Insurance chief lukewarm to builders on issue of defects

Grace Leong and Cy Ryan

Tuesday, July 2, 2002 | 11:15 a.m.

Nevada home building industry officials complained Monday about a liability insurance crisis stemming from a flood of construction defect lawsuits -- a crisis they say mirrors that faced by Nevada doctors losing malpractice insurance.

The hearing, conducted by Nevada Insurance Commissioner Alice Molasky-Arman, was held in response to home builders' request for the state to form a joint underwriting association similar to the one created to deal with Nevada's malpractice insurance crisis.

Molasky-Arman said after the hearing that she was lukewarm to creating such a system.

"In order to do that, I have to have the support of the (insurance) industry," she said. "And I have serious concerns about maintaining the industry that we have and encouraging the availability of those insurers -- whether it is the voluntary or admitted market -- rather than driving them away" with creation of competitor.

Molasky-Arman said she wants to look at a "market assistance program" used in other states.

The home builders, who sought legislation to allow them to remedy defects prior to the filing of lawsuits, want legislators to develop a "fair" definition of what constitutes a construction defect, define clearly what triggers liability insurance coverage and to allow for an alternative dispute resolution process.

Steve Hill, chairman of the Coalition for Fairness in Construction -- a group of builders and subcontractors working to address construction defect litigation and insurance issues -- blamed a lack of affordable and available construction liability insurance on the proliferation of construction defect lawsuits that has led many insurers to leave the state.

Industry experts say only two or three insurance companies now insure local builders and subcontractors in Nevada compared with six firms a year ago.

Hill noted that in some cases, builders that can renew their liability insurance contracts are doing so at rates that are often higher by 400 percent or more than two years ago.

Bruce King, a member of the board of directors for the Nevada Subcontractors Association and president of Pete King Nevada Corp., a Las Vegas paint and drywall subcontractor, agreed.

"The problem is even more severe for the multi-family, townhouse and condo builders and contractors. Many of them have been told there will be no coverage for these projects," he said.

Robert Lewis, a builder, described contract negotiations with his insurers as "a war of fine print."

"As a condition of coverage, our insurance carriers now demand wording in our contract documents that attempts to shift all responsibility and burden over to our subcontractors, suppliers and consultants," he said.

But plaintiffs' attorney Scott Canepa challenged the home building industry's charges.

"Why do we have record sales for new homes then?" he asked. "Insurance premiums are going up in all industries because of claims made against insurers in connection with 9/11 and because of major losses insurance companies suffered in the stock market."

"Builders are proceeding on the assumption that they make offers for repairs and homeowners don't accept them. But that's a false premise. Ninety-nine percent of the time, when homeowners come to me, it's because they haven't got the builder to do the right thing or they make 'Band-Aid' repairs," Canepa said.

Builders said a 1995 construction defect law -- aimed at limiting the number of construction defect lawsuits by giving home builders the opportunity to respond to defect claims before homeowners file suit -- failed because attorneys refused to allow builders access to the homes to make repairs once a lawsuit was under way.

But Canepa questioned the builders' motives in wanting amendments to that law. "What builders wanted is to eliminate homeowners' right to reject bad repairs," he said.

Nancy Quon, another plaintiffs' attorney, agreed. "The insurers are using what's happening in the medical insurance crisis as an opportunity to demand legislative remedies to create safeguards for home builders so that insurers don't have to pay on claims."

"In the medical field, we're dealing with a shortage of doctors as they are leaving the state. But builders and developers aren't leaving the state, in fact, more and more home building is occurring," she said.