By Kent Conine. With few exceptions, builders nation-wide have seen costs for general liability insurance soar; some have found that insurance isn't available at all.
Fortunately, it doesn't take the proverbial rocket scientist to identify the problem. It's clearly due to excessive construction defect litigation and the efforts of lawyers who are far more focused on winning big settlements in court than on fixing their clients' problems.
It also doesn't take a rocket scientist to predict what happens when builders must pay exorbitant fees for insurance or can't get liability insurance at all. Housing production drops and home prices soar. In some states, general liability insurance is a prerequisite for licensing, so lack of insurance even forces builders out of business!
The NAHB has been working on liability insurance--which I have identified as a priority for 2003--and I am pleased to report that we are making measurable progress.
Because insurance issues must be addressed by the individual states, the NAHB has developed model legislation providing lawmakers with the tools needed to enact meaningful legislation that actually addresses the problem's complexities.
At present, a number of states are considering such "notice and opportunity to repair" legislation that would reform the manner in which construction defect claims are resolved. While the proposals vary, the legislation generally would require that a homeowner provide a builder with a written notice and description of the alleged defects at least 90 days before filing a lawsuit against the builder.
After receiving the notice, the builder would have an opportunity to inspect the alleged defects. If bona fide defects were found during inspection, the builder would have the opportunity to offer to repair the defects or settle the claim with financial compensation. If the builder did not respond to the notice, or did not repair the defects, the homeowner would be free to proceed with litigation. If a homeowner declined a builder's reasonable offer to repair the defects or to settle the claim, the amount of the award that the owner could get from the court would be limited.
Other provisions would require that homeowner associations notify all unit owners prior to proceeding with litigation against a builder or developer and would require that builders notify consumers of the notice and opportunity to repair provisions during the sale process.
This kind of approach spells out a clear and predictable way to solve problems and ensures that homeowner complaints are addressed and resolved quickly. It also can help prevent builders from being victimized by unscrupulous trial lawyers.
We are optimistic several states will enact "notice and opportunity to repair" legislation this year, and the NAHB will continue to work with its affiliates to ensure they have the tools to encourage action on this important issue.
As for the large amount of construction defect liability litigation, it's important to remember that home buyers expect--and deserve--a quality product. I urge builders to take a proactive approach to improving quality controls and providing better customer service as part of their ongoing business strategy. Such an effort is sure to generate rich dividends.