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August 28, 2014

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Debate on home defect law heats up

Builders welcome proposed bill; lawyers for homeowners slam it

A fierce dispute over the way Nevada resolves homeowners’ claims of construction defects broke open for a full airing before a legislative committee Wednesday.

Legislation being considered by the committee pits builders and subcontractors against attorneys for plaintiffs. The two sides have engaged in a donnybrook this legislative session over changes in construction defect law, known as Chapter 40 for its place in Nevada statute.

Builders and subcontractors say the bill, drafted with guidance from a special subcommittee led by state Sen. Terry Care, D-Las Vegas, is welcome relief. They say the current system is flooded with bogus claims and exorbitant legal fees and often impedes home repairs.

The legislation would tilt the system significantly toward builders and subcontractors, and plaintiff attorneys say it goes too far, imposing severe curbs on the rights of homeowners.

Chapter 40 was a compromise passed in the middle of the 1990s building boom as a process to resolve disputes before litigation. As part of the compromise, homeowners who file lawsuits cannot claim noneconomic damages, such as emotional distress or punitive damages.

On the other hand, builders are obligated to pay the homeowners’ costs of bringing lawsuits, provided homeowners agree to reasonable settlements.

Builders and subcontractors say built-in attorney and expert fees create perverse incentives to bring Chapter 40 actions against them.

Subcontractors also say they are often innocent bystanders — window installers who get brought into lawsuits related to leaky roofs or defective drywall, for instance. Subcontractors are often brought into suits by builders who wish to spread the cost, and subcontractors’ insurance companies often advise them to settle, lest litigation costs skyrocket.

The proposed legislation, Senate Bill 349, would more narrowly define a construction defect. To qualify as defective, a home would have to present “unreasonable risk of injury to a person or property.” Alternately, it would have to meet all of the following criteria: violate building codes, cause damage to the property and be built in a manner not “good and workmanlike” according to industry standards.

Currently, just one of those criteria — including violating a building code — needs to exist to mark a home as defective and qualify it for the Chapter 40 process.

James Wadhams, a lobbyist representing the coalition of builders and subcontractors, said the proposal would eliminate cosmetic issues that often get caught up in expensive litigation, which in turn would help builders solve more substantive problems.

Wadhams said such cosmetic issues could be resolved outside the Chapter 40 process in regular legal channels.

The legislation would also eliminate a provision in the law that allows plaintiffs to collect “reasonable attorney’s fees.”

Builders and subcontractors had hoped at the beginning of the legislative session to eliminate Chapter 40 altogether and force homeowners into the court system. The current legislation achieves many of their goals, while leaving Chapter 40 in place.

A construction defect lawyer offered a withering attack on the legislation. Scott Canepa, who’s litigated hundreds of Chapter 40 cases since the law’s inception, said the bill would leave homeowners, thousands of whom bought substandard houses during the building boom, defenseless against builders and their insurance companies and lawyers.

Canepa said current law necessarily requires nothing more than code violation to qualify as a construction defect. “The code is the minimum standard to protect life, limb and property,” he said.

If Nevada were to change the law to require criteria in addition to a code violation, the state “would leave the door open for contractors to build houses that are riddled with construction defects, without recourse for the homeowners,” Canepa said.

As for attorney fees, Canepa noted that the mid-’90s compromise meant homeowners weren’t to receive punitive damages or money for emotional distress — what’s known as “general damages” in a personal injury case.

If payment of plaintiffs’ attorneys became the responsibility of homeowners, they would have to spend the entire settlement on fixing the house. Homeowners would have to pay attorneys fees out of pocket. In the end, homeowners would decide that bringing the case wasn’t worth it, Canepa said.

Though Care leads the Judiciary Committee that helped draft the Chapter 40 bill, he conducted the hearing without a tone of advocacy, asking neutral questions of both sides.

The committee also heard legislation that would shorten the time a homeowner has to bring civil action against a builder.

The legislative battle over construction defects is expected to continue until the session’s scheduled end two months from now.

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