Your Pre-Inspection Agreement:Dispute Resolution Clauses

Quick Summary: InspectorPro explains how dispute resolution clauses in contracts help facilitate more favorable dispute resolution processes for home inspectors. Explore why it’s beneficial to know where, how, and by whom disputes will be resolved, and learn from a real claim example.

The following is a real home inspection claim resolved with a dispute resolution clause. All identifiable characteristics —including names, associations, and locations—have been altered or removed.

“The inspection completed was not only deficient, but negligent. Specifically, the following items were present at the time of inspection and not reported:

1. Major omission of gutters that do not collect water and force water down the rock wall that is outside of the home’s dining room.
2. Major omission of the obvious damage that has been caused to the above mentioned rock wall that includes mortared joints that are worn to the point that they allow great amounts of water to enter the wall and have destroyed the wood sheathing behind the rocks, allowed destruction of the insulation, suspected mold growth on the inside of the drywall and wood framing, destruction of the 3/4 inch wood flooring, complete rotting of the subfloor and major visible organic substance growth. This omission came on a day when it rained during the inspection.
3. Additionally, there is no mention of the fact that the brick veneer was constructed without weep holes to allow any moisture that may get behind the brick a path to escape.

One of our home inspectors received that laundry list just six months after he performed an inspection. 

The claimant alleged it would cost $25,000 to repair the property’s issues. They also demanded that the inspector cover the costs. 

Thankfully, this home inspector had a dispute resolution clause in his contract.

What is a dispute resolution clause in a home inspection agreement?

A dispute resolution clause is a section in your pre-inspection agreement that sets terms and conditions for how conflicts will be handled.

Without these terms, you could be subject to your regulations and decisions that are more costly, less efficient, and less fair to home inspectors.

Benefits of Including a Dispute Resolution Clause

Section Summary: There are three benefits of including a dispute resolution clause in your inspection agreement. It can stipulate a venue near the inspector, a favorable dispute resolution process, and a third party with home inspection knowledge.

The role of a dispute resolution clause in a service agreement is threefold. Dispute resolution provisions specify where and how disputes will be resolved, and who will be handling the disputes. 

Location

Claims are often inconvenient. Without the right precautions, the dispute resolution process can take place several hours away from your usual inspection area. If you have other appointments that day or reports to write, this can be particularly burdensome, especially for solo inspectors and inspectors who operate their own businesses.

Additionally, few mediators will honor dispute resolution provisions that order claimants to file in their inspectors’ county of residence. But most will recognize provisions that call for filings in the county in which their inspections took place.

By stipulating a venue in the county where the property is located, this clause encourages opposing counsels to file motions at a venue close to the inspector. 

The Contract Dispute Resolution Process

Once you’ve filed a claim with your insurance provider, there are myriad directions in which that claim can go. Dispute resolution clauses help steer the dispute resolution procedure in a direction that streamlines claims-handling and promotes faster response times.

Additionally, by keeping disputes out of bigger courts, solutions such as small claims court and arbitration tend to be cheaper and faster than litigation. Thus, inspectors are more likely to resolve disputes promptly and with less impact to their insurance premiums.

What dispute resolution methods are used in home inspection agreements? 

We often see small claims court, which is less formal than traditional court and involves resolving cases like contract disputes. We also see common examples of alternative dispute resolution like mediation, arbitration, and settlements.

But in our experience with E&O home inspection claim processes, not all types of alternative dispute resolution are as efficient as others. Experts who design pre-inspection agreements should consider the advantages and disadvantages of alternative dispute resolution–especially the differences between mediation and arbitration.

How does arbitration differ from mediation?

In mediation, a neutral third party helps facilitate a non-binding solution between the parties. Though it sounds great on paper, in reality, upset claimants rarely reach a decision and follow through in mediation. Instead, it often ends in prolonged arguments and courts.

Arbitration also involves a neutral third party. Except, unlike the mediator, the arbitrator does have the authority to force a final and binding decision. Because the costs of going to arbitration or mediation are so similar, arbitration is a popular choice for keeping claims out of court.

Read our article for more examples of the differences between mediation and arbitration.

Who Handles the Dispute

In addition to venue and processes, inspectors also use dispute resolution clauses to specify who will be handling their case. 

Understanding the role of a neutral third party in conflict.

Otherwise, you risk getting assigned a third party who knows nothing about home inspections. You could get a mediator who’s never read your inspection scope, or an arbitrator who’s never seen an inspection report in his life. 

If they don’t understand your scope or limitations, or even how houses work, how do they know they’re assessing the conflict fairly?

What are the benefits of using a professional arbitrator?

On the other hand, dispute resolution clauses in your contracts allow inspectors to pick a professional arbitration business that knows your industry, your limitations, and your risks. For example, our pre-inspection agreement might require that an arbitrator have at least three years of knowledge and experience in home inspections or construction.

This is essential to facilitating efficient decisions, productive conversations, and resolutions that stay out of court. Sometimes, professional arbitrators with inspection knowledge can even negotiate lesser settlements or debunk the inspector’s liability altogether.

What does a dispute resolution clause look like?

The following showcases a simple dispute resolution clause example written by our claims team:

Best Practices for Home Inspectors Drafting Dispute Resolution Clauses

Section Summary: Best practices for dispute resolution clauses in contracts include getting counsel for state and regional laws or regulations, using clear language, and providing options in case the preferred contract dispute resolution process falls through.

If you took this sample provision above and added it to your existing agreement, there’s no assurance that the provision would be enforceable.

To give you the best possible results, here are three best practices for implementing dispute resolution clauses in your inspection contracts.

1. Get counsel for adopting dispute resolution provisions to state and regional discrepancies.

Manufacturing an agreement with disparate pieces of material could make a contract less enforceable. Why? Most provisions contain specifics, including what services the inspection covers and how claimants must submit disputes. By inserting unvetted provisions into an existing agreement, you could create inconsistencies or contradictions throughout the agreement.

Recently, in Florida, contradictory statements within an inspection agreement rendered a limitation of liability provision unenforceable. The judge deemed the provision “vague and ambiguous” because there were several contradictory statements throughout the agreement.

Additionally, some states have specific laws regarding small claims court and arbitration. Legal assistance can help you cater your dispute resolution provision to whatever regulations exist in your area. They can also help you avoid incorporating a dispute resolution clause in locations where such provisions aren’t permissible.

Don’t risk having a judge dismiss any portion of your pre-inspection agreement for contradictions or lack of adherence to regulations. Be sure that any changes you make mesh with the rest of your contract and abide by local legislation. 

As you craft your agreement, we strongly recommend you consult a state licensed attorney that’s knowledgeable in contract law and the inspection industry. You can also consult our customer service team at InspectorPro with any questions regarding our state-specific pre-inspection agreements, which are free to current insureds.

2. Use plain and transparent language.

Look back at the simple dispute resolution clause example above. Notice how it’s written.

You might have to Google search a few terms you haven’t seen before. But for the most part, you could probably read the whole thing and leave with a pretty accurate idea of what it’s saying.

That was an intentional choice by our expert claims-handling team.

Contracts are often heavy with grandiose writing and complicated legal jargon. This makes it different for home inspection clients to easily understand your terms. (Remember the example above, where the judge ruled a clause unenforceable for being “vague and ambiguous.”) Sometimes, it can deter clients from reading your contract altogether.

At InspectorPro, our pre-inspection agreements are written with clear, plan, and transparent language that invites clients to keep reading. The better clients, opposing counsels, and judges can follow the dispute resolution clauses in your contracts, the smoother your cooperation will be if a claim occurs. 

Want more communication tips like this? Read our guide to writing inspection materials clients understand.

3. Provide options.

Sometimes the terms in your pre-inspection agreement don’t work out. If your agreement doesn’t stipulate backup terms, and your preferred terms don’t play out, your claim could still fall to the mercy of whatever rules apply by default.

The dispute resolution clause example above presents a few options:

• IF “the amount in dispute exceeds the jurisdiction of the applicable Small Claims Court, the dispute shall be settled by binding arbitration.” If Small Claims Court doesn’t play out, the inspector’s claims team can still sway a favorable dispute resolution through a binding arbitration clause.
• IF arbitration happens, and Construction Dispute Resolution Services is not available, the arbitrator will come from Resolute Systems.
• IF the arbitrator does not possess “at least three years of knowledge and experience in the home inspection industry,” then they should possess “similar knowledge and experience in construction.”

The more options you provide upfront, the less your claim is left to chance. It also increases your chances of proceeding in a favorable venue, before a favorable arbitrator, and under a favorable dispute resolution process.

One Inspector’s Dispute Resolution Provision in Action

Section Summary: A home inspector’s claim went to arbitration, where all allegations were denied and the inspector’s defense team was awarded compensation for dispute resolution charges and legal fees.

Let’s return to our earlier case study and see how dispute resolution clauses in contracts play out.

At the time of the inspection, the home inspector observed and reported on the following:

• Areas of the gutter leaf guards were “clogged with debris and causing water to spill over the gutter edge.” The home inspector recommended that the gutters and downspouts be cleaned and maintained.
• There was no staining to the wall above or below the gutter. In contrast, the claimant’s post-inspection photos revealed extensive staining immediately below the gutter. This contradiction indicated that the gutter overflow occurred after the inspection.
• Due to the placement of the seller’s furniture, the damaged wood flooring wasn’t visible during the inspection.
• “Areas of organic growth [were] located in pockets throughout the crawlspace” and there were “elevated moisture levels,” both of which the home inspector recommended receive further evaluation. (Note that the home inspector cited the issue but didn’t state there was “mold” because he was not performing a mold inspection.)

The home inspector and our defense counsel attended the arbitration hearing. The arbitrator ruled that “the inspector and the inspection report provided the necessary information to allow for proper repairs to be completed by the claimant to prevent the damages.” Furthermore, all claims made against the inspector were denied.

Because the claimant was unsuccessful in proving the inspector’s liability, the arbitrator ruled that the claimant should pay all the defense expenses the inspector incurred. The arbitrator awarded the inspector and us over $17,000 to cover arbitration charges, expenses, costs, and legal fees.

Manage your risk against potential claims.

Incorporate a dispute resolution clause, where permissible, and get it and the rest of your pre-inspection agreement signed before every inspection. 

To learn more about arbitration clauses, read explore why arbitration is the preferred dispute resolution method for home inspectors.

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Published in the ASHI Reporter in May 2020. See how this story appears in print below.