Insurers bully homeowners for repairs
January 28, 2003
Buyers and sellers haggle over who pays
By Susan Romero
Inman News Features
The difficulty of securing homeowner's insurance during a home sale transaction is causing some testy negotiations between home buyers and sellers and threatening to derail some transactions altogether. And home inspectors are getting caught in the middle of the heated debate.
Insurance underwriters are refusing to write coverage for some homes until defects handpicked by the underwriter from a home inspection report or insurer-provided version of the same are repaired.
The practice is one more obstacle home buyers now face in a hardening homeowner's insurance market, which already is prompting buyers to add insurance contingencies to home purchase contracts. The ability to get such insurance is crucial because few buyers can secure financing without first obtaining this financial protection.
Richard Wieland, a real estate agent with E. Brunswick, N.J.-based RE/MAX First Realty, has seen firsthand how an insurer's interpretation of a home inspection report can stall closings and reopen buyer and seller negotiations.
He thinks insurers are "looking for trouble" and are trumping up excuses for limiting or denying coverage by turning the inspector's mention of a potential hazard into an actual hazard that needs immediate redress. This situation pits irritated sellers against excessively cautious buyers, who then begin haggling over mundane issues that were pointed out and in Wieland's view magnified by the insurer.
Wieland cited as an example an underwriter who turned a home inspector's comment that the potential for lint build-up in a clothes dryer vent or a scorch mark on a furnace's metal surface could be safety hazards into a risk that required maintenance before the buyer could obtain a homeowner's insurance policy.
"Someone must pay for the corrections the insurer requests in order to get the deal closed," he said.
Orlando, Fla.-based home inspector Gregory Trotter has witnessed similar situations. He said underwriters are "calling the shots" in negotiations over repairs to the home.
"Although we see (a roof that) has three to five years of useful life expectancy based on a visual inspection of the roof and attic, the insurance company can negate that and (require) a new roof based on whatever they feel like that day. (The insurance companies) don't really have to back up their findings," said Trotter.
The California Real Estate Inspection Association earlier this year began urging its members to not fill out insurer-issued forms that request information about the condition of the property. Instead, the group wants insurance underwriters to gather information about a property from the home inspector's report.
CREIA Immediate Past President George Harper said the association encourages its member to work amicably with underwriters, but he thinks the insurer-issued forms have serious flaws.
He said the reports use vague language, could be misconstrued by consumers as a home inspection report—the one Farmers Insurance provides California home inspectors is titled "Property Inspection Report"—and include requests for information an inspector isn't qualified to provide.
A typical insurer-issued form scrutinizes the property's plumbing, electrical wiring and roof and aims to reveal evidence of previous water damage. That's a far cry from a comprehensive home inspection report that details the condition of a home from the ground up, according to Harper. He said insurer-issued reports stretch the limits of the inspector's qualifications by including documentation of the presence of any dangerous or exotic animals and detection of so-called "black" mold--a specialty service that's not included in CREIA's standards of practice.
Add to that CREIA's concerns about whether insurer-issued reports could result in additional liability exposure for the inspector. A typical California home inspector's errors-and-omission insurance policy doesn't cover the type of inspections insurance companies seek, said Harper.
Bob Hartwig, chief economist of the Insurance Information Institute, a nonprofit organization supported by property-and-casualty insurance companies, said insurers have used inspection reports for underwriting purposes for decades and an insurer shouldn't write coverage for a property until certain hazards are corrected.
"Insurers are using inspections to identify factors that are very likely to lead to a claim early in the policy period. Good examples would be roofs that are leaking and need repair, foundations that are cracked, accumulations of rubbish that could be a fire hazard and brush and debris that could be a wildfire hazard," said Hartwig.
He said inspectors who are concerned about liability "can likely" purchase additional professional liability insurance from their insurance provider.
"Homeowner's insurers are having to be increasingly cautious because of the enormous increase in number and cost of claims for all sorts of things, such as the so-called ‘toxic' mold," said Hartwig.
Copyright: Inman News Service