Builders lose bid in new defects ruling

Cy Ryan SUN

Thursday, Sept. 5, 2002 | 11:16 a.m.

CARSON CITY -- State Insurance Commissioner Alice A. Molasky-Arman said today she has declined to form a quasi-state insurance association to help home builders, particularly in Southern Nevada, find construction defect insurance.

Instead, she said a "Construction Liability Clearing House" will be created to provide information to contractors on insurance markets and the availability of residential construction insurance.

A construction industry spokesman said builders across the state had resigned themselves to the commission's conclusion over the last two months.

"Over the past couple of months, we've come to understand the state is just not in a position to step in and help solve this problem through the insurance commissioner's office," said Steve Hill, chairman of the Coalition for Fairness in Construction. "The problem the construction industry has is so huge that the state just doesn't have the resources to risk helping solve the crisis."

Hill cited an argument that forcing insurers to cover home builders through a joint underwriting association could force rates higher for drivers and homeowners as insurers try covering losses from insuring builders.

Molasky-Arman asked for help from the insurance industry for the formation of a market assistance program that would help builders find insurers willing to cover their construction.

Kay Lockhart of the Independent Insurance Agents of Nevada said the commissioner's order should help. The problem, said Lockhart, is that many insurance companies have stopped writing construction defect policies in Nevada because of excessive claims and judgments from lawsuits.

Lockhart said the order from the commissioner will "bring together good standard companies to write policies under agreeable guidelines." And she said that should be a "great assist" to contractors. The commissioner conducted a public hearing July 1 to determine whether a construction liability insurance crisis existed in the Nevada market, similar to what faced doctors in Southern Nevada.

Molasky-Arman said there was insufficient evidence provided at that hearing that showed contractors could not obtain insurance coverage.

"Although there is overwhelming evidence that the current insurance issues facing the residential construction industry are multi-faceted, an integrated approach in finding long-term solutions is more appropriate," she said. "An essential insurance association would not address the causal nature of the current hard market conditions."

This is expected to become a major issue at the 2003 Legislature. In the past two sessions, there have been major battles between contractors, insurance companies and trial lawyers who represent homeowners who complain about defects in their houses.

Molasky-Arman said the steps she has taken will help but are not long-term solutions. She said this problem must be "addressed in areas outside the commissioner's jurisdiction." Lockhart also said the law must be clarified. She said an agreement was almost reached in the 2001 Legislature but it fell apart towards the end of the session.

Contractors, testifying at the July 1 hearing, blamed rising premiums on frivolous construction defect litigation. Molasky-Arman also said insurance companies have "also exacerbated the current problem by applying more restrictive underwriting standards."

Other contributing factors to the construction insurance problems were deficiencies in the Nevada law and the need for the construction industry to better police those not meeting professional standards, said Molasky-Arman.

Hill said the Coalition for Fairness in Construction will now turn its attention toward finding answers to the rising tide of construction defect litigation in the upcoming legislative session.

Sun reporter Jennifer Robison contributed to this report.