The Costs of Defending a Lawsuit (Part 1 of 2)

As a frequent contributor to online inspection forums, I regularly get private email from professional home inspectors seeking my opinion on legal matters. Recently a reader wrote:

"Joseph, So, absent an E&O policy, inspectors are exposed to the realities of defending a claim, which in 98% of the cases you have seen, are without merit. What do you estimate the cost to the inspector are to defend themselves, considering court costs, attorney, depositions, etc?"

Fortunately, not every claim involves a lawsuit. Most claims begin life as a complaint from a disappointed client. And most experienced business persons have had to deal with customer complaints at one time or another in their careers, and have no problem whatsoever rectifying a legitimate complaint to the customer’s satisfaction.

The problem arises when the claim is not legitimate, a condition that obtains in 99% of all claims against home inspectors. You read that correctly. In four-and-a-half years, I have seen exactly 2 legitimate claims.

When a claim is not legitimate, it must be resisted. Politely. But firmly. Even when, as is often the case, “legal action” is threatened. Caving in to illegitimate claims is a terrible business model, especially in an industry that generates so many of them.

When “legal action” is threatened should you not knuckle under to your client’s preposterous demand, you may receive a demand letter from a local attorney or a summons from your local Small Claims Court. If the latter, you can generally get the claim dismissed due to lack of jurisdiction, as I discuss elsewhere on this site and if you’ve been following my advice regarding Arbitration Clauses.

If, instead, the "legal action" threat manifests itself via a demand letter from an attorney, say a prayer of thanksgiving. Why? Because the attorney is not emotionally involved in the case. He’s financially involved in the case. And the minute he learns from me that there’s no case; that there are multiple defenses to the claim; that his client has no damages; and that the defendant will vigorously defend the claim, that is generally more than enough disincentives to prompt him to advise his client to move on with his life. And they generally do.

Unfortunately, many claims begin life as a fully formed lawsuit and the first notice that an inspector gets of the claim is when the county sheriff knocks on his door and serves him with a lawsuit accusing him and a multitude of others of having harmed his former home inspection client.

That’s when the expenses begin. That discussion, next time.