Home inspector E&O for the defect you didn't see.

The reasonably prudent inspector test

California sets the yardstick in Business and Professions Code section 7196: a home inspector has a duty to conduct a home inspection with the degree of care that a reasonably prudent home inspector would exercise.

Section 7195's definitions shape what a client can later say you should have reported:

• Home inspection: a noninvasive, physical examination, performed for a fee in connection with a transfer of real property, of the mechanical, electrical or plumbing systems or the structural and essential components of a residential dwelling of one to four units, designed to identify material defects in them.
• Material defect: a condition that significantly affects the value, desirability, habitability or safety of the dwelling. Style or aesthetics are not considered.
• Home inspection report: a written report prepared for a fee and issued after the inspection. It clearly describes and identifies the inspected systems, structures or components, any material defects identified, and any recommendations, including recommendations for evaluation by appropriate persons.
• Pools and spas: the report must identify which, if any, of the seven drowning prevention safety features listed in Health and Safety Code section 115922 the pool or spa has, state specifically if it has fewer than two, and say whether those features are in place, in good repair and operable as designed.
• Energy efficiency: if the client requests it, the inspection may include items such as insulation R-values, window panes and frame types, heating, cooling and water heating systems, and potential leakage areas.

Build your report template around those elements and note anything you could not reach or see. Outside California, the definition and standard of care vary by state.

Four years from the inspection date

Section 7199 sets the outer limit for a California lawsuit: the time for commencement of a legal action for breach of duty arising from a home inspection report shall not exceed four years from the date of the inspection. The statute measures from the inspection date.

That window matters because most professional and errors and omissions insurance is written on a claims-made basis. A claims-made policy is triggered when a claim is made against the insured during the policy period, and when the policy has a retroactive date, the wrongful act must have taken place on or after that date. Plan for it:

1. Keep reports, photos, signed agreements and field notes for at least four years after each inspection.
2. Avoid gaps between policies. When you change carriers, ask whether your retroactive date can carry over rather than reset.
3. If you retire, sell the business or stop inspecting, ask about an extended reporting period. It is the designated time after a claims-made policy expires during which a claim may be made and coverage triggered as if the claim had been made during the policy period.
4. Report a demand letter or complaint to the carrier promptly, following your policy's notice terms.

Time limits for claims against home inspectors vary by state, so check your own state's statute if you work outside California. For how these policies are built, see professional liability insurance.

Where your report stops and the termite report starts

In California, wood-destroying pest inspections are a separately regulated service. Under section 8516, a registered pest control company may not start work, or issue any document expressing an opinion on the absence or presence of wood destroying pests or organisms, until an inspection has been made by a Branch 3 field representative or operator employed by a registered company. The written report goes on a board-approved form and must be delivered within 10 business days from the start of the inspection, and it must note conditions likely to lead to infestation, such as earth-wood contacts, excessive cellulose debris and excessive moisture. The company keeps inspection reports, field notes and activity forms for three years.

Industry standards draw a similar line. The InterNACHI Home Inspection Standards of Practice, a trade association standard rather than law, say the inspector is not required to determine the presence of evidence of rodents, birds, bats, animals, insects or other pests, or the presence of mold, mildew or fungus.

To keep your report's scope clear on pests:

• Describe what you see, such as damaged wood or earth-to-wood contact, as a condition that calls for evaluation by appropriate persons.
• Don't word a finding as if the home is free of termites or dry rot.
• Recommend a separate wood-destroying pest inspection in both your agreement and your report.

Pest inspection rules vary by state, so confirm your own state's rules before you comment on infestation.

Official sources

• California Business and Professions Code 7195 (definitions)
• California Business and Professions Code 7196 (standard of care)
• California Business and Professions Code 7197 (unfair business practices, repairs)
• California Business and Professions Code 7198 (waivers and liability limits invalid)
• California Business and Professions Code 7199 (four-year limit)
• California Business and Professions Code 8516 (wood destroying pest inspections and reports)
• InterNACHI Home Inspection Standards of Practice
• IRMI glossary: claims-made policy
• IRMI glossary: retroactive date
• IRMI glossary: extended reporting period