Reuben's Home Inspection Blog

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Insurance Problems Caused By Home Inspection

I received a very odd phone call last month; a customer (I'll call Mary) called to tell me her insurance company was dropping her policy immediately after reading my inspection report for her home.  They told her there were 'too many problems'.  I've heard of insurance companies having specific reasons for denying insurance, but never such an ambiguous reason as ‘too many problems'.  I'm wondering if this is going to become a trend.

Mary jokingly told me that she should have hired a crappy inspector, but she was really looking for advice on what to do.  I asked Mary, what would have happened if she had not given her insurance company a copy of her report?  Mary said her insurance company requires any house that is over 40 years old to have a professional home inspection performed.  That made me wonder - how do insurance companies define a professional home inspection?  In Minnesota there is no such thing as licensing for home inspectors, so anybody can call themselves a professional home inspector. 

I was able to refer Mary to a friend that works for Farmer's Insurance, and she ended up getting a new policy for her home and car with him the same day (and hopefully saved some money!).  Mary had already tried a couple other companies, but as part of their screening process they asked if she had ever been denied insurance, and she was too worried about getting denied again to go any further in the process.  Farmers Insurance doesn't ask about that.

While this was a strange situation because there wasn't anything that specifically made the company deny insurance, there are some specific things that you can look for.  Many insurance companies will require correction of these conditions before insuring the home, or will give you a certain amount of time to have these items fixed:

• A fused electric service

• Knob and Tube Electrical Wiring.

• Roof problems.  Some insurance companies perform their own drive-by inspection (where they don't even climb on the roof), and if they don't like what they see, they'll require replacement of the roof at the owner's expense.  There is no arguing with the insurance company about this decision.

• Tree problems.  My friend at Farmers Insurance said that his company is on a big ‘tree kick', where they get very picky about tree branches being too close to the house.

If you're in the market for a house, I recommend checking with your insurance agent early in the process for any red flags that you should know about ahead of time.  This quick phone call might save you a lot of hassle in the future.

Reuben Saltzman, Structure Tech Home Inspections - Email - Minneapolis Home Inspections

Reuben Saltzman, Structure Tech Home Inspections

        

Comment balloon 53 commentsReuben Saltzman • March 10 2009 07:56AM

Comments

I have been waiting for someone to write about this. YIKES !

Posted by Janice Roosevelt, OICP ABR, ePRO,Ecobroker ( Keller Williams Brandywine Valley ) over 9 years ago

Insurance company's are also taking huge losses and as a result passing this down to consumers. Non owner occupied is getting hard to even get.

Posted by Chip Jefferson (Gibbs Realty and Auction Company) over 9 years ago

If that had happened to me, I'd have reported them to the Insurance Commissioner of that state.  I had a company, Geico, try to drop me once years ago.  I wrote a complaint to the insurance commissioner of Maryland and they reinstated my policy in hours. 

We have to stand up for ourselves.

Insurance companies are very powerful and can break a home sale simply with innacurate C.L.U.E. reports.

 

Posted by Lenn Harley, Real Estate Broker - Virginia & Maryland (Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate) over 9 years ago

Wow!  Without standardization of your industry in Minnesota, it seems odd that the insurer could cancel the policy based solely on your report.  It is even more unusual that the insurer didn't tell her which inspectors to use, as often the insurance company is looking for high risk loss items.

I just took a professional standards certification training yesterday for the Greater Boston Board of Realtors.  If I had been on the grievance committee for the insurer, I probably would be smiling right now because I would know the real reason for the cancellation of the policy.  Your client may think it was because of your report.  But it probably wasn't just that.  There's always two sides to the story.

Posted by Martin Kalisker, Professional Standards & Legal Assistant (Greater Boston Association of REALTORS) over 9 years ago

Reuben, What about certain brands of electrical panels such as Federal Pacific? I have had electricians tell me that some insurance companies will not cover a home if one is discovered. I've found two such systems in the past year and advised my clients to check with their insurance before the purchase. How do you advise your clients?

Posted by Tad Petersen / Home Inspector, Mpls (Safeguard Home Inspections, Inc.) over 9 years ago

Thanks for sharing this...haven't had it happen yet but it's probably  just a matter of time. 

All the Best!

Kathy

Posted by Kathy Fisher Sells Lexington TN homes! 731.845.3413 (Five Star Real Estate Services) over 9 years ago

Lenn - Good for you!

Martin - It sounds like you know something I don't!  Please share.

Tad - I haven't run across an insurance company having a problem with a Federal Pacific panel.  I used to tell my customers to have the panel checked by an electrician or replaced, until I read this document on FPE Panels.  Now I regret even recommending having an electrician look at the panel.  I just tell my clients the panel is a safety hazard, have it replaced. 

Posted by Reuben Saltzman, Delivering the Unbiased Truth. (Structure Tech Home Inspections) over 9 years ago

I would sure ask for clarification...have never had an insurance company ask for an inspection and like any profession...licensed or not,, there are good and bad of everything making mountains out of molehills or folks reading them that read INTO them more than is there...Yicks !

Posted by Sally K. & David L. Hanson, WI Realtors - Luxury - Divorce (Keller Williams 414-525-0563) over 9 years ago

Mary had an interesting experience -- and she was probably right - she should have hired a lousy inspector for insurance purposes.  Isn't that ironic.  We appreciate good inspectors -- even if it may jepordize a sale.  Keep up the good work.

Posted by Jo-Ann Van Vechten (Long & Foster REALTORS- Smith Mountain Lake) over 9 years ago

Good words, and yes, quite harsh words for those who don't know the ins and outs of insurance and real estate.

Posted by Larry Bettag, Regional Vice-President (Larry Bettag - Cherry Creek Mortgage) over 9 years ago

I have not experience that, yet.  Insurance companies are normally all about the bottom line and can be difficult to deal with.  Great case for why we need sane government regulation.

Posted by Mark Watterson, Utah Real Estate over 9 years ago

Haven't even heard of this one but will be careful in the future. Thanks.

Posted by Barb Szabo, CRS, E-pro Realtor, Cleveland Ohio Homes (RE/MAX Trinity Brecksville Ohio) over 9 years ago

I've run into insurance companies denying coverage for "knob and tube"... but usually they'll allow a specific amount of time, for the homeowner to replace the knob and tube, before denial of coverage.  (ie: a year).

Posted by Alan May, Helping you find your way home. (Coldwell Banker Residential) over 9 years ago

I have seen a lender hold lending because they did not like the heating system . So I guess things continue to get tougher

Posted by Charlie Ragonesi, Homes - Big Canoe, Jasper, North Georgia Pros (AllMountainRealty.com) over 9 years ago

Reuben, I haven't heard of this either... our insurance issues here usually have to do with windstorm and hail requirements...  will keep my eye out for this now though!  Thanks.

Posted by League City, TX - Worrell Team, REALTORS, GRI, CNE (RE/MAX 1st Class) over 9 years ago

Thanks for the info.  

I have had issues with FHA inspections but fortunately never with insurance companies.  I believe in being prepared for worst case situations and scenarios and I believe the information you gave in your post will be helpful to me in the future.

Posted by Richard Curtis (The Curtis Real Estate Company) over 9 years ago

I had an issue a few years ago.  My client was buying a fixer upper and we knew the roof needed to be replaced. She was going to add on and it didn't matter to her because she was going to replace the roof when she did the addition.

Because her credit score was a little on the low side, they wanted to charge her double what she should have had to pay for her insurance.  They said "on an older house a roof has to be newer than 10 years old or they charge more".  We moved her to a different insurance company - at the 11th hour.

Also, in the last few years, a clause has been added to our real estate contracts here in Birmingham, Al, that the buyer has X number of days to determine if they can get acceptable insurance on the house or they can get out of the contract. This gives the insurance company a chance to run a CLUE and credit report and give a firm quote well before closing.

Posted by Toni Bird (Coldwell Banker Preferred Properties) over 9 years ago

We are in a similar situation here in California with no licensing for home inspectors. I can also definitively state that insurance companies have been proactive in using home inspection reports here for at least two years that I know of, possibly longer. Some companies are asking current home owners for a home inspection before renewing their policies; I can speak from personal experience on that one. They then require repairs or they say adios to the policy holder.

I personally don't have any problem with it, as Lenn Harley does in her comment. I actually welcome insurance companies being proactive in addressing their liability. I've always thought it was funny that they would insure a property sight unseen.

Some of the things that I know at least some of the insurance companies look at here are the roof, electrical wiring, plumbing, and fireplaces/chimneys. Makes perfect sense to me.

Posted by Jim Frimmer, Realtor & CDPE, Mission Valley specialist (HomeSmart Realty West) over 9 years ago

Wow, I haven't heard of that before. Very interesting.

 

Posted by Monica Bourgeau, Business Coaching (New Phase Business Coaching) over 9 years ago

I never realized that an insurance company could deny coverage based on the inspection.  Thanks for making me aware of an important subject to look into. 

Posted by Irene Tron over 9 years ago

Very Interesting, I have heard of Insurance Companys denying insurance. But never dropping insurance coverage, at least until the renewal is due!

Thanks for the information.

Posted by J D Murray over 9 years ago

Wow, have not seen any problems here YET. Thank's for the head's up on the issue.

Posted by Norma Brandsberg (Marks Realty Co. Inc., Lynchburg, VA, 540-586-9496) over 9 years ago

This is certainly something to be concerned about, and I'm going to call my favorite inspector today to see if he's ever had to deal with anything similar!  Texas inspectors are licensed, but change occurs so quickly, and I'd hate to think it's a more common problem than we realize.  Thanks for sharing!

Posted by Linda Petrey Carlson (Realty Executives of Killeen) over 9 years ago

I have heard of this but never really experienced it myself.  I can see it from the point of view of the insurance company. Kinda.

I know when I sold a home for $10,000 back in the 1980's the buyer was not able to get insurance on the house from her insurer and had to use a state program to cover the house for homeowners insurance.  I don't remember if there was a home inspection done. The house was a mess, it was on their street.  They were buying it to remodel and let their adult daughter live in.  I think the sale price was the tip off to their insurance co. that it was in horrible shape.

I don't think it is typical in my market for the insurance co. to see the inspection.

Posted by Maureen McCabe, Columbus Ohio Real Estate (HER Realtors) over 9 years ago

Interesting information. 

I hope the home inspector really didn't cause the insurance problems :) 

Maybe the home inspection reveals issues that limit the insurability of the home.

Great to hear that you have a good insurance person to refer.

Posted by Jim Mushinsky (Centsable Inspection) over 9 years ago

Looks like another opportunity for the home inspector to become a scapegoat:)  All we can do is tell the story----what various parties choose to do with that story is not only beyond our control but we can't afford to care.  It is simply our job to tell the story.

Posted by Charles Buell, Seattle Home Inspector (Charles Buell Inspections Inc.) over 9 years ago

My first experience with a home inspector, some 20 years ago, caused my sale not to go through because of the hidden things he found.

From then on I used this guy whenever *I* was the buyer....

Posted by Robin Turner, Robin Turner (Happy House Real Estate) over 9 years ago

Wow, I have not heard of this before.  Maybe we should all call our favorite inspector and insurance agent...just to cover all of our bases.

Posted by Andrea Curtis United Country Premier Properties Certified Military Relocation Professional, U C INTERNATIONAL DIRECTOR OF MILITARY PROPERTIES (United CountryPremier Properties) over 9 years ago

This is really eye opening- Thank you for the post!

Posted by Jamie Boney (Mungo Homes) over 9 years ago

Rueben,

Very informative post. I have yet to deal with this problem, but you have given me some education for the future. I am going to check out our inspector criteria here in Utah right now. I can see this becoming a problem in the future with our economy the way it is.

-Lisa

Posted by Lisa Udy, Logan Utah Realtor ( Platinum Real Estate Group) over 9 years ago

There are some great comments here for people in industry, thank you, I learned a few things!

Posted by Pippa Mac, The Woodlands TX Real Estate (Chevaux Group Realtor, The Woodlands and Spring) over 9 years ago

I must say that from the liability side of insurance it makes sense and maybe if it becomes more common could lower rates of home owners that do perform routine maintenance.

On the other side I hate any one other than my client making decisions based on my inspection.

Posted by Jim Allhiser, Salem, Oregon Home Inspector (Perfection Inspection, Inc.) over 9 years ago

Well put, always check with your agent before making any major decisions in the home purchasing process.

Posted by Paul Murphy (Paul Murphy Insurance Agency, Inc.) over 9 years ago

Why was the report givin to the Insurance Company?  Here in NC you have to be licensed and the person usually the buyer has to give permission for anyone else to even see it. 

Posted by June Tassillo, Let me help you with the next phase of your life! (Owner/Broker RE/MAX Elite Realty) over 9 years ago

Very interesting. We have an insurance contingency addendum in our area that we use that allows us a specified number of days to secure insurance at a rate acceptable to the buyer otherwise they can walk.

Posted by Christianne O'Malley, Exceptional Service - Delivering Results in Reno! (RE/MAX Realty Affiliates) over 9 years ago

Interesting information. I too am curious, was this for a buyer, or was this for an exsisting home owner. Just another thing...

Posted by Andrea Swiedler, Realtor, Southern Litchfield County CT (Berkshire Hathaway HomeServices New England Properties) over 9 years ago

Sally & David - what would you want clarification on?  What the insurance company didn't like in the report?

Jim Frimmer - I also don't have any big problem with it.  In the end, it makes people that are a higher risk pay more money.  That's how it should be!

Charles - I actually wasn't the scapegoat.  My client called me to ask for advice, not to complain.  She actually wrote this in an email after I referred her to my friend: "I just wanted to write and thank you again. It means so much to have those few people who just do good things because they are good people! "  I'm sure she was referring to my insurance friend.

Robin - Did you refer this home inspector to your clients?

June and Andrea - I inspected this house for the buyer.   Her insurance company told her she had to have an inspection done to get the house insured, so she gave the insurance company my report.

Thanks for the comments everyone else!

 

Posted by Reuben Saltzman, Delivering the Unbiased Truth. (Structure Tech Home Inspections) over 9 years ago

Wow, I haven't come across this situation before.  Good that she immediately got covered again.

Posted by Heather Fitzgerald, REALTOR Greenwood Indiana Real Estate (REALTY WORLD-Harbert Company, Inc.) over 9 years ago

I firmly belive every state should emplement knowledge and experience requirements for home inspectors, with so many "fly by nights" out there home inspectors reputations are going to get tarnished

Posted by Aaron Poling, Working to get YOU the BEST Deal! (Long & Foster) over 9 years ago

My home inspection agreement states that the information being provided to the client is strictly for the client. It does not permit non-contracted, third parties, from having access to, or relying on the information for any reason. My insurance company (Liability and E&O) requries this clause.

That raises an interesting dilemma. An insurance company, such as Mary's in Minnesota is cannot legally have access to, or base an insuring decision upon, the inspection report. As the home inspector, my contract would have been only to Mary, strictly for her use in any decisions she made about the home.

In order for the insurance company to have access to such information, they would have had to contract directly with me -- i.e., pay me for the inspection.

Hmmm

Posted by Andrew Haslett, Heartland of Kentuckynulls, Best Home Inspector (Van Warren Home Inspections, NAHI CRI) over 9 years ago

Having been a licensed insurance represenative in NYS...all those problems are red flags to the underwriters of potential losses! They don't want to be losing money right off the bat. In NYS if they find any issues with the home within 60 days of writing the policy, they can cancel the policy (many times they will ask you to fix it within 30 days of that notice). You would have to ask your insurance agent in your state what the law states. Think about it..you pay them $500, $600 or $1,000 for the year for an HO policy and now you turn around and have a $5,000 loss or a total loss totaling $200k replacement because of old wiring that just burned down your house. I know you're probably saying...insurance is a rip off...but when you have a loss..who do you turn to first...what number do you dial?  

 

Posted by Wendy Russell over 9 years ago

Some very concerning issues.  I was not aware that some insurance companies required such.  Thanks for the info.

Posted by Tim and Pam Cash, Real Estate Professionals - Clarksville TN (Crye-Leike (Sango)) over 9 years ago

Andrew - Why would you or your insurance company care what the client does with the report?  As far as I'm concerned, the client paid me for the report, now it's hers to do whatever she wants with.  Post it on her facebook page?  Great!

At the bottom of every page in my report it says "This report is the exclusive property of Structure Tech Home Inspections and the Client whose name appears within, and its use by any unauthorized persons is prohibited."  If the client wants to 'authorize' someone to use it, it's fine with me.  My contract clearly states that I have no liability to third parties.

Wendy - I agree.

Posted by Reuben Saltzman, Delivering the Unbiased Truth. (Structure Tech Home Inspections) over 9 years ago

Hi Reuben, I have not heard nor come across this in my area. (The Chicago-land western suburbs).  I am sure this would really upset our client and agent base here.  I have a question - I have been on numerous home inspections.  Some the inspectors were very good and some very bad and everything in between.  What happens if you have an inspector that writes down everything he suspects could possibly/maybe be a problem.  Even when it was not and the sellers had to pay to have others professionals come in to say that everything was fine and at least up to or above the standards that are provided in the varies industries; (other wards the inspector was not a very good one and we are a licensed state) and a report like that is relied upon by the insurance company and then coverage is denied.  I am wondering if there is any recourse that could come back to that home inspector?  Or all the disclaimers the inspectors have the clients sign protects them?

Posted by Kimberly Thurm, Broker / Relocation Consultant ABR, CRS, GRI, SFR (Berkshire Hathaway HomeServices KoenigRubloff, Naperville, IL) over 9 years ago

Kimberly - yes, I agree, that would be a pretty worthless inspection.  If you get a piece of junk report like that, don't give it to the insurance company. Just get another inspection.

I've never heard of a home inspector getting in any type of legal trouble for calling out things that were acceptable.  Home inspectors don't have any liability in connection with third parties - ie, the seller.

Posted by Reuben Saltzman, Delivering the Unbiased Truth. (Structure Tech Home Inspections) over 9 years ago

Hi Reuben -- Wow, I haven't heard of that before, good info to know, thanks.

Posted by Chris Olsen, Broker Owner Cleveland Ohio Real Estate (Olsen Ziegler Realty) over 9 years ago

I do know that some insurance companies in this area will not insure older properties with knob & tube or fused panels. Those that do require a higher premium...

Your building consultant for life in Brentwood, TN

Posted by TeamCHI - Complete Home Inspections, Inc., Home Inspectons - Nashville, TN area - 615.661.029 (Complete Home Inspections, Inc.) over 9 years ago

Rueben,

I have actually myself had a homeowners policy dropped.  It was not because of a home inspection.  It was an old farmhouse that I had bought to renovate and yes it had knob & tube wiring.  The reason I was given at the time was because of the gap between the replacement costs and the actual value of the home.

Posted by Larry Story, Total Care Realty, LLC, Greensboro, NC Real Estate (Total Care Realty) over 9 years ago

Great stuff Reuben! I will have to keep Farmers in mind if I ever come up with a problem that a client needs a good insurance company

Posted by Winston Westbrook (Westbrook National Real Estate Co) over 9 years ago

There are some insurance companies out here that require a home inspection in order to provide insurance on the home, and I've seen many require certain items be resolved before issuing insurance. Some of the ones that I'm familiar with, but that not all companies care about, include:

  • wood roof -- we live in a high fire hazard area, and it's been proven over and over and over again that wood roofs are more susceptible to the type of wind-driven wildfires we have here.
  • lack of spark arrestors on the chimney -- comes down to the high fire hazard area again.
  • knob and tube electrical wiring
  • fused electrical panels
  • lead, galvanized, and polybutylene water pipes
  • water heaters, furnaces, and cooling condensers that are more than 15 years of age

There are also some insurance companies that are requiring home inspections before renewing insurance policies. It seems to be a booming business, but I seem to be the only one meeting the needs of these people at reasonable prices since it's not necessary to do a full-blow descriptive home inspection unless the description in and of itself is a problem, such as "This home as polybutylene water pipes." They just need to know the problems.

Posted by Russel Ray, San Diego Business & Marketing Consultant & Photographer (Russel Ray) about 9 years ago

Here in Florida-  It is call a 4 point inspection typically any home over 35 yrs old.  Most insurance carriers require this inspecion.

Includes (4 points)

HVAC system(s), Roof, Plumbing;    condition, age if it has been updated

Electrical-  Can not have fuses, no knob and tube.  Upgrades must be made to gain coverage.

However the GHI should never be sent to the insurance carrier.  We had a agent send the GHI to the insurance carrier in place of a 4 point and what a big deal. 

Posted by Bob Quigley (AmeriSpec) about 9 years ago

Hi Reuben,

Lots of interesting points in this one.  First, the insurance companies have a point.  If the house has issues and is not in good order, either the issues should be fixed or the Client may have to at least pay a premium.  Not unlike health and life insurance.  If you smoke, your premiums are higher.  Maybe they should be.  After all, your personal health is not in good order.

The insurance company needs to make it clear what is being Inspected and what has to happen to satisfy their criteria.  The Inspector probably should be trained and certified by the Insurance company to complete "their" inspection.

And you are not licensed in MN??  The land of 10,000 lakes and a million bureacrats?  I thought surely they would license everything!  Think about the taxes they could raise!!

Thanks,

Richard Acree

http://habitecinspections.com

Posted by Richard Acree, Home Inspections - Nashville TN (HABITEC Home and Building Inspections, LLC) about 8 years ago

Thank you for sharing your blog; we need Real estate Professionals to share their comments and information regarding their markets and experiences. Thanks again from beautiful Sunny San Diego

Posted by Paul Gapski, 619-504-8999,#1 Resource SD Relo (Berkshire Hathaway / Prudential Ca Realty) over 5 years ago

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