Professional Responsibilities Flashcards
BUSINESS LAW
Laws dealing with the conduct of business, including conducting business with consumers, are governed mostly by state laws.
The details could make a substantial difference in how home inspection agreements and home inspection reports should be written.
Home inspectors should not attempt to deal with claims themselves after attorneys become involved.
Home inspectors who carry E&O insurance should report this contact to their insurance company.
Failure to report an incident could result in denial of coverage if the incident escalates into a claim.
Listen to the client without getting defensive.
Take pictures to document the issues.
Do not admit fault or apologize.
If you reach a settlement, obtain a full release from all claims.
Litigation
Each state has its own rules and procedures for dealing with civil litigation.
The defendants may file cross-claims against each other. A cross-claim is litigation between defendants (or plaintiffs) that relates to and is carried on within the litigation between the defendant and the plaintiff.
The defendant may file a counterclaim against the plaintiff. A counterclaim may or may not relate to the underlying action.
Civil litigation begins with a complaint filed with the court. The complaint is the beginning of a process called the pleadings.
Upon receipt of a properly filed complaint, the court issues a summons to the defendant notifying the defendant of the complaint and requiring the defendant to provide an answer.
A summons, therefore, should never be ignored.
Timely filing of all pleadings and motions is essential.
The answer may contain affirmative defenses that deny the defendant’s liability.
Discovery is the next step. Discovery is the compulsory disclosure of information relevant to the litigation.
Interrogatories are written questions from one party that are answered in writing by the other party. Document production is the request for documents that are relevant to the case.
Depositions are verbal answers to questions posed by the opposing attorney.
Litigation often ends in one of several ways before a trial. The parties may reach a settlement. The parties may voluntarily enter arbitration or mediation, or the court may order mediation before trial. The court may grant a motion by the defendant to dismiss the case. Dismissal may occur when the plaintiff’s complaint is legally defective.
The court may grant a motion by either side for summary judgment. Summary judgment occurs when there is no significant disagreement about the facts and when the moving party is entitled to win as a matter of law.
A trial may be a bench trial or a jury trial.
The judge or the jury are said to be the trier of fact.
Prevailing in a civil trial does not mean that the judgment you receive will be paid.
For this and many other reasons, civil litigation should be avoided.
Nearly every claim against a home inspector will include: “I would not have bought the house had I known about the alleged defects.”
Compensation for personal injury is usually not recoverable under breach of contract; personal injury claims are usually brought as a negligence claim.
Negligence, as usually alleged against home inspectors, is divided into two classes. The most common is ordinary/simple negligence. Ordinary negligence is the failure to exercise the standard of care that a reasonably prudent person (home inspector) would have exercised in a similar situation. Less common is gross negligence, which some define as the failure to exercise slight care and others define as a conscious act or omission in reckless disregard of a legal duty.
The classic elements of negligence are: (1) the defendant (home inspector) had a duty toward the plaintiff (usually the client), (2) the home inspector breached the duty (failed to perform a competent home inspection), (3) the home inspector’s breach was the cause of the plaintiff’s damages, and (4) the plaintiff suffered physical injury
One concept is the fiduciary relationship between the home inspector and the client. A fiduciary relationship arises when someone has a duty to act for the benefit of another on matters that are relevant to the relationship.
The home inspector has a duty to provide accurate information for the client’s benefit.
The other concept is the home inspector’s duty to exercise due diligence when conducting the home inspection and reporting the results.
It is interesting to note that all parties on the purchase side of a real estate transaction have a duty to exercise due diligence. This includes the real estate agents and the buyer.
The definition of negligence contains the potentially troubling concept of the standard of care (SoC). The SoC for a home inspection is usually the applicable SoP that should be stated in the home inspection contract.
The tort of negligence was originally developed as a means for the plaintiff to recover damages for personal injury, not for damages that are solely monetary in nature.
FRAUD.
There are many types of fraud. The two types most likely to be alleged against a home inspector are common law (tort) fraud and what might be called statutory fraud.
The usual elements of common law fraud are: (1) a past or present material fact was not accurate, (2) the defendant knew the fact was not accurate or stated the fact with a reckless disregard for accuracy, (3) the defendant intended for the plaintiff to act on the inaccurate fact, (4) the plaintiff did not know the fact was not accurate, (5) the plaintiff reasonably relied upon and acted upon the inaccurate fact, (6) the plaintiff suffered damage that was caused by the inaccurate fact.
Many jurisdictions require a clear and convincing evidence burden of proof rather than the preponderance of evidence burden of proof applicable in most civil litigation.
Negligent Misrepresentation
Negligent misrepresentation is a relatively new tort. It attempts to bridge the gap between negligence and fraud by creating a duty among those in the business of providing information to take reasonable care to provide accurate information.
The elements of negligent misrepresentation are identical to those of fraud with one important exception. The defendant may have believed the inaccurate information to be true.
PRE-INSPECTION AGREEMENTS (CONTRACTS)
No inspection service should be performed without first having a signed pre-inspection agreement (contract).
The rules governing contracts are different in every state.
Each ancillary service is different with different objectives, scope, and limitations. Each service should be performed using a separate inspection agreement that is written to address the unique nature of the ancillary service.
A contract is an agreement between two or more parties that creates obligations that may be enforceable at law.
Most contracts need not be in writing; in fact, the written document is not the contract. The agreement between the parties is the contract; the written document is just the vehicle for documenting the agreement. In practice, unwritten (oral) contracts are extremely difficult to enforce because it is difficult to objectively establish the terms of the agreement.
Elements of a Contract
Four elements must exist before there is an enforceable contract.
All four elements are required.
The elements are offer, acceptance, consideration, and mutual assent.
There must be an offer. An offer is a promise to do something, or to refrain from doing something at a future time under certain conditions. For example, a home inspector’s website lists a fee of $350 to inspect a house up to 2,000 square feet; this constitutes an offer.
There must be acceptance of the offer as offered. Acceptance may be an act, or may be inferred by conduct. An attempt to accept an offer that changes the terms of the offer is not acceptance; it is a counteroffer.
There must be an exchange of consideration. Consideration is something of value. Consideration may be money, property, or a promise to do or not to do something.
There must be mutual assent (agreement) to enter into a contractual relationship. The best way to establish mutual assent is by both parties signing the written contract; however, mutual assent may be established by the actions of the parties. Electronic signatures are usually valid.
As a general rule, the contracting parties, the principals, should agree to the terms of the contract.
who, other than the principals, may sign an inspection contract? The answer is based in the concept of agency.
Agency is a fiduciary relationship in which one party (the agent) may act on behalf of another party (the principal) and, among other actions, enter into an agreement (contract) that binds the principal. A real estate agent is only one type of agent; there are many others.
Whether an agent (real estate or otherwise) may sign an inspection contract and bind the client (buyers) depends on whether the agent is acting within the scope of the agent’s authority.
Adhesion Contracts
A common reason why an inspection contract may be deemed an adhesion contract is that the contract was presented to the client at the inspection, or worse, after the inspection.
The home inspector should provide the inspection contract to the client before the inspection.
Providing a copy of the inspection contract on the home inspector’s website is helpful, but it is not a substitute for sending the contract to the client before the inspection.
Pre-inspection Agreement (Contract) Contents (Required)
The inspection contract should state the full legal name of the home inspection company. This is extremely important when the home inspection company is operating as a corporation or LLC. Failure to use the company name could subject the home inspector to personal liability for damages. Some states require the name and license number of the home inspector performing the inspection be on the inspection contract.
The inspection contract should state the names of all parties who are purchasing the property, or who will have a financial interest in the property.
In practice, inspection contracts often contain only the name of the party scheduling the inspection. This is acceptable, if not ideal. Adding a clause stating that the signature of one party binds all parties might help in cases where all parties are not known.
The inspection contract should state the full address of the property to be inspected.
The inspection contract should state the inspection date.
Inspection Fee
The inspection contract should state the inspection fee.
If the fee consists of multiple services (for example a radon test and a water quality test) then the fee for each service should be listed separately.
Inspection Objective/Purpose
The inspection contract should contain a statement of the inspection objective/purpose.
Standard of Practice (SOP)
The inspection contract should identify one SoP under which the inspection will be performed. The SoP should be incorporated by reference into the contract.
Exclusions and Limitations
The inspection contract should contain a comprehensive list of the important exclusions and limitations of the inspection. The list can be a summary of the exclusions and limitations in the SoP identified in the contract.
Signatures
Home inspectors operating as a corporation or LLC should sign the contract as a representative of the company by placing their title after their name. For example, John Smith, Member (for a LLC), or John Smith, President (for a corporation). This is extremely important when the home inspection company is operating as a corporation or LLC. Failure to sign as a company representative could subject the home inspector to personal liability for damages.
Client Responsibilities
Making the client contractually responsible for certain tasks may help reduce the client’s ability to substantiate some common claims against home inspectors. Client responsibilities might include: (1) making the home inspector aware of concerns contained in the seller’s disclosure, (2) reading the full inspection report and acting on all recommendations during the due diligence period, (3) initiating a telephone call with the home inspector if the client does not attend the inspection, (4) conducting a walkthrough of the property after the seller’s belongings have been removed, (5) ensuring that permission has been secured for the home inspector to enter and inspect the house.
Disclosure of Inspection Findings
Home inspectors are restricted by codes of ethics and sometimes by state home inspector regulations from distributing the inspection report and discussing inspection findings with anyone except the client.
Report Redistribution
It is common for inspection reports to be used by subsequent purchasers when the home inspector’s clients do not purchase the property. Reports are also used by third parties. The inspection contract may contain an indemnification clause that obligates the client to defend the home inspector against third party claims and to pay judgments against the home inspector that result from third party claims.
Recovery of Legal Fees and Expenses
As a general rule, each party in a dispute is responsible for its own costs incurred during the dispute. The inspection contract may contain a clause that allows the prevailing party to recover costs from the losing party. The clause should apply equally to both parties. This clause can help discourage frivolous claims; however, this can be a double-edge sword because the home inspector could be responsible for the client’s costs if the home inspector loses.
Right to Observe Claims
The inspection contract should contain a clause that gives the home inspector the right to observe alleged errors and omissions before the alleged errors and omissions are repaired.
The clause should bar claims based on alleged errors and omissions that the home inspector was not allowed to observe prior to repair. The clause should allow emergency repairs.
