Inspector fails to inform buyer of old wiring

Q: Before we bought our home, our home inspector said the house has Romex wiring. After moving in, our electrician installed a ceiling fan. When he was in the attic, he found old wiring with cloth insulation and no ground wires. He said this is substandard and recommended rewiring the house, which would cost thousand of dollars. When we notified the inspector about his error, he filed a claim with his insurance company, but they denied the claim because the inspection contract limits liability to a refund of twice the amount we paid for the inspection. Do we have any recourse?

A: Your situation raises a few issues. First is that home inspection contracts often contain a limit of liability. Such limits are not enforceable in all states, and inspectors often include them merely to avoid liability for frivolous claims.

For example, someone might file a claim for issues that are outside the scope of a home inspection, such as geological stability or defects that were not visible at the time of the inspection. In cases such as yours, where obsolete wiring is visible in the attic and is incorrectly reported by the home inspector, the inspector should assume liability for the error.

The insurance company's rejection of the claim is highly suspect, because the home inspector was in error. The purpose of the policy is to indemnify the inspector for errors and omissions. The liability limit in the inspection contract is unrelated to the insurance company's coverage. Denial of the claim may be plausible if the wires are in undamaged condition, because replacement of old wiring is not legally mandated merely because of age.

Old cloth-insulated wires are commonly referred to as "legal nonconforming." This means they do not meet current building standards but are not subject to mandatory upgrade because they were legal when originally installed. If the cloth insulation is in deteriorated condition, rewiring would then be necessary.

Another concern with old cloth-insulated wire is the lack of wires for grounding. That is also regarded as "legal nonconforming" in an older home but is something that should be disclosed in a home inspection report because of safety issues with an ungrounded electrical system. Failure to point out lack of grounding in a home inspection report is a significant omission.

A final consideration is whether full disclosure by your home inspector would have changed any aspect of your purchase transaction. If the inspector had disclosed that you have cloth insulation on the wiring, would that have affected your negotiations with the sellers? Most sellers would not agree to rewire their home, although some sellers might make a price reduction. Many sellers would insist the home is old and they are not required to upgrade it to current standards.

If you wish to pursue the liability issue with your home inspector, you could file an action in small claims court. If the inspector is placed in legal jeopardy, he might press his insurance company to reconsider the claim.

• Email Barry Stone, certified home inspector, at [email protected].

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