| WASHINGTON -- National Association of Home Builders (NAHB) President Gary Garczynski is urging state legislators from around the country to focus their attention on the general liability insurance crisis and the effect that crisis is having on housing and its role in the national economy.
Speaking recently at the annual meeting of the American Legislative Exchange Council (ALEC), Garczynski said “It is in everyone's best interest to solve the general liability insurance problem so that the housing industry can continue to keep the national economy afloat.”
“The spillover investment in the local economy after a consumer purchases a home is tremendous, and those housing-generated local economic benefits are keeping consumer confidence up at a level that Wall Street is simply not delivering. But the liability insurance issue poses a threat because it could derail the vibrancy of the housing economy. If we don't address this issue, we could diminish the immediate and future growth of the industry at a time when the rest of the economy is relying on housing.”
According to NAHB, builders in nearly every state are reporting enormous increases in general liability insurance premiums, and builders in some states are reporting that insurance isn't available at any price. To begin solving the problem, NAHB is urging legislators to work with builders across the country to pass legislation ensuring that builders have an opportunity to fix a problem before being dragged into court.
Garczynski added that the liability insurance issue is preventing builders from constructing more affordable housing and blocking state and local government efforts to achieve Smart Growth. “Not acting quickly to solve the general liability insurance problem will diminish our ability to provide safe, decent and affordable homes for working families and prevent us from implementing Smart Growth goals through the production of new multi-family housing,” he said.
California is a prime example of how badly the general liability insurance crisis has affected the affordability and supply of multifamily housing, Garczynski said. Since 1994, litigation has discouraged the production of apartments, townhouses and condominiums. Multifamily for-sale starts dropped from 18,681 in 1994 to just 2,945 in 1999 - an 85% decline in a state already suffering from a dearth of affordable housing.
Commenting about the large number of construction defect liability cases, Garczynski acknowledged that “there are legitimate construction defect cases.” To address these concerns, builders are taking proactive steps to minimize disputes, including improving quality control, preparing home owner manuals that give tips on dispute resolution, and providing better customer service.
But litigation remains a major obstacle to solving the problem. “Many trial attorneys are more interested in winning big settlements in court than they are in fixing their clients' problems,” Garczynski said. Because of the emphasis on litigation, “the situation has gotten completely out of hand. State legislative and regulatory action is necessary to make it harder for trial attorneys to take advantage of the industry and unsuspecting home owners.”
To that end, NAHB is advocating that state legislators work with builders in their states to pass "Notice and Right to Cure" legislation similar to bills passed earlier this year in Washington and Arizona. These bills require home owners and attorneys to notify builders of alleged construction defects prior to filing lawsuits. The legislation also requires a timeframe to give builders an opportunity to address defect concerns. Both bills preserve a home owner's right to sue if they're not satisfied.
Several national organizations of elected public officials are now considering adopting model legislation. The models being considered by ALEC, the Council of State Governments, and the National Conference of State Legislatures are similar to legislation that was adopted in Arizona and Washington.
Under the model "Notice and Right to Cure" process, home owners or home owners associations (HOAs) are required to provide written notice to builders 90 days before a lawsuit is filed that the owners or HOAs allege that construction defects exist in their property. Contractors would then have 30 days in which to: 1) propose to inspect the alleged defects; 2 offer to settle the claim by payment; or 3) dispute the claim.
Other elements of the model legislation being considered include requirements for home owners associations to obtain the written approval of all unit owners prior to commencing a construction defect action and for contractors to provide home owners and home owners associations with the names, addresses, professional licenses (if applicable), and scope of work of all subcontractors, suppliers, or design professionals involved in building the residence.
"We need legislation that spells out a clear and predictable way to solve problems," Garczynski added. "This approach assures that home owner complaints are resolved quickly and prevents builders from being victimized by opportunistic trial lawyers."
This eUpdate posting by: Steve Joyce