In Salgado v. Toth (November 11, 2009), the British Columbia Supreme Court considered the standard of care of a reasonably prudent home inspector and more importantly, the effectiveness or, moreover, ineffectiveness, of limitation of liability clauses in the professional context.
The plaintiffs, Mr. Salgado and Ms. Calcaneo (“Salgados”), sued the defendants, Mr. Toth and his company, HomePro Inspections, after discovering that the home they purchased required significant repairs, not mentioned in the defendants’ home inspection report. The plaintiffs claimed that Mr. Toth negligently performed the home inspection and that they relied on his assessment to complete the purchase.
The Salgados made an offer to purchase a house with an A frame construction for over $1M in September, 2006. The offer was conditional on a satisfactory home inspection. Mr. Toth inspected the home on September 21, 2006. At that time, Mr. Salgado signed a home inspection contract (“Contract”) provided to him by Mr. Toth, which, among other things, limited Mr. Toth’s liability to the fee charged for the inspection, which was $450.50. In his inspection report, Mr. Toth identified two significant problems: two rotten beams in the A frame structure and moderate settlement of the foundation. However, Mr. Toth did not advise the plaintiffs to consult a structural engineer or a geotechnical engineer for either of these problems and estimated the repair costs to be approximately $20,000. At the conclusion of the inspection, the Salgados were told by Mr. Toth that they should complete the purchase. After the first significant rainfall, the roof began to leak. A subsequent inspection and a visit by a contractor revealed that the home required over $200,000 in repairs.
Standard of Care
The court determined the applicable standard of care expected of a reasonably prudent home inspector through the testimony of an expert. It also used the expert’s testimony to conclude Mr. Toth failed to meet that standard. The court did not use the Canadian Association of Home and Property Inspectors Code of Ethics and Standards. It stated that an inspector could be found negligent even if the inspection was performed in accordance with the Code. Further, the court determined that although the Contract referred to the Code as the applicable standard, the parties did not agree to adopt it, since it was not appended to the Contract.
The court found that Mr. Toth failed to “conduct the home inspection and prepare the report in a competent manner.” For example, Mr. Toth failed to warn the plaintiffs about rotting beams in the A frame’s structure. While he did identify two beams that were rotting, he failed to inspect the remaining beams, many of which showed signs of visible rot. He also estimated the cost of replacing the two beams he did identify at $4,000, while the actual cost was $35,000. Further, Mr. Toth failed to advise the Salgados to consult a structural engineer to determine the full extent of the problem, the total cost of which came to $90,000.
Mr. Toth also failed to warn the plaintiffs that the settlement of the foundation he observed required attention and professional advice. Although moderate settlement was identified, he failed to advise the Salgados to consult a geotechnical engineer. Further, Mr. Toth estimated that the cost of this remedial work was approximately $15,000, against an actual cost over $100,000.
Lastly, the court found that the Salgados relied on Mr. Toth’s report and opinion to complete the purchase and but for Mr. Toth’s negligence and advice, the plaintiffs would not have purchased the home. As a result, the court found Mr. Toth liable for the total cost of repairs less the estimates provided by Mr. Toth ($192,920).
Limitation of Liability
Mr. Toth tried to rely on the Contract to limit his liability. The court held that the contract did not exclude liability for two reasons: the circumstances in which the contract was signed, and ambiguity in the wording of the exemption clauses.
The court found that the Salgados neither read nor were made aware of the exclusion clause prior to signing the Contract, and further, that if Mr. Toth had explained the nature of the exemption clauses, the Salgados would not have signed the Contract since it meant that they were not entitled to rely on the inspection.
The court also concluded that the wording of the exemption clauses was either ambiguous or unrelated to the inspection. For example, the first clause of the Contract stated that “the inspection and report are not intended to […] make any recommendation as to the advisability of purchase”. The court found this clause did not exclude liability if Mr. Toth actually made recommendations.
The court also found that the remainder of the Contract could not be used to exclude or limit Mr. Toth’s liability. It used the doctrine of contra proferentum to give a “reasonable and fair interpretation” to the provisions of the Contract. For example, clause 9, reproduced below, was not broad enough to exclude all liability for negligence. The court examined the clause in the context of the Contract as a whole and determined it could not exclude liability, since the very purpose of the inspection was to determine the “future adequacy, performance, or condition” of the home.
9. THE INSPECTION AND REPORT ARE NOT INTENDED NOR ARE TO BE USED AS A GUARANTEE OR WARRANTY, EXPRESSED OR IMPLIED, REGARDING THE FUTURE ADEQUACY, PERFORMANCE OR CONDITION OF ANY INSPECTED STRUCTURE, ITEM OR SYSTEM. THE INSPECTOR IS NOT AN INSURER OF ANY INSPECTED CONDITIONS.
A Cautionary Tale
The purpose of a home inspection is to provide purchasers with an expert opinion about deficiencies and the condition of the property. Allowing home inspectors to exclude all liability for performing a negligent visual inspection would mean home buyers could not rely on the inspections. The policy behind the court’s findings is found in the following paragraph:
The purpose of obtaining an inspection is to provide a lay purchaser with expert advice about any substantial deficiencies or, as is set out in the Standards, any “ significantly deficient” problem relating to systems or components that can be discerned upon a visual inspection – deficiencies of the type or magnitude that reasonably can be expected to have some bearing upon the decision making process of a purchaser regarding whether they will purchase the property or upon which they will renegotiate the price. An inspector invites reliance by the very nature of the advice that is given. Plainly, if prospective home purchasers did not believe that they could secure meaningful and reliable advice about the home they were considering purchasing, there would be no reason for them to retain an inspector to inspect that home. In the case, reliance is obvious.
This case is a cautionary tale for home inspectors and other professionals who attempt to rely upon exclusionary clauses to limit their liability for negligence. Professionals cannot limit their liability for negligence in connection with the very services they are providing. To limit liability to the fees charged would defeat the purpose of retaining the professional, which is reliance upon the professional’s advice.