January 23, 2003 - If your new dream home turns out to have serious flaws, you may have
to give your builder a chance to fix the problem before taking him to court.
The nation's home builders, fighting what they say is a surge in construction-defects
lawsuits, are appealing to state legislatures to help slow consumer lawsuits.
Builders are behind "right to cure" laws that have been passed in
recent months in California, Washington, Arizona and Nevada, and builders are
aiming for at least 13 more states in coming months. The National Association
of Home Builders, a Washington D.C., residential builders lobby, today plans
to announce its national push for such legislation at its national convention
in Las Vegas.
The laws generally set up a procedure for homeowners to give builders a chance
to repair their homes before they can file a lawsuit. But, while the requirement
sounds logical, some consumer advocates fear builders will gain an advantage
over unsophisticated home buyers, who may sign away their rights to sue later
if the problem isn't fixed properly.
Tom Miller, a Newport Beach, Calif., lawyer who has built a national specialty
of suing home builders, says "right-to-cure" laws benefit builders
more than consumers.
He predicts that the laws will get rid of roughly half of home-defect lawsuits.
"It will do away with a lot of small to medium construction-defect cases,
those under $500,000," he says. But the many, bigger multimillion-dollar
cases involving hundreds of homeowners, he says, will continue to plague builders
who make mistakes. "I'm not going out of business because of this new law,"
Mr. Miller says.
The law passed in Washington state, which is being used as a model for proposed
legislation in other states, calls for homeowners to alert a builder, at least
45 days before suit is filed, that they believe there is a defect. The builders
then have 21 days to respond by either doing an inspection, disputing the claim
and refusing to fix it, or proposing a settlement.
Builders this year are targeting legislatures in Alaska, Florida, Idaho, Kansas,
Kentucky, Louisiana, Missouri, Montana, New Mexico, Oklahoma, Oregon, South
Carolina and Wisconsin.
The U.S. Commerce Department reported this week that housing start surged to an
estimated 1.7 million in 2002, the highest since 1986. With it has come a boom
in construction-defect claims, builders say. There are a few national statistics,
but one indicator of the surge in claims is the effect on the builder's general-liability
insurance market, with rising premiums and insurers curtailing coverage. The construction-defect
problem is considered one of the most serious problems in the insurance market
today," says Bob Hartwig, chief economist for the Insurance Information Institute
in New York.
Karen Reutter, a senior vice president of Willis Group, a London-based insurance
broker, says some of her large U.S. residential-construction clients have faced
premium increases of 400% to 600% over the past year. Builders will eventually
pass along the costs to consumers, she predicts.
Plaintiffs lawyers and consumer advocates complain that builders are largely to
blame for the spate of lawsuits because many have come to rely on cheaper labor.
They often cite builders' own complaints about the scarcity of skilled labor in
the booming housing industry.
The Council of Better Business Bureaus, Arlington, Va., says it recorded 4,323
complaints against home builders in 2001, the No. 23 spot on the list of more
than 1,000 types of businesses. (Car dealers were No. 1, with 19,404 for complaints.)
The builder complaints were up 8% from 3,996 in 1999.
The lawsuit problems for builders have exacerbated an already difficult insurance
market. The September 11, 2001, attacks in the U.S. and the depressed stock market
have hurt insurers. In many states, many insurance carriers have simply stopped
writing certain policies. Those that have remained have raised premiums or narrowed
the coverage.
Harry Elliott, president of Elliott Homes, a builder in Sacramento, Calif., and
an architect of legislation in that state, says California builders just a few
years ago had a choice of 35 insurance companies for liability coverage that now
have only six.
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