Joined: 06/17/2014 09:32 PM EDT
Location: Carmel, IN
Around once per week I get a frantic call from an inspector with an all too common problem...the home they were inspecting now has water damage resulting from the testing of a tub, other faucet, washing machine, or dishwasher.
The first question they always ask: When should I make an Insurance Claim? How should I handle this situation?
Let's start with a couple of basic premises that apply to all circumstances in this category.
Rule #1: Never leave a running faucet unattended.
Rule #2: Always keep a lookout for any signs water is not going where intended.
Rule #3: Mitigate damages immediately.
If you're in the Home Inspection Business, rules 1 and 2 above need no further explanation. Rule #3 means as soon as an issue is detected you act quickly following these simple steps.
Step 1: Get the source of water shut down.
Step 2: Get any water you can get to cleaned up. You should always carry towels for this purpose. Avoid situations where you might be at risk of physical injury or electrocution.
Step 3: Document everything with photos and video and then Notify the parties (Agents for the Buyer and Seller).
Now let's get to Step 4, if applicable, and that would be notifying your E&O Insurance Carrier. For clarity, any circumstance where you turned a knob, flipped a switch, or operated a component in the home and there was resulting damage is a E&O claim (not general liability). To determine whether you need to notify your carrier, you will need to determine which category below the occurrence falls under.
Category 1: You F&%*ed Up. Big time.
If you turned on a faucet and walked away, even if the situation was sabotaged for you (as in there was a failed overflow drain or the pipes were clogged by mortar by an unqualified contractor), you could be held liable in whole or part and should notify your insurer. They'll talk through the situation with you and advise. I'll add to that advisement two pieces of advice...first, don't do that again and second see the rules above. Learn them. Live them. Love them!
Encourage the owner of the property to make a homeowner's insurance claim. You may even consider offering to cover their deductible and let them know this is your "policy" when something goes awry during your inspection even if the occurrence may have been unavoidable.
Category 2: No evident damage and water apparently cleaned up quickly.
Think that water didn't make its way under a wood floor, down to drywall below, or otherwise went somewhere it shouldn't AND the water was cleaned up quickly? You may be in the clear! Follow the steps above and hope you are right. If you're wrong and underlying immediately less than apparent damage is going to curl up some wood flooring a month from now you may get a call. In that case revert to Category 1 procedures.
Let the homeowner know, in writing, the following:
"During the inspection a small amount of water leaked from [item] and the water was immediately shut down. We noted water at [locations] as evidenced in the pictures attached and we immediately took action to dry out the area. If it were my home I'd be pretty confident this is going to be okay and no corrective action will be necessary. If you want to do some invasive testing of the area to see if there is moisture somewhere it shouldn't be we offer that service. Again, not something we are recommending but it is an option. Let us know your thoughts."
Category 3: Moderate Damage and there was nothing you could have done better.
Advise all involved as noted above state your reasons you acted diligently. Apologize for the inconvenience and utilize the following line in communication:
"I'm letting you know about this damage and the potential for underlying damage (see attached pics). I hope the issue isn't extensive, but the responsibility to fix water damage of this nature lies on your Homeowner's Insurance company. You'll want to get a claim in quickly to avoid any denials of coverage and feel free to give the claims adjuster my information and let them know the event happened during our inspection. We'll be happy to work through any issues they might consider subrogating with them directly."
This verbiage, in writing, accomplishes a few important things in this scenario where the future of the issue is very much uncertain for all involved. Here are the top 3 reasons to use this verbiage:
- The homeowner can never say you didn't advise them to consider further evaluation and even an insurance claim if they decide not to and the issue turns into later something worse including a mold element.
- The homeowner is left, with this carefully worded statement, with a comfort level that is reasonable for the circumstances.
- You're injecting the actual appropriate process for recovering from you, if they believe you acted negligently, which is to make a homeowner's insurance claim and explain the circumstance.
Category 4: There is real damage, but the amounts are known, finite, and under $5000.
In these smaller damage scenarios, it's not worth it for the homeowner to lawyer up and most will even avoid making an insurance claim for fear of rate increases later. In this circumstance it's best to advice that they should still consider making an insurance claim with their homeowner's but in lieu of that you'd like to contribute something toward this issue as a goodwill gesture. Start at $1000 and be willing to go to $2000. If they hold their ground on a number in the $5000 range, let them know very gently that your $2000 offer stands if they change their minds.
There are a few other categories which are less common. If you're a client of the Inspector Services Group and would like guidance on a matter like this, email me personally at NThornberry@RWSwarranty.com. If you're looking for the best in E&O Insurance Coverage that will not adjust your rates for the higher, visit https://www.RWSinsurance.com
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This message was edited 1 time. Last update was at 02/24/2021 10:33 AM EST