Home inspectors asked by a brokerage, lender or investor to show $1M in Professional Liability (E&O) need a policy whose per-claim and aggregate limits match the contract.
The short answer
- A $1M requirement means your Professional Liability (E&O) policy must pay up to $1M per claim, and often $1M or $2M across the policy year, for mistakes in your inspection reports.
- Check whether the request is $1M/$1M or $1M/$2M. The second number is the aggregate (the yearly total). Match it to your contract.
- Check that your extra services, such as radon or mold testing, are covered too. Morrow can review the requirement and help you find the right $1M policy.
What does a $1M requirement mean for home inspectors?
Professional Liability (E&O, short for Errors and Omissions) covers claims that a mistake or missed item in your inspection caused a client a financial loss. A typical clause looks like this:
Illustrative contract wording
Inspector shall maintain Professional Liability (Errors and Omissions) insurance with limits of not less than $1,000,000 per claim and $1,000,000 annual aggregate, covering all inspection services performed for Company's customers, and Commercial General Liability insurance with limits of not less than $1,000,000 per occurrence. Inspector shall provide a certificate of insurance before accepting any referral.
Sample wording for illustration. Your contract's wording controls.
- Per claim: the most the policy pays for any one claim. Here, $1M.
- Aggregate: the most the policy pays for all claims in one policy year. Here, also $1M.
- Matching the numbers: a $1M/$1M Professional Liability policy matches the Professional Liability limits in this sample clause. If a clause asks for a $2M aggregate, you need $1M/$2M.
- Claims-made: Professional Liability is almost always written on a claims-made basis. That means the policy covers claims made and reported while it is active, for work done on or after the retroactive date (the earliest work date covered).
Who asks home inspectors for $1M?
Homebuyers may not ask about your limits. Some business clients do. Many inspectors carry less than $1M today, so a $1M request can be a step up. You may see one from:
- Real estate brokerages that keep a preferred or approved inspector list.
- Relocation companies that order inspections for moving employees.
- Lenders and investors buying many single-family homes, including real estate investment trusts (companies that own rental property).
- Builders and developers hiring you for new construction phase inspections.
- Property managers and homeowner associations.
Your state may also set its own insurance rules for inspectors. They may be lower than $1M, so check your licensing board's current requirements.
Larger portfolio work may call for $2M, built as one primary policy or as primary plus excess (a second layer above it that should follow form, meaning use the same terms). If defense costs and a settlement share one policy, $2M leaves more room than $1M. Compare both in your quotes (see $2M Professional Liability for home inspectors and Professional Liability limits explained).
How is $1M built?
At $1M, the limit is usually one primary policy (the policy that pays first), often packaged with General Liability. General Liability covers injury or property damage, like a ladder that cracks a gutter. Professional Liability covers the report itself, like a missed defect (see Professional Liability vs General Liability).
An umbrella policy (extra liability coverage above your main policies) almost never covers Professional Liability. Clients usually cannot be added as an additional insured (a named party with rights under your policy). A certificate of insurance (a one-page proof of coverage) is the usual proof, and it names the client as certificate holder.
Good to know
Defense costs can use up the limit. Many Professional Liability policies pay defense costs inside the limit. Hypothetically, if lawyers cost $150,000 on a disputed roof-leak claim, only $850,000 may be left to settle it. Even a claim without merit can cost money to defend. The limits of liability or defense section of your policy wording states which way yours works.
What will underwriters ask for?
An underwriter is the person at the insurer who decides whether to offer coverage and on what terms. They usually ask about:
- How many inspections you do each year, and your revenue.
- How many inspectors work for you, and their training.
- Your mix of residential, new construction and commercial inspections.
- Extra services, such as radon, mold, sewer scope, pool or septic work.
- Whether every client signs a pre-inspection agreement.
- Prior claims, and your current policy and retroactive date.
What affects the cost?
- Inspection volume and extra services. More inspections, or work like mold and radon, can add cost.
- Property types. Commercial buildings usually cost more than single homes.
- Claims history. Prior claims can raise the price or narrow options.
- Aggregate and retention. A higher aggregate usually costs more. A higher retention (what you pay on each claim before the policy pays, like a deductible) usually lowers the premium.
Frequently asked questions
Do I need $1M Professional Liability as a home inspector?
Only if a client contract or your state requires it. Some brokerage, relocation, lender and investor clients ask for it in writing, so check the contract and your licensing board's rules.
Is $1M/$1M enough if my contract says $1M/$2M?
No. A $1M/$1M policy has a $1M yearly aggregate, so ask for $1M/$2M quotes. The aggregate is the most the policy pays for all claims in one policy year.
I carry a lower limit and a brokerage wants $1M. What now?
Request new quotes for a $1M policy. Morrow can request quotes for you and ask insurers to keep your retroactive date and prior acts coverage (coverage for work done before the new policy starts) where the market allows. Keep your current policy until the new one starts so there is no gap. Report anything that could become a claim to your current insurer before that policy ends.
What if a claim comes in after I retire?
A claim made after your policy ends is generally not covered unless you buy an extended reporting period (a "tail"), which gives you extra time to report claims about past inspections. See tail coverage explained.
Looking for $1M in Professional Liability? Morrow can help.
Send us the client's insurance requirement and your current policy, if you have one. Morrow can review them and request quotes. Whether an insurer offers terms, and on what terms, depends on underwriting.
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This article is general information, not legal advice or a coverage determination. Coverage depends on the actual policy wording, carrier underwriting and your contract terms.