Pre-Purchase Inspection Liability: Another Trap for the Unwary
December 12, 2003
By John R. Copley and Victor H. Smith of Garofalo Goerlich Hainbach PC
Many inspection facilities have begun adding broad disclaimer and indemnification language
to their pre-purchase inspection documentation. These provisions will often require the buyer
to waive, or to limit to the amount charged for the pre-purchase inspection, all claims for
losses related to the facility’s negligence in performing the inspection. Inspection
facilities further are requiring buyers and sellers to indemnify them for claims for damages
arising out of the inspection facility’s work. In effect, this language eliminates the
idea of a “professional” inspection and places the full liability for the actions
of the inspection facility on the buyer and, many times, the seller. Below we discuss this
troubling trend, and provide recommendations to sellers and buyers regarding ways to protect
themselves.
The trend toward broader disclaimer provisions coupled with indemnification requirements
can have significant consequences for buyers and sellers. Buyers who agree to disclaimer language
cannot be assured of recourse or remedy if the inspection facility fails to perform an adequate
or professional inspection. If a pre-purchase inspection has been performed by an inspection
facility that has required the parties to indemnify it for negligent performance of the inspection
and an accident occurs, then the buyer and/or the seller -- depending upon the obligations
assumed by the seller in the pre-purchase inspection documents -- may be required to indemnify
the inspection facility for claims against it for negligent inspection or repair work. Further,
unlike the seller, who presumably will have insurance covering operation of the aircraft being
inspected, the buyer very likely will not have such insurance because it would not own the
aircraft at the time such negligent event would occur (i.e, the faulty inspection or repair).
Sellers also may be shocked to find that they are liable to their buyers for defects on aircraft
they thought they had sold on an as is basis. If a seller has agreed to indemnify the inspection
facility, the seller may be forced to step into the shoes of that facility in defending a
suit by the buyer for a negligent inspection that failed to find defects.
Would courts enforce these disclaimer and indemnification provisions? Recent decisions would
indicate that the answer is yes. In a leading case on the subject, the Supreme Court of Missouri
reviewed a pre-purchase inspection agreement and found that a disclaimer of liability was
enforceable because it was a contract between commercial parties, who should have known the
consequence of such language. The Supreme Court reached its conclusion despite a lower courts
finding that inclusion of a liability disclaimer on its face is “incompatible with the
purpose of a pre-purchase survey,” which is to provide the buyer with a professional
survey of the condition of the aircraft.
The lesson here is that for legal purposes, ignorance is not bliss. When dealing with commercial
parties, courts will be reluctant to rewrite a pre-purchase inspection agreement on equitable
grounds. While it may seem absurd for buyers and sellers to pay for the negligence of an inspection
facility, when they have no ability to control the negligent conduct of such facility, precedent
is on the side of the inspection facilities.
Based upon the above, we would recommend the following before signing a pre-purchase inspection
agreement:
(i) Read the contractual language carefully and assume that it will be enforced as written;
(ii) Speak to several inspection facilities and compare the language provided; even if
one inspection facility offers a better price or has a more convenient location, if it refuses
to take responsibility for the work performed, you may wish to consider going elsewhere;
(iii) Submit the pre-purchase inspection agreement to your insurer or risk manager to determine
whether your policy covers claims brought as the result of a negligent pre-purchase inspection
and your assumption of a contractual indemnity. If such coverage is not provided in your
policy, or cannot be obtained, strongly consider using a different inspection facility.
The bottom line is that real and significant risks exist for buyers and sellers who enter
into contracts with inspection facilities that disclaim responsibility for the inspection
and/or require indemnification. The best way to handle this trap is shop around and be wary.
Garofalo Goerlich Hainbach PC, located in Washington, DC, specializes in aviation law.
The firm represents clients in aircraft transactions and a broad range of aviation issues,
including FAA and DOT regulatory compliances. Clients include corporate aircraft operators,
airlines, air taxis, repair stations and manufacturers. Tel: (202) 776-3970
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