you like a hot potato, essentially putting you out of work in any state where E & O is required by law.

The best way to protect your assets is by doing a much-better-than-average, complete and competent home inspection.

ONE TEAM - ONE FIGHT!!!

Mike

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Your assets are at risk with or without E & O coverage.

You still have to pay the deductible, which is sometimes more than what will ultimately be awarded by the insurance company, and if you screw up and notify the insurance company enough times they'll drop you like a hot potato, essentially putting you out of work in any state where E & O is required by law.

The best way to protect your assets is by doing a much-better-than-average, complete and competent home inspection.

ONE TEAM - ONE FIGHT!!!

Mike

It sounds like you think tail coverage is needed.

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No, that's not what I said.

I used to be a franchisee; under that system I had to carry E & O and I had to, by contract, indemnify the franchiser that was getting 10% of my gross in royalties every month. I also had to - by contract - indemnify any real estate agents referred customers to me. In other words, the franchise used the fact that all of their folks had to carry E & O that indemnifies the agent as a lure to coax agents to refer work to their inspectors versus others. It wasn't the customers worrying about E & O; it was the agents who wanted their butts covered.

For a weak inspector, E & O might be a good idea; but for a confident/competent inspector who does a really good job, I don't think it's that important 'cuz most claims will pay out around what the deductible will cost you anyway. The E & O carrier actually risks very little unless you do something so monumentally stupid that you need that greater coverage. For the average claim, the E & O carrier is making a profit on your business even after they pay out so calling it a "loss" is anything but in my book.

You can tell clients all you want in a contract that there isn't any warranty of any sort beyond X-date; but, if they know you've got E & O, in the back of some folks' minds is the idea that, "Hell, it's no big deal; if something goes wrong I'll demand the inspector fix it. If he balks, I'll insist that he report it to his E & O carrier and I'll tell him that if he doesn't I'll sue him. If he still balks, I'll get a lawyer." Then, when they do get a lawyer, the lawyer calls you up demanding to know whether you've got E & O and with whom. Plenty of folks have come here in the past and told us that when a lawyer called up and found out that they didn't have E & O that the complaint went away.

I think the whole idea of E & O just feeds the idea in the minds of the consumers that there's some kind of unwritten guaranty that goes along with the inspection. If you want to avoid ever having a claim, just do the best damn inspection on the planet and the likelihood of it ever happening is practically nil. However, go at this business with the idea that you'll do as little as you have to, and charge as much as you can get away with, and then always inspect with one eye on your watch and the other eye on the realtor, and you'll need the E & O plus the tail coverage 'cuz someday something will come back to bite you...hard.

I think it makes more sense for an inspector to put that money aside and let it accumulate interest; a nice government-certificate of deposit or some such. It's been said someplace long ago, maybe it was here on TIJ, that the average claim paid out is between $5k and $7.5. Well, if you put that money aside and then go 10 years without ever having a complaint, you'll have banked between $30k and $40k plus interest. If you then get a complaint, and it only costs you between $5k and $7 to resolve, instead of having spent $30k to $40k, plus the $5k deductible to get that first claim resolved, you'll have only spent $7.5k or less, leaving you with a net profit of $30k+. Insurance companies know this; they're like the dealer at the card table at the casino - they know that the odds are long that they'll get hit with a big loss, and, just like the dealer at the card table, want you to keep right on playing their game. If it were anything different, do you think there'd even be insurance companies?

Again, it boils down to your skills, competence and how confident you are at what you do. Do the job really well and you won't have any issues; do it like a checklist totin' buckethead and E & O will only last as long as your first one or two claims before you'll find that the dealer will refuse to take your bets any more.

ONE TEAM - ONE FIGHT!!!

Mike .

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  • 2 weeks later...

Your assets are at risk with or without E & O coverage.

With E & O your assets are at risk up to your deductible. Without E & O, your assets are at risk up to their value.

You still have to pay the deductible, which is sometimes more than what will ultimately be awarded by the insurance company, and if you screw up and notify the insurance company enough times they'll drop you like a hot potato, essentially putting you out of work in any state where E & O is required by law.
Very true. In fact, the most truthful statement MO'H has ever made.

The best way to protect your assets is by doing a much-better-than-average, complete and competent home inspection.
Always good advice - but you knew that! Unless you are independently wealthy you should also hedge your bets with E & O Insurance.

ONE TEAM - ONE FIGHT!!!

Mike

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No, that's not what I said.

I used to be a franchisee; under that system I had to carry E & O and I had to, by contract, indemnify the franchiser that was getting 10% of my gross in royalties every month. I also had to - by contract - indemnify any real estate agents referred customers to me. In other words, the franchise used the fact that all of their folks had to carry E & O that indemnifies the agent as a lure to coax agents to refer work to their inspectors versus others. It wasn't the customers worrying about E & O; it was the agents who wanted their butts covered.

Eh, not really, MO'H. You only had to indemnify them for your negligence, not theirs.

For a weak inspector, E & O might be a good idea; but for a confident/competent inspector who does a really good job, I don't think it's that important 'cuz most claims will pay out around what the deductible will cost you anyway.
A weak inspector? Please. I have never met a weak inspector. This business is not for the weak, though hausdok may see a skewed sample. The tens of hundreds that I have met are vastly overqualified, highly competent professionals and ethical in the extreme.

Most claims against home inspectors are not meritorious: 95% in my personal experience. The problem is that you have to defend them and that can be extremely expensive. The problem is that once a claim goes into suit and your insurance company engages defense counsel, there is absolutely no incentive for that defense attorney to contain costs and every incentive for him to generate costs.

The E & O carrier actually risks very little unless you do something so monumentally stupid that you need that greater coverage. For the average claim, the E & O carrier is making a profit on your business even after they pay out so calling it a "loss" is anything but in my book.
True. And unless you die, your life insurance carrier risks very little. And unless you develop pancreatic cancer, your health insurance carrier risks very little. And unless you believe anything that O'Handley says, you risk very little.

You can tell clients all you want in a contract that there isn't any warranty of any sort beyond X-date; but, if they know you've got E & O, in the back of some folks' minds is the idea that, "Hell, it's no big deal; if something goes wrong I'll demand the inspector fix it. If he balks, I'll insist that he report it to his E & O carrier and I'll tell him that if he doesn't I'll sue him. If he still balks, I'll get a lawyer." Then, when they do get a lawyer, the lawyer calls you up demanding to know whether you've got E & O and with whom.
Then the smart inspector contacts me and I send a letter and the claimant is never heard from again.
Plenty of folks have come here in the past and told us that when a lawyer called up and found out that they didn't have E & O that the complaint went away.
Right. Please identify these "plenty of folks". No claim goes away because a tortfeasor does not have insurance. That's the best of all possible claims. It generally results in a default judgment which will be eventually paid with post-judgment interest augmentation.
I think the whole idea of E & O just feeds the idea in the minds of the consumers that there's some kind of unwritten guaranty that goes along with the inspection. If you want to avoid ever having a claim, just do the best damn inspection on the planet and the likelihood of it ever happening is practically nil.
That is the single most stupid statement that has ever been made with respect to the likelihood of a home inspection resulting in a claim. Ninety-five percent of all claims against home inspectors are unmeritorious. That means that, notwithstanding the superiority of your inspection, an astonishingly large number of your clients will think that you did a bad job.
However, go at this business with the idea that you'll do as little as you have to, and charge as much as you can get away with, and then always inspect with one eye on your watch and the other eye on the realtor, and you'll need the E & O plus the tail coverage 'cuz someday something will come back to bite you...hard.
Most inspectors of my acquaintance are professionals. As such, they do a professional inspection regardless of what their fees are and understand the professional liability risks.
I think it makes more sense for an inspector to put that money aside and let it accumulate interest; a nice government-certificate of deposit or some such. It's been said someplace long ago, maybe it was here on TIJ, that the average claim paid out is between $5k and $7.5. Well, if you put that money aside and then go 10 years without ever having a complaint, you'll have banked between $30k and $40k plus interest. If you then get a complaint, and it only costs you between $5k and $7 to resolve, instead of having spent $30k to $40k, plus the $5k deductible to get that first claim resolved, you'll have only spent $7.5k or less, leaving you with a net profit of $30k+. Insurance companies know this; they're like the dealer at the card table at the casino - they know that the odds are long that they'll get hit with a big loss, and, just like the dealer at the card table, want you to keep right on playing their game. If it were anything different, do you think there'd even be insurance companies?
And if you follow that advice and you have a claim, say, before 10 years, well you'll have a good claim against Mr. O'Handley for giving you "expert" advice that was errant.
Again, it boils down to your skills, competence and how confident you are at what you do. Do the job really well and you won't have any issues; do it like a checklist totin' buckethead and E & O will only last as long as your first one or two claims before you'll find that the dealer will refuse to take your bets any more.
Competence has absolutely no bearing on whether or not you will be the subject of a bogus claim. I have handled 4 claims in two years for one of the best inspectors in the nation. Every one of them went away with a letter from me. I have handled 3 claims in one year from another inspector. All three went away with a letter from me.
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A weak inspector? Please. I have never met a weak inspector. This business is not for the weak, though hausdok may see a skewed sample. The tens of hundreds that I have met are vastly overqualified, highly competent professionals and ethical in the extreme.

I just had to cut that out for review.......I'm sorry for feeding into this, but stuff like the above just makes me laugh.

I get the distinct feeling of a mildly inebriated, apoplectic nutjob screaming and spraying flecks of spittle at his computer monitor about things he can't control.

Whew............again, sorry for feeding the beast, but........

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I have handled 4 claims in two years for one of the best inspectors in the nation.

Were the claims against that particular inspector, or his employee's? From what you have written, I wonder whether he is really that good of an inspector. I wouldn't classify myself among the best by any means, but have not had a single claim filed against me in the last 7 years.

The only lawsuit threats (empty) I have received have been from Realtor's and builders.

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