By Gary Garczynski. Take a deep breath before you open that next letter from your insurance carrier. It could be full of bad news. Builders nationwide are finding that costs for general liability insurance are soaring. In some states, insurance isn't available at any price.
The primary cause of the problem is simple: construction-defect litigation motivated by greed. Many trial attorneys are far more interested in winning big settlements in court than they are in fixing their clients' problems, and the situation is growing progressively worse.
Just look at what has happened in California and how it is affecting affordability and the supply of housing. Since 1994, litigation has discouraged the construction of townhouses, apartments, and condominiums. Multifamily for-sale starts dropped from 18,681 in 1994 to just 2,945 in 1999, an 85 percent decline in a state already suffering from a dearth of affordable housing.
To help solve the problem, the NAHB is urging state legislatures across the country to work with builders to pass legislation that will ensure that builders have an opportunity to fix a problem before being hauled into court.
The NAHB is also working with several national organizations representing elected public officials to develop and adopt model legislation that effectively addresses the issue so that lawmakers will have the tools they need to enact meaningful legislation.
Model rules Under the model "Notice and Right to Cure" process, homeowners or homeowner associations (HOAs) would be required to notify builders in writing about alleged construction defects 90 days before filing a lawsuit. Contractors would then have 30 days to propose to inspect the alleged defects, offer to settle the claim by payment, or dispute the claim.
Other elements of the proposed model legislation would require HOAs to have written approval from all unit owners before starting a construction-defect action and would require builders to provide homeowners and HOAs with the names, addresses, professional licenses (if applicable), and scope of work of all subcontractors, suppliers, and design professionals involved in building the residence.
Such an approach spells out a clear and predictable way to solve problems and assures that homeowner complaints are resolved quickly and prevents builders from being victimized by opportunistic trial lawyers.
As for the large number of construction-defect liability cases, certainly some are legitimate. And to address these concerns, builders are taking a number of proactive steps, including improving quality control, providing better customer service, and providing homeowners with manuals that give tips on dispute resolution.
But unnecessary litigation remains the major obstacle to solving the construction-defect problem. The NAHB is working hard to see that it is addressed by state legislatures across the country and that they have the model tool they need to enact effective, meaningful legislation.