The RI General Assembly passed the “Rhode Island Home Inspector Licensing Law” in 2000. RIGL 5-65-1, et seq. The law requires that all home inspectors be licensed and maintain $250,000.00 of liability insurance. It also required them to pass the National Home Inspector Examination and abide by a standard of practice and code of ethics. Unfortunately, the General Assembly has never provided funding for the legislation, so while it is still on the books, no state agency enforces it. In addition, due to the lack of funding, the Rhode Island Contractors Registration Board does not adjudicate complaints against home inspectors. If you or your clients have a complaint against a home inspector, it is a civil matter and depending on the dollar amount, falls under the jurisdiction of the Rhode Island District or Superior Court.
One of the biggest issues is the inspector’s liability for failing to point out structural damage. While there are no reported Rhode Island cases against home inspectors, several other states have ruled on exculpatory clauses in home inspection contracts. Many home inspection contracts limit the home inspector’s damages to refunding the inspection fee to the client.
In 2010 the Kentucky Court of Appeals overturned a state trial court decision and ruled that an exculpatory clause in a contract is void based on public policy grounds. Mullins v. N. Ky. Inspection, Inc. In this case the contract limited the inspector’s liability to $200.00 -the cost of the inspection. The inspector found no structural damage, despite being asked by the buyer about a crack in the basement, and the home later sustained water damage.
Citing similar cases in New Jersey and Tennessee, the appeals court noted that exculpatory clauses have been invalidated in personal injury cases and the same principle should apply in property damage cases. The court reasoned that the inspection company would have little incentive to act diligently if its liability were limited to refunding the inspection fee. The court considered the following factors. First did the inspector hold himself out as willing to perform the service for the public? Second, as a result of the contract, did the inspector subject the buyer to the risk of loss caused by the inspector’s negligence? Finally, is the business of home inspection suitable for regulation and is of great significance to the public because it is considered a necessity to the public personal or financial health.
Taking these factors into consideration and since RI has determined that the home inspection industry should be regulated, despite the lack of funding and enforcement, every prospective home buyer and Realtor referring clients to a home inspector, must know what the contract language states regarding the inspector’s liability. Failure to do so could subject a buyer to sizeable financial burdens or a referring realtor to ethics complaints or civil liability.
Got any short sale or other real estate law questions? Feel free to contact myself and the Sayer Regan & Thayer, LLP team at AThayer@srt-law.com or (401) 849-3040.
Category: Real Estate & Property Law
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