The Wood-Destroying Organism (WDO) Inspection Agreement

Quick Summary: Two years after his client accused him of missing latent termite damage in a deteriorating older home, one inspector received a $70,000 claim. InspectorPro’s case study highlights the importance of having clear inspection scopes, proper insurance endorsements, timely claims reporting, and a strong pre-inspection agreement, especially when offering ancillary services like wood-destroying organism (WDO) inspections.

The following is a real home inspection termite claim from our archives. To protect the insured’s identity, all identifiable characteristics from this insurance claim—including names, associations, and locations—have been altered or removed.

An older home, a fixer upper, and latent termite damage: It’s a tale older than home inspection history itself. And for the inspectors unlucky enough to be the main character, these stories often start very suddenly and end very, very tediously. That’s exactly how one inspector felt when he received a call 30 days after his inspection. 

Built in the 1960s, the old house wasn’t exactly a spring chicken. The inspector had discovered fungal rot in the support posts, fascia, and soffits, outdated electrical panels, deteriorated siding, and signs of past water intrusion in the basement. The crawlspace lacked a vapor barrier, which, as he reported, can attract wood-destroying organisms (WDO). He also identified several electrical shock hazards, such as scorched or missing GFCI outlets, multiple potential water pipe leaks, and deteriorated doors. 

Clearly this older home was in desperate need of repairs after years of neglect. But despite all his findings, there was one major problem the inspector hadn’t reported:

Termites.

The Wood-Destroying Organism (WDO) Inspection Claim

Section Summary: The inspector performed a standard home inspection and WDO inspection. He reported no visible evidence of wood-destroying organisms or termite damage to the house, but the buyer accused him of missing a hidden termite infestation. The conflict resurfaced two years later with a $70,000 demand.

The buyer had paid for a standard inspection with a WDO ancillary service. The inspector used a standard pre-inspection agreement without any mention of the pest inspection, not even a WDO contract addendum. He did provide a separate WDO report. In that wood-destroying organism report, he documented that the home showed no visible signs of wood-destroying insects or previous treatments. 

Knowing this, the inspector was surprised when the buyer called to say he found termites. He’d started renovations and was removing insulation when he spotted termites behind the drywall. 

The inspector returned to the property for a free follow-up inspection. There, he discovered a visible termite shelter tube in the basement. He touched the shelter, and it was wet–a sign that the shelter was new and most likely hadn’t been present during his initial inspection. 

The client, who was present for both the original and follow-up inspections, seemed to agree with that assessment. He thanked the inspector for coming out. No fuss, no hassle, no demand for money. The inspector assumed the case was closed.

Two years later, however, the client proved him wrong. He demanded $70,000 for termite damage and other repairs. At that point the inspector called us, his insurance provider, to report the claim.

The Details

Section Summary: InspectorPro’s defense team determined that the termite infestation was not visible or accessible during the inspection. But because the inspector didn’t have a dispute resolution clause, a statute of limitations provision, or early reporting benefits, the claim had a drawn-out and expensive resolution. 

After reviewing the inspector’s standard and wood-destroying organism (WDO) inspection reports, original photos, signed agreement, and re-inspection photos, it seemed clear that the termite infestation was well outside the inspector’s scope. To find evidence of the termite wood damage, he would’ve needed to remove the insulation and drywall himself, which far exceeded the visual, non-invasive nature of his services. 

Furthermore, 30 days had passed between the inspection and the buyer finding the infestation. With the termite shelter tubes looking quite new, it was likely they’d developed after the inspection took place. In any case, there was no way our inspector could’ve seen the damages given the limitations of his scope.

Nonetheless, this claim wasn’t nearly as cut and dry as it first seemed. Not only was the inspector’s agreement missing the dispute resolution and statute of limitation clauses, which could’ve expedited his defense and avoided unnecessary expenses. He also waited two years to report the incident, by which point it had escalated into a claim.

Below, we explore how these details complicated his defense.

1. Missing Dispute Resolution Clause

Unfortunately, this claim occurred before we introduced our state-specific pre-inspection agreements in 2022. But then and now, we recommend every inspector include a dispute resolution provision. These provisions define the process and venue for resolving disputes, which can save inspectors precious time and money.

Because his pre-inspection agreement did not specify arbitration as the preferred defense strategy, the claim went to mediation. Mediation is a process in which a neutral third party helps two sides attempt to reach a nonbinding agreement. The inspector and his former client settled their dispute for $25,000 to help cover defense costs. 

Most inspectors are not as fortunate with mediation. Mediators are not required to uphold contracts or determine liability; their goal is simply to guide conversations. As a result, mediation often fails to create solutions and can instead lead to prolonged disputes that still go to court, after additional time and expense.

By comparison, if your agreement sets arbitration from the get-go, your agreement can name an arbitrator who’s familiar with your industry and scope of services. This industry awareness can prevent unproductive arguments, facilitate efficient decisions, and keep claims out of court.

For this standard and wood-destroying organism (WDO) inspection claim, we’ll never know how different the outcome would’ve been if arbitration had been specified. It’s possible an arbitrator with industry knowledge may have proposed a lesser settlement. 

2. Missing Statute of Limitations Provision

This inspector’s agreement was also missing a statute of limitations clause. This clause limits the timeframe in which a client can file a claim against your inspection business. As a result, it can deter claims from escalating once your inspection findings are no longer timely and relevant.

Many states have their own rules about how narrow this timeframe can be and how the statute can be enforced. For example, this inspector could’ve set his statute of limitation to one year from the date of the inspection. Because his client waited two years after the inspection, it could’ve protected the inspector from getting a formal claim entirely.

3. Delayed Reporting

Here at InspectorPro Insurance, our insured inspectors have access to pre-claims assistance. When clients come to you with complaints, pre-claims assistance can help you navigate the discussion thoughtfully and turn the conflict into a positive experience. Plus, if a pre-claim still escalates to a claim, utilizing pre-claims assistance can reduce your deductible by up to 50 percent.

It’s available to you as a free resource. But if you want to get the most out of pre-claims assistance, don’t wait to report conflicts and claims. Contact us in a timely manner.

In this case, the WDO inspector did not use our pre-claims assistance. He hoped the conflict would go away on its own. By doing so, he missed a crucial opportunity for us to document and help resolve the misunderstanding before it became a wood-destroying organism (WDO) inspection claim.

The Resolution

Section Summary: Two years from the initial $70,000 demand, the wood-destroying organism (WDO) inspection claim settled for $25,000. The inspector saved $2,500 on his deductible thanks to his consecutive years without claims.

Our insured inspector and his client went on to settle the case in mediation for $25,000. Due to the long and drawn-out nature of this claim, settling was deemed the most strategic way to mitigate unanticipated defense costs.

Luckily, the inspector’s insurance policy included a pest endorsement, which gave him coverage for pest inspection claims like this one. We closed the claim two years from the initial demand.

Though the inspector had a $5,000 deductible, he’d gone five consecutive years without an inspection claim, which qualified him for our 50 percent diminishing deductible discount. After a $70,000 demand and $25,000 settlement, our inspector paid $2,500.

Initial Demand: $70,000

Total Settlement: $25,000

Inspector’s Costs: $2,500

Status: Case Closed

Lessons for Home Inspectors Performing WDO Inspections

Section Summary: This inspector’s experience shows why every home inspector should tailor their scope in every agreement, have proper endorsements for their services and risks, report claims early, and get their pre-inspection agreements from a credible source.

Thanks to his pest inspection endorsement and diminishing deductible discount, this home inspector was able to walk away with minor payouts and premium defense from our claims team. At the same time, his wood-destroying organism (WDO) inspection claim would’ve ended very differently if he’d taken a few key steps with his pre-inspection agreement.

Let’s break down what the inspector did well (and what he could’ve done better).

1. DO tailor your scope of services.

The home inspector in this claim provided separate home and WDO inspection reports. The bad news is, he was using one, general agreement for basic home inspections and WDO inspections. 

Moreover, his pre-inspection agreement didn’t mention termites or pests at all. It was as if the client hadn’t paid for a pest inspection in the first place. 

If the terms of your services aren’t clear and specific, your agreement could expose you to unnecessary liability and weaken your claims defense, like it did for this inspector.

Why a Tailored Scope Matters

The purpose of your pre-inspection agreement is to communicate the scope of your services. It tells your clients what your inspection includes or excludes and which standards of practice (SOPs) you follow. 

This is imperative to preventing frivolous inspection claims, which often arise from clients misunderstanding the services they’ve paid for. The less you say, the more you leave to the client’s imagination–especially if they’re also paying for an ancillary wood-destroying organism (WDO) inspection that exceeds your standard scope.

Takeaways

An easy way to make your agreement work in your favor is to tailor your scope to every inspection. That’s right: Before every inspection, read your contract and double-check that your scope accurately describes what you’re doing.

Performing a standalone ancillary service? Your scope of services should only describe what you’re doing for that standalone service. Going beyond a standard inspection and offering an add-on service, like a WDO inspection? Consider using a contract addendum to add back services your standard scope would normally exclude.

For more tips to tailoring your scope, read our guide to customizing home inspection contracts.

2. DO have endorsements for all your ancillary services.

This home inspector may not have used the strongest contract. But one of his decisions made a big difference: His insurance policy had a pest inspection endorsement. 

Why are pest inspection endorsements important?

Most home inspection insurance policies are designed to only cover standard services, like those outlined in your SOP. We know, however, that most inspectors exceed their SOP by offering services like mold, radon, and pest or wood-destroying organism (WDO) inspections. 

When you get an endorsement for ancillary services like these, you change or expand your policy to add coverage for claims related to those services. In this case, having a WDO insurance endorsement was the reason his claim was covered. 

Takeaways

Have the right coverage in place before a claim happens. 

If you haven’t already, pause and think about all the ancillary services you offer. Do you have endorsements in place for all of them?

Next, think about the defects that are common in your area. Are houses in your inspection zone prone to mold? Termites or pests? Radon? Are there lots of pools and hot tubs?

If any of these apply to your area, get endorsements for related services. 

Remember: You can get a claim for these out-of-scope defects, even if you weren’t hired to inspect for them. And even if you weren’t hired for a radon or pest inspection, if you get a claim tied to radon or termite wood damage, your policy won’t cover you for that claim without the right endorsement. Having endorsements for all the defects common in your area ensures you always have coverage when you need it most.

Have more questions about endorsements? Call your insurance provider and read our article about home inspection insurance endorsements.

3. Do NOT wait to report claims, conflicts, or complaints.

In this wood-destroying organism (WDO) inspection claim, the client informed his inspector about the termites 30 days after the inspection. Our inspector didn’t tell us until the client officially demanded money–two years after that.

Why? He assumed the client was happy enough. 

Though he offered great customer service by revisiting the property, and though the client seemed to understand that the termite infestation was not visible during the first inspection, he had nothing in writing: not with us, his insurance provider, and not with the client. By assuming the best (and not following through), he set up his business for the worst.

If the inspector informed us sooner, like before or right after his re-inspection, we could’ve helped him before the complaint escalated to a claim. We might’ve advised him about what to say (or not say), how to document that re-inspection, and how to protect him from the client returning two years later. 

Takeaways

With claims in the home inspection industry, time is of the essence. The sooner your defense team can get involved, the smoother and easier your resolution will be.

If you’re insured with InspectorPro, you can never report a complaint too early.

With our free pre-claims assistance, we resolve 85 percent of clients’ complaints before they escalate to claims. Resolving disputes before they turn into claims has no effect on your loss run and does not hurt your insurability.

The best part is, if your conflict still leads to a demand for money, you can qualify for 50 percent off your deductible just for using pre-claims assistance. Combine that with our discounts, like $1,500 off for using our pre-inspection agreement, and you can drop a $5,000 deductible to as little as $0.

For more insights, explore how reporting claims early saves inspectors money. 

4. Do NOT get your inspection contract from an unspecialized source.

There are a lot of decent pre-inspection agreements out there. Sadly, weak and unspecialized agreements are far more common. And claim-tested agreements designed with your industry and state in mind? About as rare as they get.

Not only did this inspector’s agreement not adapt his inspection scope to include his ancillary service. It was also missing several essential provisions, notably the dispute resolution and statute of limitation clauses. 

Avoid this inspector’s mistake and only get your pre-inspection agreement from a source that knows your industry’s claims. Otherwise, you leave your defense vulnerable to chance and luck–which rarely bodes well for expensive, high-emotion claims.

Want more tips to fine-tune your written inspection materials? Read our Contracts and Reports blog series, and keep reading below to see how InspectorPro’s tailor-made agreements get the best results.

Final Takeaway: Get state-specific protection with InspectorPro’s model agreement.

We can’t go back in time and give this inspector a stronger contract or wood-destroying organism (WDO) inspection addendum. But we can protect you from repeating history. 

If you’re insured with InspectorPro Insurance, ask how you can get your copy of our exclusive pre-inspection agreements.

Our agreements are designed to protect you from day one. They come from 16-plus years of experience handling inspection claims, learning your standards of practice, and studying legislation and case law. We routinely update them to ensure your compliance and add the best provisions for home inspectors in your state. And if you have any questions about fortifying your contract against home inspection claims, our customer service team is here to help.

Get in touch with us here and find out how you can save big with our pre-inspection agreements.