In Defense Of The Home Inspector, DD, 3/08

Defense Digest

Florida - Professional Liability

In Defense Of The Home Inspector
By Adam C. Herman, Esq.*

The purchase of a home is one of the single biggest investments an individual will ever make. It is understandable then that a homeowner might seek to place blame with someone if the homeowner discovers termite damage. The first person the homeowner looks to is the home inspector who conducted the inspection prior to closing. The homeowner will ultimately assert that the home inspector failed to conduct an adequate inspection. This article focuses on claims brought against the home inspector under Florida's Unfair and Deceptive Trade Practices Act ("FUDTPA"), Florida Unfair and Deceptive Trade Fair Act, Fla. Stat. § 501.201-501.203 (2007), and the relatively inexpensive defense to a FUDTPA claim.

Mr. and Mrs. Smith are first-time home buyers. They have been saving for years to buy their Florida dream home. After they went to contract on a modest three-bedroom, two-bath home last week, the Smiths contracted with a home inspector to conduct a home and termite inspection of the residence. Three weeks after going to contract, the home inspector conducted a thorough and thoughtful inspection of the residence. Further, in accordance with the custom and practice in the industry and as dictated in his Home Inspection Contract with the Smiths, when the inspector encountered furniture and boxes in closets and in the attic of the home, he did not move those items. Accordingly, the home inspector missed a soft spot in the base board in the master bedroom closet at the time of inspection.

Mr. and Mrs. Smith then closed on the home and moved in. During the move in process, while Mr. Smith was running some coaxial cable in the master bedroom closet, he pushed his thumb through the base board. Panicked by this development, the Smiths called the home inspector, who re-inspects the base board and advises Mr. and Mrs. Smith that there is termite damage. The home inspector advises them that the damage could not have been detected at the initial inspection because of the boxes in the closet. Mr. and Mrs. Smith, hearing the dreaded phrase "termite damage," contact counsel, who brings suit against the home inspector alleging the home inspector violated FUDTPA by failing to conduct a thoughtful and thorough inspection. Mr. and Mrs. Smith's attorney thought about bringing claims of negligence and breach of contract against the home inspector; however, having reviewed the inspection agreement between the parties, he realized the exculpatory clause would limit damages to the amount paid under the inspection services agreement. Plaintiffs' counsel figures that he can avoid the exculpatory clause by pleading a statutory cause of action and also gain the benefit of recovering attorney's fees. The plaintiffs want the home inspector to pay for repairing the damage existing in the house. However, as set forth below, the plaintiffs' damages and fees can be minimized with a cost-effective defense against the FUDTPA claim.

Florida case law squarely holds that the measure of damages under FUDTPA is actual damages, which is the cost of the inspection services. Diminution in value damages and construction costs are consequential damages not recoverable under FUDTPA.

In Rollins, Inc. v. Daniel Neal Heller, 454 So. 2d 580 (Fla. 3rd DCA 1984), Rollins Protective Services installed a burglar alarm in the Heller's home. The alarm system did not work at the time the Heller's home was burglarized. Over $1 million worth of property was stolen from the home during the burglary. Subsequently, through an investigation and paying of ransom monies, about 90 percent of the stolen property was recovered. The Heller's brought suit against the alarm company for negligence, breach of express and implied warranties, fraud, gross negligence, and deceptive and unfair trade practices. The trial court found Rollins liable for gross negligence and deceptive and unfair trade practices and awarded the plaintiffs $128,487.00 in compensatory damages (based upon the value of the stolen items not recovered).

On appeal, the court found that the FUDTPA only allows recovery of damages related to the property that was the subject of the consumer transaction. Accordingly, the court found that the subject of the consumer transaction was the installation of the burglar alarm system and the services performed thereon, rather than the items stolen from the Hellers' house. The court reasoned that a company that installs a burglar alarm system does not assume the responsibility of insuring all items intended to be protected by the system. The court found that actual damages were the difference in the market value of the product or service in the condition in which it was delivered, as compared to the market value in the condition in which it should have been delivered, according to the contract between the parties. A notable exception to the rule may exist when the product is rendered valueless as a result of the defect. In that case, the purchase price would be the appropriate measure of actual damages. Based on the foregoing definition, the court found that actual damages should be computed based upon the alarm system and the services Rollins agreed to provide, not with regard to the value of the items stolen during the burglary.

In Urling v. Helms Exterminators, Inc., 468 So. 2d 451 (Fla. 1st DCA 1985), the Urling's relied upon an inspection certificate that the house they were purchasing had no existing termite damage. Subsequently, the Urlings found extensive termite damage. The plaintiffs brought suit against Helms Exterminators, Inc. for negligence in issuing a termite inspection report certifying no termite damage when no inspection was made, a violation of Florida's Unfair & Deceptive Trade Practices Act.

The court noted that the FUDTPA was intended to protect a consumer from unfair or deceptive acts or practices that diminished the value or worth of the goods or services purchased by the consumer. The court cited Rollins, with approval, for the proposition that only actual damages, attorneys' fees and court costs may be recovered under the FUDTPA. Accordingly, the Urlings could not recover the cost of repair to the structure of the house because the cost of these repairs constituted special or consequential damages which fell outside the statutory concept of actual damages as defined in Rollins. The court noted that since the Urlings were not seeking recovery of the costs of the erroneous termite certificate, but rather, seeking consequential damages, they had no recoverable damages under the Act.

In Orkin v. Christopher Delguidice, 790 So. 2d 1158 (Fla. 5th DCA 2001), the plaintiff entered into a contract with Orkin to provide treatment for subterranean termites. Pursuant to the contract, Orkin was required to re-treat to prevent or control reinfestation of subterranean termites and repair new damage to the structure and contents caused by subterranean termites, provided it was established that such new damage was caused by subterranean termites after the date of initial treatment and that, at the time of discovery of the new damage, the damaged areas were infested with live subterranean termites. The plaintiff brought a cause of action for unfair and deceptive trade practices. The trial court directed a verdict in favor of the plaintiff for diminution in value damages. On appeal, the court held that the plaintiff was not entitled to diminution in value type damages, or the cost of the termite repairs themselves, under the FUDTPA, but only the difference between the value of the defective services or goods provided and the value of the non-defective services or goods.

Based on the holdings of Urling and Orkin, our hypothetical plaintiffs, the Smiths, are only entitled to the costs of the home inspection, not the cost to repair the home, to the extent they are successful. Since the Smiths are only entitled to the cost of the home inspection, an effective defense against the FUDTPA claim is to file a Proposal for Settlement, which is 25 percent greater than the amount set forth in the inspection services agreement. Theoretically, our home inspector can file a Proposal for Settlement for the cost of the home inspection and set forth the same arguments in his Motion for Summary Judgment. However, to the extent the home inspector is not successful in his Motion for Summary Judgment, and the case is decided at trial, then the home inspector would not be able to recover his attorney fees from the filing of the Proposal for Settlement as the potential damage award on behalf of the plaintiff would be the cost of the inspection, which is the same amount as the Proposal for Settlement. The Proposal for Settlement should exclude costs and attorney's fees. The exclusion of costs and attorney's fees is necessary so that plaintiff's counsel cannot argue his or her costs or attorney's fees are greater than the amount set forth in the Proposal for Settlement at the time of service of the Proposal.

Once the plaintiff rejects the Proposal for Settlement for an amount which exceeds the amount stated in the inspection services contract, and which excludes attorney's fees and interest, the plaintiff's claim then becomes moot. The defendant home inspector should then file a Motion for Summary Judgment arguing that the plaintiff's claim under FUDTPA is moot. While the home inspector will ultimately have to compensate the plaintiff for attorney's fees under this defense, the amount of fees should be minimal to the extent the Proposal for Settlement is served immediately subsequent to the 90-day period set forth in Fla. R. Civ. P. 1.442. The Florida courts have held that mootness occurs when the issues presented are no longer alive or when the party lacks a legally cognizable interest in the outcome of the claim.

In our hypothetical case, when Mr. and Mrs. Smith refuse to accept the Proposal for Settlement for an amount greater than that set forth in the inspection services agreement, their FUDTPA claim becomes moot. It is moot because the Proposal for Settlement has offered complete relief to the Smiths.

This defense has other applications as well. In Mackenzie v. Kindred Hospitals East, L.L.C., 276 F. Supp. 2d 1211 (M.D. Fla. 2003), the plaintiff, a pharmacist, brought suit against a hospital alleging that the hospital violated the Fair Labor Standards Act by requiring him to work over 40 hours per week without being paid overtime. The defendant filed an offer of judgment for $1,200 pursuant to Federal Rule of Civil Procedure 68. The defendant calculated this amount by taking the overtime hours alleged in the time records, subtracting the amount paid to the plaintiff at regular payroll wage, and multiplying these hours by half time to arrive at a maximum overtime liability of $600. The defendant doubled this amount for liquidated damages. The plaintiff rejected the offer. The defendant filed a motion to dismiss for lack of subject matter jurisdiction asserting that the offer of full relief ended the case or controversy.

The court held that the service of an offer of judgment for an amount in excess of an amount the plaintiff could recover rendered the claim moot. The court noted that it is economically reasonable for a defendant to offer to pay the full amount due under the claim in order to avoid attorney's fees that could substantially exceed the amount paid.

In Griesz v. Household Bank, 176 F.3d 1012 (7th Cir. 1999), the plaintiff brought suit against Household Bank and Golden Seal Air Conditioning premised on the Truth and Lending Act, as well as state law causes of action, for consumer fraud and unfair and deceptive trade practices. After all but one count was dismissed, Household brought a motion to dismiss based on lack of subject matter jurisdiction (mootness). Household argued that a Rule 68 offer of judgment was served on the plaintiff for $1,200, plus reasonable costs and attorney's fees, and the plaintiff failed to demonstrate actual damages under the Act. Therefore, the plaintiff was only entitled to a maximum statutory damage of $1,000 pursuant to 15 USC 1640(a).

The Seventh Circuit held the offer of $1,200 was more than the plaintiff was entitled to under the statute and that such an offer gave the plaintiff the equivalent of a default judgment which eliminated a legal dispute upon which the court had jurisdiction. Judge Posner stated, "You cannot persist after you've won. Lawyer Longo may have thought that he had something to gain by pressing on-additional attorney's fees. But if that is what he thought, he was mistaken." Accordingly, the court found that the plaintiff's claim was moot.

As has been discussed extensively in this article, our hypothetical homebuyers, Mr. and Mrs. Smith, are only entitled to actual damages. Florida courts have defined actual damages in this context as a difference between the value of defective services or goods provided and the value of the non-defective services of goods. Here, the value of the services was, at most, the amount set forth in the inspection services agreement. Any Proposal for Settlement in an amount greater than the amount set forth in the inspection services agreement would fully compensate Mr. and Mrs. Smith and would render their FUDTPA claims moot. Therefore, Mr. and Mrs. Smith would no longer have a cognizable interest in the outcome of the FUDTPA claim.

A plaintiff's FUDTPA claim brought pursuant to a home inspection services agreement can be defeated with minimal costs to the insured. A plaintiff is only entitled to actual damages under his or her FUDTPA claim. Actual damages are defined as the difference between the value of the defective services or goods provided and the value of the non-defective services of goods. In contrast, diminution in value damages, or the cost to repair damages, are consequential damages and not recoverable under the FUDTPA. Accordingly, a plaintiff who contracts for home inspection services is only entitled to the amount paid under the inspection services agreement as actual damages.

The filling of a Proposal for Settlement in an amount greater than the amount stated in the inspection services agreement sets the defendant up to successfully bring a motion for summary judgment based on subject matter jurisdiction if the plaintiffs fail to accept the Proposal for Settlement. In such a case, the Proposal for Settlement would render the FUDTPA claim moot. In essence, the argument before the court is that the plaintiffs have been offered an amount greater than what they can recover under FUDTPA and, since they rejected this amount, the plaintiffs no longer have a cognizable interest in the outcome of the FUDTPA claim and the plaintiffs' claim is moot.

* Adam is an associate in our Orlando, Florida, office. He can be reached at (407) 420-4382 or acherman@mdwcg.com.