The Importance of E&O Insurance

I am continuously surprised at the number of inspectors who do not carry professional liability insurance or, as it is popularly known, Errors and Omissions Insurance (“E & O”). When I ask inspectors who attend the Law and Disorder seminar whether or not they carry E & O insurance, between 40 and 60 percent of them say that they do not. That number is constantly diminishing, however, as more and more jurisdictions have introduced laws requiring that home inspectors become licensed and have made the carrying of E & O insurance a condition of licensure.

Some inspectors who do not carry E & O would, perhaps, like to carry it but simply do not conduct enough inspections to be able to afford it. Those inspectors generally leave the profession when carrying professional liability insurance becomes a condition of having a license.

Many others do not carry it because they think that it is “too expensive” and/or that it “paints a target on your back” - that is, it makes you more likely to be sued than if you had no insurance.

Whether or not a given product is “too expensive” is something that individual consumers have to determine for themselves after conducting a cost-benefit analysis and considering competing products.

Inspectors who elect to “go bare” should not, however, delude themselves into thinking that their not having professional liability insurance removes “the target” from their back.

In many ways, an uninsured defendant is a much easier “target” for an aggrieved claimant. For one thing, not having insurance, they are less likely to defend a suit and plaintiff can, thus, obtain a judgment against them by default. Even if they have viable defenses to the suit!! If they do defend, they have to make the calculus of whether it is more expensive to defend the suit or simply pay the plaintiff. And having an unpaid judgment on your credit report effectively makes you unbankable, a terrible position for a serious businessman to be in.

About three years after I began practicing law, I had a matter that brought me to small claims court in a neighboring municipality. The court’s docket was very crowded that day and I had to wait my turn behind several other attorneys, one of whom had a number of matters before the court and was taking one default judgment after another against no-show defendants on behalf of several institutional creditors.

In my naivete, I thought that he was on a fool’s errand and asked him afterwards what the point was of obtaining judgments against folks who were not likely to satisfy them. His reply opened my eyes and taught me that very few people are truly judgment-proof.

He told me that he had a file cabinet that was chock full of default judgments that he had obtained and that eventually these folks were going to want to buy a house or a car or refinance and will have to satisfy the judgment in order to do so. Of course, by then the judgment will have swelled with the addition of post-judgment interest.

“Not a day goes by,” he told me, “that I don’t get a call from one or more of these judgment-debtors who wants to satisfy the judgment.”