Rise in Lawsuits Has Geologists Shaky About Site Inspections : Inspections: Fewer geologists are risking being sued by irate home buyers for missing problems.

Red flags unfurled for Fred Pratley on a recent home inspection in Laguna Beach. The veteran geologist immediately noticed mending along the tops of the doors and windows of the hillside home. He advised his client, the interested buyer, that he suspected that the house had shifted and recommended a second opinion.

“If I declare the property unstable in writing, it’s the kiss of death and puts the owner through hardship. And if it’s not true, I can be sued,” Pratley explained. “If I have any qualms on a property, I back out. It’s a small town and then the cat is out of the bag.”

Such is the rocky road of geologists these days. The recent landslides in Laguna Beach, Anaheim Hills, San Clemente and Castellammare have left many geologists shaky about geological inspections, which are frequently commissioned by buyers of hillside and canyon properties and often a contingency of a sale.

Fewer geologists are willing to take on the risk of being sued by irate buyers for missing problems such as slippage and settling that occur down the line. Many who continue to do these pre-escrow reports stay clear of questionable properties and include plenty of disclaimers.

“You ask yourself, ‘Why am I doing this for a $1.5-million house when I’m charging a rate of $95 per hour?’ ” Pratley said. “It’s difficult to think I can continue to do this without eventually being nailed.”

Indeed, nationally, four out of 10 engineering firms are sued each year and eight out of 10 have claims pending against them. And according to the American Consulting Engineers Council, while 37% of claims were settled without any payment to the claimant in 1992, firms and insurance companies spent more than $11 million in legal fees. The average defense cost approached $15,000.

The increase in suits has made geologists far more cautious. Longtime Westside geologist Paul Merifield now makes a check of city records for storm damage reports or old soil tests a routine part of each inspection.

“I spend more time on the site and I crawl under the house,” Merifield said. “Cracks in the wall can be patched, but if you go under the house, you can see right away if it has been re-leveled.”

Tom Slossom of Van Nuys is among those who have given up the service entirely. “People want you to come out for $200 and tell you everything is fine,” he said. “They don’t want to pay a lot for a good site inspection, review of city files and aerial photos. It just isn’t worth the trouble.”

Slossom recommends that home buyers seek out geologists who can see the big picture. “Buyers not only need to look at the property line, but what could affect them from off-site,” he said. “If there is no drainage next door, then eventually it may cause problems.”

Increasingly, Slossom and his father, James, do forensic work for lawsuits, representing government agencies, developers and homeowners. As the number of lawsuits continues to grow, so does the demand for experts who can figure out what went wrong and how much it will cost to fix.

Derek Cornforth built his Portland, Ore., consulting firm on landslide work, but declines residential clients. The main reason is insurance.

“Professional liability insurers require your deductible to be double if you work on residences,” Cornforth said. “There’s a tendency for homeowners to be litigious and, as a professional, you lose control over what happens after a quick report is issued.”

Instead, Cornforth refers residential inquiries to a few retired geologists that take on this type of work. “There are people who have taken steps to shift their assets out of the direct line of attorneys’ recovery,” he said.

A number of homeowners in the Orange County community of Anaheim Hills now wish they had tracked down a geologist before buying. Two weeks of rain in January soaked the rolling hillside. The water accelerated previous slippage, splitting foundations, breaking apart walls and cracking driveways and swimming pools. Half a dozen homes were vacated and others went into foreclosure.

“The city should not have issued permits and allowed builders to build on landslides that go back to the late ‘70s and ‘80s,” said Michael Clayton, pointing to a large “Caution Landslide” sign 30 feet from his front door. The Ford employee relations manager moved his family to Orange County from Detroit last spring, hoping to eventually retire. Instead, he is organizing homeowners in a class-action suit against the city of Anaheim.

“Like so many people up here, I’m stuck,” Clayton said. “We were advised by both our realtor and the seller’s realtor that it would not be necessary to have a geological report. They are named in my portion of the lawsuit, as is my bank, whose appraisal should have involved geologicals.”

Like Clayton, former Anaheim Hills homeowner Gerald Steiner has named his bank in the suit. “If the environmental impact reports were shown to us, we would never have purchased here,” Steiner said. “The thing that really bothers me is the people who saved all their lives and thought they had $200,000 to $300,000 of equity in their homes. No matter what the assessor says, the houses are worth very little.”

Peter Shikli of San Clemente also has firsthand experience with landslides. After heavy rains in January, cracks began appearing in his bluff-top San Clemente home. By noon one day, nails were coming loose and 4-foot cracks took over. “The house kind of danced around,” Shikli recalled, “and then it stretched apart.” That night, his home crashed onto Pacific Coast Highway.

Shikli did not have a geological report, but doubts it would have alerted him to the problem. “Unless you pay $10,000 to $15,000 for coring samples, the report will only cover what the geologist sees. No geologist could see this type of bedrock failure, where highly permeable sand mixes with clay.”

Besides slides in Anaheim Hills and San Clemente, the winter storms brought disaster to the Castellammare area of Pacific Palisades. Santa Monica attorney Richard D. Norton represents some of the owners there. At least one had a geological inspection before buying the property.

“In the past, we have successfully pursued geologists,” Norton said, “but have experienced difficulty collecting.

“The geologists that have liability insurance don’t do home inspections anymore as a condition of getting coverage. The newer, less experienced ones who do inspections help aggravate the problem. People who need the work are more likely to give answers that the homeowner wants to hear.”

Buyers want to hear good news. “Our culture highly prizes living on property with views, even though these bluffs have been eroding for thousands of years,” Norton said. “In places like Cuba, India and South America, it is the flat land that is valued and shanties that are built in the hills.”

The system of geological reports is dependent on the integrity of all the participants in the process, including realtors and sellers. “The last thing realtors want to do is learn about a geological problem,” Norton added. “Even if that deal doesn’t go through, they are required to disclose anything negative to the next buyer.”

But according to one Pacific Palisades realtor, it’s better for all parties concerned to learn about a problem before the sale and avoid lawsuits. “Buyers interested in view properties should make sure that the geological inspection is a contingency of the sale,” said Grace Feld of Jon Douglas. “The majority of hillside and canyon properties are as safe as those in the flats, but problems occur. Geologists can identify potential problems so that buyers can weigh the risks.”

Feld believes that the increase in lawsuits by homeowners is partly due to the real estate downturn. “People were not as litigious when prices were going up in the 1980s,” she said. “Since values have fallen, more owners are looking for remedies from geologists and realtors.”

Norton’s experience has been that the average buyer has very little ability to discriminate between a sound home and one in which he or she is going to be wiped out. He recommends an inspection under certain terms.

“If you insist on an adequate subsurface investigation and tell the geologist you are willing to accept negative answers, the inspection still has value.”