Home Inspector Liability: Where do Ontario courts draw the line?‏

We live in a litigious society, with no absolute protection from legal liability. Regardless of what we, as professionals do, we can be sued for doing something wrong, and we can be sued for doing nothing wrong.

Most prospective purchasers of residential properties retain the services of a home inspector prior to concluding the purchase. Many erroneously believe that they are purchasing an enforceable guarantee that the home is free of any and all defects

However, the typical contract between the homebuyer and inspector defines the scope of the latter’s work as conducting a visual inspection only. In many cases it also limits the maximum financial liability of the inspector to the amount of the home inspection fee. If the client subsequently purchases the home and discovers problems that were not in the inspection report, how liable is the home inspector for costs incurred in correcting the problems? Judging by the outcome of lawsuits against a number of home inspectors over the past few years, the most appropriate answer seems to be … "it depends".

Consider the following variables which have influenced Ontario courts in their decisions:

•1 Were the clients given sufficient time to read the inspection contract, and were any “limitations of liability” brought to their attention before they signed the contract?
It is not appropriate for the inspector to present the contract to the purchaser during or after the inspection. This action places the purchasers in an unfair position since once the inspection is underway, there is little time to reject the agreement’s terms, secure another inspector to perform the work, and still meet the time constraints of their conditional offer to purchase.

In some cases judges have found that inspection contracts cannot be used to exclude or limit liability, since the very purpose of the inspection was to determine the “future adequacy, performance, or condition” of the home.

•2 Did the clients even read the contract at all?
In one notable case, the clients did not read the contract before signing it. The inspector was found liable for the cost of repairing two appliances, even though his contract and standards of practice spelled out that appliances were not covered under the inspection.

•3 Did the property defects fall within the scope of the inspection ?
(as spelled out in most Home Inspection Associations “Standards of Practice”, and were they visible and accessible at the time of the inspection? For example, a roof with serious damage would be within the scope, and with some exceptions would be visible and accessible. An inspector failing to report the condition would be subject to a lawsuit. However, if weather conditions on the day of the inspection prevented the inspector from walking on or even seeing most of the roof, the inspector would not be liable if (and this is a big if) the report clearly stated these areas were not inspected and that “further inspection is recommended prior to the close of escrow”.

Conditions, systems or components not within the scope of the home inspection are typically itemized in the inspector’s contract. These include conditions that are not visible or accessible because they are underground, contained within the construction of the building, or hidden behind or beneath furniture, stored items or debris. Other exclusions include structural and geological engineering, infestation by wood destroying organisms such as termites, septic systems, water wells, and more.

•4 Was the home inspector notified and given time to investigate and respond to a problem? The inspector should have the opportunity to view disputed defects, discuss whether they are within the scope of the inspection, whether they existed and were visible on the day of the inspection. Inspectors who are reasonably liable should be allowed to hire a repair contractor, make the repairs themselves, or simply pay the cost of repairs. Homebuyers can undermine a valid claim against a home inspector by repairing the defect before the inspector has been notified about the problem.

•5 Did the seller present some sort of representation like a “Seller’s Property Information Statement”?
If so, the seller is usually responsible for most defects. After all, the seller has lived in the home for a number of years, while the home inspector has, in most cases, about three hours in the home. Who do you think knows the most about problems, such as a wet basement or electrical problems, in the home? However, here’s where it gets complicated.

•6 Are the issues found “patent” or “latent” defects?
A patent defect is one which a reasonably careful inspection will reveal. A latent defect is one which is hidden behind surfaces, only occurs occasionally, or is otherwise not discoverable during a reasonable careful inspection. Latent defects limit the amount of liability to the home inspector to, at most, his fee for the inspection. Patent defects, on the other hand, can run the liability for cost of repair up to 100% for the home inspector.

•7 Does the buyer have special needs or concerns about the property?
If so, then the condition must be expressly provided for in the offer to purchase, and again in the inspection agreement. In one well known case two years ago, the buyer explained to her Realtor that she could not tolerate mould, she was allergic to it, and this was clearly stipulated in the agreement. The inspector did not know about this limitation, and during his inspection did not discover any signs that would have indicated mould growth in the building. He did indicate a slight grading problem at the sides of the house, but did not explain in the report how this could lead to water intrusion, and that there was therefore the potential for mould growth.

The transaction went through, and shortly after closing the purchaser began to suffer allergic reactions to mould. At the trial, the judge found the purchaser 25% negligent because she had failed to read the inspection report completely and carefully. The judge found the Realtor 25% negligent for failing to read the inspection report, reviewing it with the purchaser, and bringing to the purchaser’s attention the potential for mould growth arising out of the moisture findings in the report. The home inspector was found liable for 50% of the cost of repairs for not discovering some obvious evidence of previous moisture intrusion, and for failing to warn about the potential for mould growth.

•8 Was asbestos found in the home?
Asbestos is generally considered as “outside the scope” of a home inspection, and is typically not mentioned by home inspectors. For home inspectors, the issue is one of legal liability. If any material is disclosed as a potential source of asbestos, the inspector may be held liable for other possible asbestos materials that were not mentioned in the report. For this reason, the home inspection industry has excluded asbestos as a consideration during home inspections. This is a complicated issue, because there are so many common building materials in homes that might contain asbestos. Examples include sheet vinyl flooring, asphalt and vinyl floor tiles, adhesive mastics, acoustic ceiling texture, old heat duct insulation, asphalt composition roofing materials, plaster, stucco, drywall, joint compound, and more. In most cases, these do not contain asbestos. Those materials that do contain asbestos are usually not considered hazardous if they are undamaged and allowed to remain as-is.

It can be argued, however, that home inspectors should point out potential asbestos-containing materials. Unless alerted by their inspector, the new homeowners could disturb or remove the material in question without regard for the potential for exposure to asbestos dust, which can be hazardous.

One must also consider the difficulty and cost of identifying and then testing for asbestos, and the time required, which is often not allowed for in the time frame of an offer to purchase. As well, some insurers of home inspectors exclude specific duties, such as asbestos testing, because it is a way to add substantially to the premium by offering extra insurance. As an example: An inspector takes, with documented approval from the homeowner, a sample of material suspected of containing asbestos, and sends it off to the Lab. The report comes back and the inspector augments the report with the findings of the Lab. If the inspector then has a claim against him over the asbestos part of the inspection, the insurers wash their hands of the claim. In this instance the inspector has followed all the rules, farmed out the expert part of the inspection to a Lab, and yet could still be left uninsured and faced with huge defence costs.

High anxiety over residential asbestos is very common, given the many scary articles that have been published over the years. And yet asbestos panic is inconsistent with the actual level of risk posed by asbestos-containing materials as long as they are not disturbed. It has never been proven that low-level exposures in a home causes health problems.

This whole controversy is an example of the outgrowth of the freewheeling practice of litigation in this country. The proliferation of cases, whether frivolous or justified, has taken its toll on home inspectors everywhere.

•9 Were building code violations in the home missed by the inspector?
Let’s start with the city inspection when the house was built. In general, city and country building inspections, due to budgetary constraints, are usually short in duration and not comprehensive in scope. And the final inspection of a home usually occurs before the utilities are turned on, so electrical outlets cannot be tested and gas fixtures such as furnaces and water heaters cannot be fully evaluated. As for liability, municipal inspectors have none, as specified in chapter One of the The Ontario Building Code.

The home inspection industry claims it does not perform “code compliance inspections”, but that is only true in a limited sense. The purpose of a home inspection is to disclose visible defects, and many of these will involve code violations, often presenting health or safety issues. If not reported, the home inspector would be liable.

•10 Does the inspector have Errors & Omissions Insurance?
There is a misconception that this insurance is for the benefit of the client; in fact it is the exact opposite. If you have a large enough claim against a home inspector the insurance company usually becomes the defendant in the legal action. One other point that is not well known is the deductable; the vast majority of these policies have huge deductibles. Ten Thousand Dollars is very common, and in some cases is closer to Twenty-Five Thousand, which is now the level for small claims actions. It is well known in the home inspection industry that if the claim is small the chance the home inspector will be sued is minimal. The reason; the cost of taking this to court, getting a judgement and then collecting the judgement is significant. With the majority of home inspectors realizing this, they remain uninsured and set themselves up as Limited Liability Corporations, and you wind up trying to sue a shell of a company.

The Takeaway: If you’re in the position of buying a home, do your homework; hire a home inspector with the proper experience, qualifications, and client recommendations to be sure you get the best inspection. Take care of issues in a home by having them found during a thorough inspection, not by having to repair them after you move in. Book the length of time requested by your inspector, some homes with a number of small problems can take many hours to thoroughly evaluate. And don’t hire the cheapest inspector you can find. The cost of a good inspection is insignificant compared to the cost of repairs which may be uncovered.

The Star