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Lucier v. Williams

366 N.J. Super. 485, 841 A.2d 907 (App. Div. 2004)

HOME INSPECTORS; DAMAGES—It is unconscionable for a home inspector to contractually limit its damages to what is equivalent to a nominal amount.

A contract buyer of a home contracted with a company to perform a home inspection. The inspection agreement contained a provision limiting the company’s liability to a maximum of $500, or fifty percent of the fees paid by the client, whichever was smaller. The agreement excluded claims for such things as the company’s negligence, errors, breach of contract, and loss of use. The homeowner signed the company’s form, but certified later that when he read the agreement in the presence of a company representative, he felt that some language “was unfair and confusing.” The homeowner also alleged that the inspection company’s representative said he would not change any provision and that this was a standard contract that would have to be accepted “as-is” or not at all.

Furthermore, the homeowner stated that he reviewed and relied upon the company’s resume in entering the contract, and he was not aware that the company was uninsured. He specifically stated that he would not have entered into the contract had he known this. In addition, the homeowner said he relied upon the home inspection report issued by the company in going through with the purchase. The fee for the inspection was $385.

After closing, and soon after moving into the home, the owner noticed a leak and hired a roofing contractor. The contractor opined that the roof was defective because of a lack of flashing which the inspection company should have observed and reported. Since the cost of repair was about $8,000 to $10,000, the owner stated that had he known of this problem would have led him to withdraw from the agreement or to negotiate further. Consequently, the owner brought suit against its seller and the inspection company.

The Appellate Division pointed out that courts generally will not rewrite contracts to favor a party for the purpose of giving that party a better bargain. However, courts have not hesitated to strike down liability clauses that are unconscionable. “Unconscionable” means a lack of “good faith, honesty in fact and observance of fair dealing.” In deciding whether to enforce a contract, a court must look to the subject matter of the contract, the parties’ relative bargaining positions, the degree of economic compulsion motivating the ‘adhering’ party, and the public interest. Specifically, public policy disfavors clauses which immunize parties from liability for their own negligence, and a contract must provide a realistic incentive to act diligently.

Applying these principles to the case, the court found the contract to be unconscionable and therefore unenforceable. First, the contract was one of adhesion. There were no negotiations in its preparation. It was presented on a pre-printed form. It was on a take-it-or-leave-it basis with no opportunity to negotiate. Also, the parties, a consumer and a professional expert, had grossly unequal bargaining status. The inspector had been in the business for twenty years and had inspected thousands of homes. The owner was an unknowledgeable consumer who placed his trust in a professional. Finally, the contract practically avoided almost all responsibility for the professional’s negligence. The refundable amount was also grossly disproportionate to the potential loss to the owner.

The Appellate Division also stressed the importance of the state’s public policy in maintaining high levels of service among professionals. It went on to state that exculpation clauses are particularly disfavored within professional industries because of the heavy reliance placed on the professional by the consumer. Furthermore, the Court discussed the Home Inspection Professional Licensing Act, which became law in 1998, requiring home inspectors to maintain errors and omissions insurance with a minimum coverage of $500,000 per occurrence. This showed a clear expression of policy that home inspectors should be fully liable for their errors. “Where legislation protecting the interest of the home-buying public has been adopted for the home inspection industry, its protections cannot be contracted away.”

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