After many weeks, the builder called to the denizens of the forest. "Behold! I have made a stone home that will last forever, a haven safe from wolves!" At that moment, a giant, mistaking the cottage for a footstool, crushed it to the ground.

Best Defense: Advocate Legal Reform.

Risky Business

Quality offers a last line of defense against legal ruin, but it probably won't save you, as long as lawyers see a cash cow in waiting.

By Matthew Power

The small builder has an advantage in that he can make quality believable by making it more personal," notes Home Builders Network's Trellis. "And the more houses you build, the higher the probability you will have litigation. The class-action stuff going on is outrageous. What's really needed are liability limits."

Steven Winter, founder and president of Steven Winter Associates, a consulting firm in Norwalk, Conn., trumpets that analysis. He says that quality construction, while a good first step, can't protect builders from legal ruin.

"The problem is that quality varies from climate to climate, house to house," he says. "At the top of the list right now is moisture control (because of mold litigation). But a building in one of the swing states of the Mid-Atlantic will need a different vapor barrier system from one in the North or South. There is no one right answer."

Lost Loyalties
Homeowners' reason for breaking with builders.
Contractor's indifference 55%
Took competitor's offer 16%
Unresolved complaint 12%
Died or moved away 9%
Said pricing unfair 4%
Don't know 4%
No reply: When homeowners abandon their builders, more than half blame the contractor's poor communication skills.
Sources: Hudson; Ink Marketing and Contractor, December 2001

Magnifying the problem, Winter says, homeowners often don't use the home properly. They penetrate a vapor barrier or don't use ceiling fans, then sue when problems erupt.

Fatal FlawsContents

"The only ones really getting any money are the lawyers," Winter continues. "Builders need to support their associations and go after tort reforms. If they get behind it financially, they may be successful. Otherwise, even if they improve quality, they won't stop litigation. And insurers won't assess lower rates."

To make matters worse, the list of risks not covered by insurance increases daily. The insurance industry has had its foundations rocked by class-action suits in recent years, and many have gone bankrupt themselves.

A study by A.M. Best, cited in Business Insurance, found that insurance underwriters with an A or A- rating have about a 0.37 percent chance of experiencing financial impairment during a three-year period. Those with a C or C- rating have a 2.56 percent chance of experiencing impairment.

"The real business killer right now is in how hard it is to get insurance," Trellis says. "But I think change will only happen politically. You've got to raise the question."

But just how much political will is there? David Jaffe, vice president for construction liability at the NAHB, says legal reform is beyond the scope of his office. "The courts are more consumer-friendly than they used to be," he says, "especially with regard to implied warranty laws. The problem with those is that they say a home has to be built to be habitable [and] in a workmanlike manner. But I defy you to define either of those things."

Because construction of a home involves so many decisions, Jaffe says, "there's an infinite number of potential defects." And information on the durability of specific components has been sorely lacking for decades. Only recently have the NAHB and industry groups begun to realize that an accurate life-span estimate for installed products is needed. With those performance guidelines in hand, the builder can offer explicit warranties that define exactly what the builder will cover. The catch: Homeowners must then agree to give up their right to sue under an implied warranty.

"That means giving up a right," says Jaffe, "and the courts require that it [be] done in very conspicuous language. That may put off some people."

Quality: A Balancing Act
  Affordability Quality/Durability Environmental performance Energy efficiency Safety/Disaster mitigation
Engineered wood wall framing   Y Y   Y
Composite window frames   Y   Y Y
Drywall clips and stops Y     Y  
Fiber cement siding Y Y Y    
Impact resistant glazing   Y     Y
Low- or no-v.o.c. paints     Y   Y
Hydronic radiant heating Y     Y  
Insulating concrete forms   Y Y Y Y
Trade-offs: Analysis of five variables makes the PATH Technology Inventory Indexa good tool for selecting technologies that raise the quality bar in your projects without increasing your defect litigation risk. Note that in this example, no technology excels in every category. For example, drywall clips may save money and improve energy efficiency by reducing blocking, but they may not reduce callbacks for cracking.
Source: PATH Technology Inventory Index