August 30, 2002 - The Texas Supreme Court, in a long-awaited decision regarding the enforceability of warranty contracts, said Thursday that Centex Homes couldn't make buyers waive the state's implied warranty of habitability.
Consumer advocates said the decision is a win for consumers and opens the door for insurance companies to seek damages from builders on mold claims and certain other types of damages.
It also clears a major hurdle in a 4-year-old Bexar County lawsuit to obtain a class action certification for every owner of a Centex house in Texas that's less than 10 years old.
"The message (the Supreme Court sent) is homeowners should be protected and they should get value for what they pay," said Bryan Woods, the San Antonio attorney who took Centex to court on behalf of several San Antonio residents.
"Homeowners should have a better warranty than you get when you buy a toaster," Woods said. "The duration of what the builder tries to contend is their responsibility is so ridiculous."
The state's implied warranties have been around since 1968, but the standard practice of builders has been to get buyers to waive them through contracts that defer all guarantees to warranty insurance companies.
"The warranties provided by builders currently do not appear to meet the standard of this most recent decision," said Janet Ahmad, president of Homeowners for Better Building. "In fact, the Residential Warranty Corp. and Home of Texas, the warranties most widely provided by Texas builders, specifically exclude 'the presence of hazardous or toxic materials resulting in uninhabitability or health risk within the home.'"
Dallas-based Centex, one of the nation's largest builders, gives a one-year warranty. The warranty then transfers to a policy provided by Residential Warranty Corp., a Pennsylvania insurance company.
"That warranty is riddled with exclusions and loopholes," Woods said. "In my opinion, it's really just a sales tool to make homeowners believe they are getting 10 years protection when they are really getting very little."
Although Chief Justice Thomas Phillips' opinion affirms the 4th Court of Appeals ruling that Centex was trying to overturn, company spokesman Neil Devroy characterized the opinion as "a good decision for all Texas homebuyers" and a decision that will allow the district court to find that Centex's "specific 10-year warranty fairly protects homebuyers."
"In essence, the court allows us to set reasonable written expectations about workmanship with our customers provided they meet or exceed basic standards of habitability," Devroy said.
Devroy said the opinion would not affect the company's ability to continue using its existing warranty.
But Joe Longeley, Woods' co-counsel, said the decision forces Centex to redo its contracts and puts it in a poorer position when the case returns to Bexar County for possible trial.
"Remember, they were perfectly confident that this case would stop at the Supreme Court. They were wrong," Longeley said. "From the consumers' viewpoint, it does give more detail as to what homebuilders can do."
Phillips' opinion made a distinction between an implied warranty of habitability and an implied warranty of workmanlike construction.
Habitability relates to whether a residence is safe to live in, and Phillips said Centex could not make buyers sign contracts waiving their rights to the state's implied warranty.
Because mold claims can affect health, Longeley said that change gives insurance companies representing policyholders an avenue to seek damages from builders.
Justice Nathan Hecht's dissenting opinion blasted the majority for forcing "every homebuilder to provide, and every homebuyer to accept, an implied warranty of habitability. A buyer who would prefer a nationwide insurer's 10-year guarantee ... cannot exchange one for the other."
Centex still can obtain waivers from the buyer for workmanlike construction, which deals with the quality of craftsmanship, but only by giving sufficient details on what is being waived.
Dan Lambe, executive director of the consumer protection organization Texas Watch, described the opinion as a mixed bag.
"The court, it appears, left open an opportunity for homebuilders to replace their own warranties on quality of work, instead of the implied warranty," Lambe said. "The bottom line is it's opening a can of worms; if every builder is using his own warranty, there could be many more legal challenges before the full effects of this are known."
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