2013 NJA Construction Defects Briefing Book
Content
TABLE OF CONTENTS
Summary of Construction Defect Laws History of Nevada’s Construction Defect Statute The Right to Be Made Whole Background and Basics on Nevada’s Statute of Repose Additional Issues to Consider Construction Industry Publications on Reducing CD Claims Homebuilding Industry Facts Homeowner Stories 2 5 10 12 14 17 19 22
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SUMMARY OF CONSTRUCTION DEFECT LAWS:
PROTECTING THE SINGLE-MOST IMPORTANT INVESTMENT YOUR FAMILY CAN MAKE
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For$many$years$Nevada$experienced$a$tremendous$surge$of$growth$and$new$home$ construction,$which$unfortunately$led$to$a$rash$of$poorly$built$homes.$While$error$can$never$ be$totally$avoided$in$any$human$endeavor,$unprecedented$demand$for$new$homes$caused$ contractors$from$outside$Nevada$to$=lock$here$in$droves.$Unfortunately,$many$of$these$ contractors$were$not$professional$builders$in$any$sense$of$the$word,$and$caused$an$ abnormally$high$rate$of$construction$defects,$especially$in$entry$level$building. CHAPTER 40 CREATED When$construction$defects$=irst$became$widespread,$the$Nevada$Legislature$responded$ in$1995$by$enacting$NRS$40.600,$et#seq.,$commonly$known$as$Chapter$40.$$Upon$its$ enactment$Chapter$40$was$widely$applauded$by$builders,$homeowners$and$legislators$from$ both$parties$as$a$sensible$means$of$resolving$construction$defect$claims.$The$builders$got$ what$they$wanted$K$a$method$for$resolving$claims$without$litigation$and$elimination$of$ potential$punitive$damage$awards.$Homeowners$got$possible$repairs$to$their$homes$and$a$ right$to$be$made$whole$if$they$had$to$litigate. HOW IT WORKS Chapter$40$sets$forth$procedural$requirements$that$a$homeowner$must$follow$in$ bringing$a$claim$for$defective$construction$against$a$builder.$Before&a&homeowner&can& bring&a&lawsuit&against&a&builder&for&defective&construction,&the&homeowner&must& 7irst&give&the&builder¬ice&of&the&defect&and&an&opportunity&to&inspect&the&home.& Thereafter,$the$statute$requires$the$builder$to$send$a$written$response$to$the$ homeowner$indicating$whether$the$builder$will$(1)$deny$liability$for$the$defect,$(2)$make$a$ monetary$offer$so$that$the$homeowner$can$hire$another$contractor$to$repair$the$defect,$or$ (3)$make$an$offer$to$repair$the$defect.$ If$the$contractor$makes$a$written$proposal$to$repair$the$defect,$the$homeowner$must$ allow$the$builder$to$perform$whatever$repair$the$builder$deems$appropriate,$or$risk$having$ their$case$thrown$out.$Furthermore,$the$statute$stif=ly$penalizes$any$homeowner$who$ unreasonably$rejects$a$reasonable$monetary$offer.$In$fact,$under$Chapter$40,$a&court&has& the&power&to&deny&all&attorney's&fees&and&litigation&costs&incurred&by&the&homeowner& and&to&make&the&homeowner&pay&all&the&litigation&costs&and&attorney's&fees&for&the& builder&if&it&is&determined&that&the&homeowner&unreasonably&rejected&a&reasonable& monetary&settlement&proposal. COMPLEX CASES Where$defects$are$alleged$to$exist$throughout$a$subdivision$homeowners$can$make$ their$notice$to$the$builder$a$"common$defect$notice."$The$builder$then$can$choose$to$send$a$ "disclosure"$to$all$owners$of$homes$where$the$defect$is$alleged$to$exist$(e.g.,$undersized$ foundations,$installation$of$a$defective$water$piping$system,$etc.).$If$the$builder$sends$the$ disclosure,$homeowners$can$respond$by$requesting$an$inspection.$Thereafter,$those$ homeowners$are$treated$the$same$as$if$they$had$sent$their$own$individual$notice. In$all$cases,$the$statute$requires$the$attorney$for$the$homeowner$to$communicate$any$ offer$made$by$the$builder$to$the$homeowner,$and$in$homeowners$associations$the$attorney$ is$required$to$send$a$copy$of$the$offer$made$by$the$builder$to$each$and$every$homeowner$ within$the$community$with$an$analysis$of$costs$of$litigation$if$the$offer$is$refused.
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RESOLUTION OF A CLAIM Under$Chapter$40,$a$homeowner$who$is$the$victim$of$a$legitimate$construction$defect$is$ limited$to$the$following:$the$reasonable$cost$of$repair$and$relocation$expenses$if$the$ homeowner$is$forced$to$move$from$the$residence$during$the$repairs,$and$reasonable$ attorney's$fees$and$litigation$costs,$if$approved$by$the$court.$$By$its$express$terms,$Chapter$ 40$does$not$allow$a$homeowner$to$collect$any$money$for$pain$and$suffering$or$ inconvenience$(also$known$as$nonKeconomic$damages).$ Thus,$Chapter$40$was$designed$to$do$nothing$more$than$make$homeowners$"whole"$by$ compensating$them$for$the$reasonable$attorney's$fees,$costs$and$relocation$expenses,$in$ addition$to$the$cost$to$repair$the$residence.$Without$Chapter$40's$allowance$for$reasonable$ attorney's$fees,$litigation$costs$and$relocation$expenses,$homeowners$could$never$be$made$ whole.$They$would$always$be$left$with$a$shortfall,$preventing$them$from$having$enough$ money$to$make$repairs$to$the$singleKmost$important$investment$they$will$ever$make.$ PROTECTIONS FOR BUILDERS Chapter$40$also$insulates$builders$from$punitive$damages,$unless$the$builder$fails$to$ responds$to$the$Chapter$40$notice$or$fails$to$participate$in$Chapter$40$proceedings$in$good$ faith.$Similarly,$there$are$protections$afforded$the$building$industry$in$terms$of$attorney's$ fees,$since$the$statute$requires$that$attorney's$fees$be$awarded$by$the$court,$not$a$jury.$ Again,$attorney’s$fees$and$costs$are$not$guaranteed$for$the$homeowner.$The$court$can$deny$ a$homeowner’s$attorney’s$fees$and$costs,$and$award$attorney’s$fees$and$costs$to$the$builder.$ Unfortunately,&litigation&has&been&the&only&viable&alternative&for&many&homeowners& victimized&by&faulty&construction&practices&as&a&result&of&the&builder's&refusal&to&put& things&right.&NJA&believes&that&it&is&incumbent&upon&this&Legislature&to&maintain&the& protection&afforded&the&victims&of&faulty&construction&presently&set&forth&in&Chapter& 40.&
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HISTORY OF NEVADA’S CONSTRUCTION DEFECT STATUTE
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The$ precept$ that$ the$ purchaser$ of$ a$ defective$ home$ should$ be$ made$ whole$ was$ the$ central$ basis$ for$ the$ formulation$ and$ enactment$ of$ NRS$ 40.600$ et# seq.# (“Chapter$ 40”)$ in$ 1995.$But$laws$providing$recovery$of$damages$for$defective$construction$are$almost$as$old$ as$civilization$itself.$Hammurabi’s$Code,$one$of$the$earliest$known$examples$of$written$law,$ established$severe$penalties$for$Babylonian$builders$of$defective$homes.1 Leviticus$14:33K45$ even$describes$God’s$preferred$method$of$dealing$with$toxic$mold$infestations. $ Chapter$40$was$largely$enacted$by$Senate$Bill$395$of$the$1995$legislative$session.$SB395$ represented$a$major$compromise$between$builders$and$distressed$owners$of$defective$ homes.$The$measure$passed$both$houses$unanimously.$Every$subsequent$revision$to$ Chapter$40$has$passed$with$nearKunanimous$votes$and$support$from$both$homeowner$ advocates$and$builders. $ Between$1982$and$1995,$statewide$permitting$for$new$housing$unit$construction$ increased$more$than$fourfold,$from$8,138$to$32,804.$Over$the$same$period,$valuation$of$new$ home$construction$increased$almost$tenfold,$from$$293M$to$over$$2.7B.2 $Overwhelmed$ builders,$struggling$to$meet$demand,$allowed$housing$quality$to$suffer$even$while$new$ homes$fetched$record$prices. $ $ To$make$matters$worse$for$consumers,$Nevada’s$statutes$were$silent$on$construction$ defects.$This$led$to$application$of$the$economic$loss$doctrine$to$defect$cases,$precluding$ recovery$for$the$cost$of$repair$and$other$economic$damages$in$a$tort$claim.3 $ $ In$1995,$as$shoddy$construction$practices$proliferated,$the$Southern$Nevada$Home$ Builders’$Association$(“SNHBA”)$pushed$SB395,$originally$designed$to$limit$homeowners’$ ability$to$sue$for$major$defects$like$improperly$settling$foundations.$Further,$the$ homebuilders$sought$to$prohibit$owners$of$defective$homes$from$being$made$whole$by$ severely$limiting$recovery$in$successful$construction$defects$claims.4 $ The$legislature$rejected$this$antiKconsumer$proposal$and$instead$unanimously$ supported$a$carefully$crafted$compromise$between$homeowner$advocates$and$builders.$ SB395,$as$amended: • Mandated$preKlitigation$procedures$to$encourage$settlement$outside$of$court. • Established$speci=ic$recoverable$damages$for$owners$of$defective$homes.$
1"Hammurabi,-.-The$Code$of$Hammurabi.-Translated-by-L.-W.-King.-1.2-ed.-N.p.:-Paulo-J.-S.-Pereira,-2011.-http://
www.generalFintelligence.com/library/hr.pdf.
2-United-State-Census-Bureau.-"New-PrivatelyFOwned-Housing-Units-Authorized-by-Building-Permits-in-
PermitFIssuing-Places-in-the-State-of:-Nevada."-2011.
3-Maddox,-Robert.-"In-Defense-of-Chapter-40:-Homeowner’s-Rights."-Nevada$Lawyer-10,-no.-12-(April-2002).-
LexisNexis.
4-Senate-Bill-395-of-the-68th-Session-of-the-Nevada-Legislature-(as-originally-introduced),-https://
www.leg.state.nv.us/Session/68th1995/95bills/SB395.TXT
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Renny$Ashleman,$representing$the$SNHBA,$urged$passage$of$the$compromise,$stating$that$ the$negotiating$parties$“=ind$themselves$jointly$in$an$undesirable$situation,$because$there$ currently$is$no$mechanism$for$resolving$disputes.”5 $ Following$the$enactment$of$Chapter$40,$Nevada$builders$enjoyed$a$decade$of$rapid$ growth.$By$2005,$45%$more$new$residential$building$permits$were$approved$than$in$1995.$ Valuation$of$new$home$construction$more$than$doubled,$rising$from$$2.7B$in$1995$to$more$ than$$6.5B$in$2005.6 $ The$legislature$subsequently$tweaked$provisions$of$Chapter$40$in$1997,$1999,$2001$and$ 2003$with$broad$bipartisan$approval$and$support$from$homeowner$advocates$and$builders.$ However,$the$legislature$has$repeatedly$rejected$builderKsupported,$antiKconsumer$ overhauls$of$Chapter$40.$ $ In$1997,$Nevada$enacted$Senate$Bill$480,$which: • Required$greater$disclosure$between$the$parties$involved$in$a$CD$claim. • Gave$courtroom$scheduling$preference$to$CD$cases.$ • Allowed$contractors$to$require$certain$third$parties$to$participate$in$mediation$ proceedings.$ With$an$amendment$proposed$by$thenKAssemblyman$Brian$Sandoval,$the$measure$passed$ unanimously.7 $ In$1999,$the$legislature$passed$SB32,$which: • Required$that$a$written$notice$of$a$CD$complaint$must$specify$the$defects$and$ damages$forming$the$basis$of$the$claim,$and$that$any$expert$opinions$rendered$ document$the$existence$and$extent$of$the$defects. • Established$rules$and$timelines$governing$preKlitigation$meetings$and$exchange$of$ information$between$the$parties. • Required$that$homeowners$diligently$pursue$a$claim$under$a$homeowner’s$ warranty,$if$one$covers$the$affected$property. • Required$a$claimant$to$make$certain$written$disclosures$to$a$prospective$purchaser$ of$a$property$that$has$been$involved$in$Chapter$40$litigation,$and$required$ contractors$to$make$certain$disclosures$to$a$purchaser. • Speci=ied$how$to$determine$when$substantial$completion$of$an$improvement$to$real$ property$occurs. • Adjusted$provisions$governing$insurers$who$issue$policies$for$home$protection,$ other$than$casualty$insurance.
5-"History-of-SB395."-Legislative$History$1995:-6.-http://www.leg.state.nv.us/Division/Research/Library/
LegHistory/LHs/1995/SB395,1995.pdf.
6-U.S.-Census-Bureau,-2011. 7-"History-of-SB480."-Legislative$History-1997.-http://www.leg.state.nv.us/Division/Research/Library/
LegHistory/LHs/1997/SB480,1997.pdf.
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Representing$another$compromise$between$homebuilders$and$consumers,$SB32$passed$ both$houses$with$only$former$Assemblywoman$Sharron$Angle$opposed.8 $ $ In$the$2001$Special$Session,$the$legislature$passed$AB3,$which$replaced$AB133$of$the$ 2001$Regular$Session.$AB133$was$originally$conceived$as$a$wideKranging$Chapter$40$ overhaul$that$would$have$hurt$consumers$by$lowering$building$standards$and$imposing$ unreasonable$burdens$on$homeowners$who$wanted$defects$corrected.$Sine#die$approached$ with$homeowner$advocates$and$contractors$unable$to$agree$on$a$comprehensive$deal.$ Ultimately$the$legislature$overwhelmingly$decided$to$pass$AB3,$a$narrow$agreement$which: • Required$an$af=idavit$in$support$of$an$action$concerning$constructional$defects$ against$design$professionals. • Established$procedures$for$amending$an$action$and$established$the$bases$upon$ which$the$court$may$dismiss$an$action$against$a$design$professional. The$legislature$approved$AB3$with$only$one$dissenting$vote.9 $ In$2003,$the$legislature$rejected$another$attempt$to$cripple$the$1995$legislative$ settlement$between$homeowners$and$builders$that$created$Chapter$40.$As$originally$ introduced,$SB241$would$have$struck$a$severe$blow$to$homeowners’$rights,$with$provisions$ unreasonably$altering$the$de=inition$of$defective$construction$and$limiting$recovery$to$less$ than$the$cost$of$repairs$in$many$cases.$Instead,$Nevada$opted$to$pass$SB241$with$major$ amendments$representing$another$carefully$constructed$compromise$between$the$ stakeholders.$The$measure: • Established$procedures$and$time$lines$for$providing$notice$of$constructional$defects$ to$contractors. • Established$the$right$of$contractors$to$inspect$and$repair$defects,$and$codi=ied$ procedures$for$inspection$and$repair. • Provided$for$dismissal$of$CD$claims$if$the$claimant$fails$to$comply. • Allowed$CD$disputes$to$be$submitted$to$the$State$Contractor’s$Board. • Authorized$a$judge$presiding$over$a$CD$case$to$order$a$representative$of$a$party’s$ insurer$to$attend$a$settlement$conference. SB241$was$the$last$signi=icant$change$to$Chapter$40,$and$passed$with$only$3$dissenting$ votes.10 $ After$a$stand$down$in$2005$and$2007$to$give$the$new$provisions$an$opportunity$to$ work,$the$legislature$again$considered$construction$defect$legislation$in$2009$and$2011.$ AntiKconsumer$proposals$from$the$homebuilding$industry$were$rejected$in$both$sessions.$A$ compromise$reform$package$proposed$by$thenKSpeaker$John$Oceguera—which$gained$the$
8-"History-of-SB32."-Legislative$History-1999.-http://www.leg.state.nv.us/Division/Research/Library/
LegHistory/LHs/1999/SB032,1999pt1.pdf.
9-"History-of-AB3."-Legislative$History-2001.-http://www.leg.state.nv.us/Division/Research/Library/
LegHistory/LHs/2001/AB133,2001_AB003,2001SSpt1.pdf.
10-"History-of-SB241."-Legislative$History-2003.-http://www.leg.state.nv.us/Division/Research/Library/
LegHistory/LHs/2003/SB241,2003.pdf.
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support$of$the$Nevada$Justice$Association—died$on$the$Senate$=loor$three$hours$before$sine# die$in$a$9K12$vote. Nevada&Democrats&and&Republicans&have&traditionally&acted&with&one&voice&when& addressing&construction&defects,&approving&only&measures&with&broad&support&from& stakeholders.&Only&consensus&measures&should&be&approved.
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THE RIGHT TO BE MADE WHOLE
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Common$sense$dictates$that$the$purchaser$of$a$defective$home$should$be$made$whole,$ but$the$construction$industry$is$advocating$policies$which$do$violence$to$this$principle.$ Homeowners$currently$hold$a$statutory$ability$to$collect$reasonably$incurred$attorney’s$ fees$as$damages$after$successfully$proving$a$home$is$defective.$By$eliminating$a$ homeowner’s$right$to$reasonable$attorney’s$fees,$a$ homeowner$can$never$be$made$whole$because$after$ By$parity$of$logic,$the$ paying$attorney’s$fees,$the$homeowner$will$always$be$ Mechanic’s$Lien$statutes$ left$without$suf=icient$funds$to$repair$their$defective$ entitle$contractors$to$their$ home.$$ attorney’s$fees$and$costs$when$
suing$for$monies$owed.$$ In$1995,$there$was$bipartisan$agreement$that$any$ Without$that$statutory$right,$ homeowner$sold$a$defective$home$should$have$the$ contractors$would$have$to$pay$ right$to$recover$funds$necessary$to$=ix$proven$defects,$ their$attorneys$and$their$costs$ costs$of$investigation$and$litigation,$and$reasonable$ out$of$their$award,$and$thus$ attorney’s$fees$as$determined$by$judicial$review.$$In$ could$never$be$made$whole. exchange$for$these$limited$rights,$builder$and$ homeowner$representatives$agreed$that$then$existing$ rights$to$punitive$and$nonKeconomic$damages$(i.e.$pain$and$suffering)$would$be$eliminated. $ More$importantly,$contrary$to$assertions$ otherwise,$attorney’s$fees$are$not$guaranteed$under$ NRS$40.600$et#seq.$$Instead,$NRS$40.650$plainly$states$ that$where$a$homeowner$unreasonably$rejects$a$ reasonable$written$offer$of$settlement$and$thereafter$ pursues$litigation$against$a$contractor,$the$court$may$ deny$the$claimant’s$attorney’s$fees$and$costs$and$ award#attorney’s#fees#and#costs#to#the#contractor.$$ Moreover,$NRS$40.667$states$if$the$claimant$does$not$ prevail,$the$court$may$not$only$deny$attorney’s$fees$ and$costs$to$the$claimant,$it$also$may$award$attorney’s$ fees$and$costs$to$the$contractor.$Therefore,$as$ currently$written,$NRS$40.600$et#seq.$provides$that$ only&the&prevailing&party$in$a$construction$defect$ action$may$recover$attorney’s$fees.$$
& Contractors’&attempts&to&wrongfully&strip&the& owners&of&defective&homes&of&their&legal&right&to&be&made&whole&should&be&rejected.
1. If$a$claimant$unreasonably$ rejects$a$reasonable$written$ offer$of$settlement$made$as$ part$of$a$response$pursuant$to$ paragraph$(b)$of$subsection$2$ of$NRS$40.6472$and$thereafter$ commences$an$action$ governed$by$NRS$40.600$to$ 40.695,$inclusive,$the$court$in$ which$the$action$is$ commenced$may: $$$$$$(a) Deny$the$claimant’s$ attorney’s$fees$and$costs;$and $$$$$$(b) Award$attorney’s$fees$ and$costs$to$the$contractor.
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BACKGROUND AND BASICS ON NEVADA’S STATUTES OF REPOSE
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Nevada’s$Statutes$of$Repose$set$deadlines$by$which$claims$for$property$damage$and$ bodily$injury$arising$from$defective$construction$must$be$=iled$in$court.$$The$Statutes$apply$ to$all$types$of$construction,$and$commence$to$run$when$a$building$is$completed.$$Victims$of$ faulty$construction$must$also$comply$with$the$Statute$of$Limitation,$which$requires$them$to$ =ile$legal$action$within$four&years&from&the&date&they&discover&a&defect.$ The$most$serious$kinds$of$building$failures$involve$negligent$structural,$mechanical,$ electrical,$and$engineering$defects,$which$in$many$instances$do$not$become$known$to$the$ property$owner$until$several$years$after$construction$is$completed$or$when$a$catastrophe$ occurs.$$The$most$horri=ic$example$of$this$fact$was$the$MGM$hotel$=ire,$where$construction$ defects$contributed$to$the$deaths$and$injury$of$over$100$tourists$and$residents.$$Problems$ with$the$hotel$were$not$discovered$until$the$building$caught$=ire$seven$years$after$it$was$ constructed.$$In$fact,$current$law$is$a$re=lection$of$that$tragedy. Known$Defects$–$Defects$Known$to$Builder$at$ Time$of$Construction NRS#11.203 Latent$Defects$–$Defects$Not$Apparent$to$ Homeowner$Through$Reasonable$Inspection NRS#11.204 Patent$Defects$–$Defects$Apparent$to$ Homeowner$Through$Reasonable$Inspection NRS#11.205
TYPE OF CONSTRUCTION DEFECT
CURRENT LAW
10$Years
8-Years
SB161
3$Years
4-Years
6-Years
3-Years
In$the$residential$context,$damage$resulting$from$defective$plumbing$systems,$expansive$ soils,$and$other$serious$construction$defects$often$do$not$show$up$until$years$after$ construction. The&warranty&on&a&home&should&last&longer&than&a&warranty&on&a&car.$Nevada’s& Statutes&of&Repose&are&presently&in&the&mainstream&of&states&countrywide&and&should& not&be&shortened.
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ADDITIONAL ISSUES TO CONSIDER
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BUILDING CODES ARE MINIMUM STANDARDS The$Uniform$Building$Code$"UBC"$(now$known$as$the$international$building$code$"IBC")$ is$created$nationally$by$the$International$Conference$of$Building$Of=icials.$$Much$like$our$ traf=ic$laws,$the$purpose$of$the$code$is$to$set$the$minimum&standards$needed$to$protect$ life,$limb$and$property.$The$code$is$based$on$studies$of$building$and$building$component$ failures$from$around$the$world$arising$from$catastrophes$and$the$exposure$of$buildings$to$ the$elements$and$the$test$of$time. $ In$Nevada,$as$in$most$States,$the$uniform$code$becomes$law$through$the$adoption$of$ local$ordinance.$$Changes$to$the$code$are$also$adopted$by$local$ordinance$either$relaxing$or$ tightening$certain$code$provisions$based$on$local$conditions.$$So$important$is$adherence$to$ the$code,$that$most&municipalities&have&also&made&violation&of&many&code&provisions&a& criminal&offense. BUILDING CODES UNDERMINED BY SB161 Under$the$proposed$SB161,$the$builder$has$no$obligation$to$repair$any$code$violation$ until$there$had$been$damage$to$person$or$property.$$This$is$the$truly$dangerous$reality$of$ SB161;$forcing$homeowners$to$live$with$potentially$dangerous$defects.$ SB161$thwarts$the$intent$and$purpose$of$the$code$through$rede=inition$of$construction$ defect.$$The$bill$proposes$that$a$builder$cannot$be$held$civilly$liable$for$violating$the$code$ unless$the$defect$also$“presents$an$unreasonable$risk$of$injury$to$person$or$property,”$or$ unless$the$defect$constitutes$a$code$violation$AND$results$in$damage$to$property$AND$is$ done$in$an$unworkmanlike$manner. Currently$the$violation$of$any$one$of$those$elements$provides$a$homeowner$the$right$to$ seek$repair,$not$wait$until$their$home$is$damaged$or$they$are$personally$injured.$$The$ current$de=inition$was$formulated$in$2003$after$lengthy$meetings$and$discussions$of$the$ Governor’s$Liability$Task$Force.$$This$task$force$was$comprised$of$members$of$the$building$ community,$trial$attorneys,$and$insurers.$$ SB161 EXPOSES HOMEOWNERS TO DAMAGE AND INJURY Presently,$if$a$=irewall$is$not$built$according$to$the$minimum$standards$of$the$building$ code,$it$is$a$construction$defect.$$Under$SB161,$homeowners$will$have$to$wait$until$there$is$ an$actual$=ire$in$their$home$before$they$can$seek$recourse$for$such$a$defect.$ There$are$a$multitude$of$other$defects$which$will$fail$to$qualify$for$repair$under$SB161.$ SB161 REQUIRES UNNECESSARY HURDLES SB161$mandates$each$homeowner$sign$an$af=idavit$stating$they$fully$understand$the$ Chapter$40$process.$$Currently,$attorneys$must$inform$their$clients$of$the$risks$and$bene=its$ of$pursuing$a$claim,$and$that$they$must$disclose$that$their$home$was$the$subject$of$such$a$ claim$to$all$subsequent$purchasers.$$The$SB161$af=idavit$requirement$is$an$unnecessary$ hurdle$to$legitimate$construction$defect$claims.$
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CAN YOU FILE A LAWSUIT WITHOUT CHAPTER 40? Proponents$of$SB161$argue$that$victims$can$still$sue$in$court$for$code$violations$that$ have$yet$to$injure$person$or$property,$but$that$promise$of$justice$is$hollow$too.$Case$law$ prevents$homeowners$from$=iling$one$lawsuit$for$defects$that$qualify$under$the$new$ de=inition,$and$a$separate$lawsuit$for$those$that$do$not.$$Known$as$splitting$causes$of$action,$ it$is$judicially$prohibited$and$would$leave$the$homeowner$without$further$recourse. IN SUMMARY SB161$puts$homeowners$at$risk$by$living$with$construction$defects$until$those$defects$ cause$damage$or$injury.$$It$prohibits$the$ability$of$a$homeowner$from$ever$being$made$ whole$by$forcing$them$to$pay$their$attorneys$fees$out$of$the$funds$needed$to$=ix$their$home. We&urge&you&to&reject&unfair&and&unjust&legislation&like&SB161&this&session.
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CONSTRUCTION INDUSTRY PUBLICATIONS ON REDUCING CD CLAIMS
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Homebuilders$wrongly$blame$consumers$and$lawyers$for$claims$involving$residential$ home$construction$=iled$under$NRS$40.600$et.#seq.$But$with$examination$of$building$ industry$publications,$it$is$apparent$that$shoddy$building$causes$Chapter$40$claims.$Further,$ it$is$clear$that$CD$litigation$is$encouraging$builders$to$adopt$better$construction$practices$ which$result$in$improved$housing$quality$and$fewer$lawsuits. “The$thing$is,$it$is$easy$to$prevent$construction$defects$claims;$it’s$just$not$cheap.” “.$.$.most$claims$are$preventable;$builders$and$developers&need&to&be&more&diligent&about& a&variety&of&items,&to&ensure&a&home&is&solid&and&safe&—&and&claim&free.”
Top$5$Construction$Defect$Claims$4$And$How$to$Avoid$Them."Colorado"Association"of"Homebuilders" Magazine,"2011.
“We’ve$seen$plaintiffs’$attorneys$turn$cases$down,$because$the$big$glaring$problems$aren’t$ there$on$a$house.$They$actually$go$back$and$encourage$the$home$owner$to$ask$the$builder$ to$resolve$the$punch$list$issues$and$not$sue.$If&you&as&a&builder&are&providing&a&good,& quality&home,&are&responsive&through&the&warranty&process,&and&are&keeping&the& home&owner&happy,&it’s&likely&the&home&owner&will&never&have&a&reason&to&call&a& lawyer.”
Kim"Jackson,"Practical$Solutions$for$Preventing$Construction$Defects$Lawsuits."Colorado"Builder"Forum," 2009.
“Construction$defects$can$greatly$be$reduced$when$a$concentrated$program$of$education$ and$training$is$once$again$deployed$throughout$the$industry. Quality$control$systems$and$methods$must$be$taken$seriously,$continuously,$and$be$ religiously$augmented$throughout$by$all$parties$concerned.$By¬&controlling&quality,& construction&defects&and&the&resulting&defects&litigation&cases,&will&only&continue&to& grow&in&the&future.”
Michael"S.$Poles,"Construction$Process$Can$Lead$to$Defects.$San"Francisco"Daily"Journal"Verdicts"and" Settlements"Supplement,"October"7,"1994.
“The$impact$of$defects,$from$both$a$claimsKmade$perspective$and$the$rising$cost$of$general$ liability$and$completed$operations$insurance$coverage,$demonstrates$that$quality&can&be&a& critical&determinant&of&project&and&organizational&success.”
Dr."Ron"Prichard,"Ph.D.,"Getting$a$Grip$on$Quality$in$the$Constructed$Project:$DeEining$Quality."Arcanum" Professional"Services,"2009.
“People&sue&their&builders&when&the&end&product&they&get&doesn’t&meet&the&result&that& they&thought&they&had&the&right&to&expect$—$either$how$a$product$will$perform$or$how$ long$it$will$last.”
Susan"Linden"McGreevy,"Avoiding$Construction$Defect$Lawsuits."Contractor"Magazine,"February"2007.
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HOMEBUILDING INDUSTRY FACTS
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As$of$1/1/2013,$YTD$new$singleKfamily$building$permits$were$up$58%$in$Nevada$ compared$to$the$same$period$in$2011.$Nationally,$they$were$up$only$24%.$While$new$ multifamily$building$permits$were$up$only$16%$statewide,$they$were$up$209%$in$the$ Reno/Sparks$area.$Overall,$new$building$permits$were$up$48%$statewide,$45%$in$the$ Las$Vegas$metro$area,$54%$in$the$Reno/Sparks$metro$area$and$292%$in$Carson$City.$ (NAHB$Building$Permits$by$States$and$Metro$Areas$Data,$published$1/30/2013) The$Las$Vegas$and$Reno$markets$are$ranked$on$the$NAHB/First$American$Improving$ Markets$Index,$which$tracks$new$building$permits,$median$home$prices$and$ employment.$(NAHM/First$American$Improving$Markets$Index,$published$2/6/2013) In$a$presentation$to$BANN’s$“Forecasting$2013$&$Beyond”$event$held$on$1/15/2013,$ ArchCrest$Commercial$Parters$principal$Mark$Krueger$projects$that$2013$new$home$ sales$in$the$Reno/Sparks$market$will$nearly$double$2011$sales$(925$vs.$477).$Krueger$ predicts$18$new$housing$developments$will$be$built$or$planned$in$Reno/Sparks$in$2013,$ and$notes$that$builder$con=idence$is$the$highest$it's$been$since$April$of$2006.$(“We've$ Turned$the$Corner:$Northern$Nevada$Land$Rush,”$presented$1/15/2013) Nevada$leads$all$mountain$west$states$but$Idaho$in$YTD$singleKfamily$building$permit$ improvements.$(NAHB$Building$Permits$by$States$and$Metro$Areas$Data,$published$ 1/30/2013) Home$prices$in$Las$Vegas$jumped$27.1$percent$in$January,$2013$according$to$the$Greater$ Las$Vegas$Association$of$Realtors.$The$median$price$for$2,284$singleKfamily$homes$sold$ in$January$was$$150,000,$up$from$$118,000$in$the$same$month$a$year$ago.$Sales$ decreased$22.1$percent$from$a$year$ago$because$of$limited$choices$on$the$market,$ bolstering$newKhome$sales.$(Las$Vegas$Review$Journal,$published$2/8/2013) Southern$Nevada$home$prices$are$expected$to$continue$to$rise$in$2013$after$hitting$ bottom$in$Spring$2012.$Southern$Nevada$home$values$are$projected$to$rise$3.1$percent$ by$the$end$of$the$year,$with$home$values$in$North$Las$Vegas$and$Henderson$expected$to$ climb$3.2$percent,$according$to$a$study$conducted$by$Zillow.$(Vegas,$Inc.,$published$ 1/21/2013)
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HOMEOWNER STORIES
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32,000 homes had to have their plumbing replaced due to construction defect. Here are a few of their stories: Tracy Rhodes
Dove Canyon/Developers of Nevada Tracy$found$a$leak$behind$her$dishwasher$in$late$2007,$during$Thanksgiving.$$Her$kitchen$ was$=looded$and$when$she$investigated,$she$found$mushrooms$growing$out$of$her$ baseboards$behind$her$dishwasher.$$$Her$insurance$company$denied$her$claims$as$the$leak$ was$a$slow$developing$one.$$Tracy$attempted$to$contact$her$builder$but$she$never$received$a$ response.$$Tracy$scheduled$multiple$doctors$appointments$for$herself,$her$longtime$ boyfriend$and$their$pets$because$she$was$worried$they$might$have$gotten$sick$from$the$ mold$in$the$house.$$A$year$later,$due$to$severe$depression,$Tracy$moved$out$of$the$house$and$ rented$it.$$She$=iled$for$bankruptcy$because$of$the$debt$she$incurred$to$repair$and$remediate$ the$house,$and$she$broke$up$with$her$boyfriend$of$over$8$½$years$due$to$her$severe$ depression.$$Tracy$was$reimbursed$in$full$for$her$outKofKpocket$expenses$through$the$ efforts$of$the$Kitec$lawsuit.$$ $ Christopher Smith Lynbrook/RL Homes Christopher$Smith’s$home$=looded$two$weeks$before$his$wedding,$in$October,$2008.$$He$had$ out$of$town$guests$staying$with$him.$He$was$able$to$have$his$house$entirely$replumbed$due$ to$the$funds$provided$at$the$resolution$of$the$lawsuit.$$ $
Bessie Freeman
Sharp Chartis 35 Bessie$Freeman$is$a$single$mother$living$in$Las$Vegas.$She$had$the$misfortune$to$have$two$ separate$Kitec$related$leaks..$$She$could$not$afford$to$replumb$her$home.$$A$plumber$shut$ the$hot$water$supply$line$off$to$stop$additional$water$damage$from$occurring.$$Bessie$and$ her$children$were$forced$to$heat$up$water$on$the$stove$to$bathe.$$She$considered$walking$ away$from$her$house$because$she$was$tired$of$not$having$hot$water$and$had$no$money$to$ replace$the$plumbing$system.$$Her$home$was$replumbed$under$the$Sharp$Chartis$35$ settlement.
Kimberly Gladden
Copperhead Hills/LBM Development Kimberly$Gladden$is$a$single$mother.$She$had$the$misfortune$to$experience$several$KitecK related$leaks.$She$could$not$afford$to$replumb$her$house,$so$she$shut$off$the$hot$water.$She$ devised$a$system$whereby$her$son$would$bathe$at$home$and$she$would$bathe$at$the$gym$so$ she$would$use$as$little$hot$water$as$possible.$Kimberly’s$house$was$replumbed$through$the$ efforts$of$the$class. $
Cynthia Emanuel ($2.4 million Custom Home)
1798 Mezza Ct. While$on$vacation$out$of$the$country$in$January,$2011,$Cynthia’s$house$suffered$a$massive$ =lood$due$to$a$failed$Kitec$hot$line$brass$=itting.$$Damages$were$in$excess$of$$57,000.$$ Cynthia$received$full$reimbursement$for$her$outKofKpocket$costs$through$the$efforts$of$the$ class.
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Summary of Construction Defect Laws History of Nevada’s Construction Defect Statute The Right to Be Made Whole Background and Basics on Nevada’s Statute of Repose Additional Issues to Consider Construction Industry Publications on Reducing CD Claims Homebuilding Industry Facts Homeowner Stories 2 5 10 12 14 17 19 22
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SUMMARY OF CONSTRUCTION DEFECT LAWS:
PROTECTING THE SINGLE-MOST IMPORTANT INVESTMENT YOUR FAMILY CAN MAKE
2
For$many$years$Nevada$experienced$a$tremendous$surge$of$growth$and$new$home$ construction,$which$unfortunately$led$to$a$rash$of$poorly$built$homes.$While$error$can$never$ be$totally$avoided$in$any$human$endeavor,$unprecedented$demand$for$new$homes$caused$ contractors$from$outside$Nevada$to$=lock$here$in$droves.$Unfortunately,$many$of$these$ contractors$were$not$professional$builders$in$any$sense$of$the$word,$and$caused$an$ abnormally$high$rate$of$construction$defects,$especially$in$entry$level$building. CHAPTER 40 CREATED When$construction$defects$=irst$became$widespread,$the$Nevada$Legislature$responded$ in$1995$by$enacting$NRS$40.600,$et#seq.,$commonly$known$as$Chapter$40.$$Upon$its$ enactment$Chapter$40$was$widely$applauded$by$builders,$homeowners$and$legislators$from$ both$parties$as$a$sensible$means$of$resolving$construction$defect$claims.$The$builders$got$ what$they$wanted$K$a$method$for$resolving$claims$without$litigation$and$elimination$of$ potential$punitive$damage$awards.$Homeowners$got$possible$repairs$to$their$homes$and$a$ right$to$be$made$whole$if$they$had$to$litigate. HOW IT WORKS Chapter$40$sets$forth$procedural$requirements$that$a$homeowner$must$follow$in$ bringing$a$claim$for$defective$construction$against$a$builder.$Before&a&homeowner&can& bring&a&lawsuit&against&a&builder&for&defective&construction,&the&homeowner&must& 7irst&give&the&builder¬ice&of&the&defect&and&an&opportunity&to&inspect&the&home.& Thereafter,$the$statute$requires$the$builder$to$send$a$written$response$to$the$ homeowner$indicating$whether$the$builder$will$(1)$deny$liability$for$the$defect,$(2)$make$a$ monetary$offer$so$that$the$homeowner$can$hire$another$contractor$to$repair$the$defect,$or$ (3)$make$an$offer$to$repair$the$defect.$ If$the$contractor$makes$a$written$proposal$to$repair$the$defect,$the$homeowner$must$ allow$the$builder$to$perform$whatever$repair$the$builder$deems$appropriate,$or$risk$having$ their$case$thrown$out.$Furthermore,$the$statute$stif=ly$penalizes$any$homeowner$who$ unreasonably$rejects$a$reasonable$monetary$offer.$In$fact,$under$Chapter$40,$a&court&has& the&power&to&deny&all&attorney's&fees&and&litigation&costs&incurred&by&the&homeowner& and&to&make&the&homeowner&pay&all&the&litigation&costs&and&attorney's&fees&for&the& builder&if&it&is&determined&that&the&homeowner&unreasonably&rejected&a&reasonable& monetary&settlement&proposal. COMPLEX CASES Where$defects$are$alleged$to$exist$throughout$a$subdivision$homeowners$can$make$ their$notice$to$the$builder$a$"common$defect$notice."$The$builder$then$can$choose$to$send$a$ "disclosure"$to$all$owners$of$homes$where$the$defect$is$alleged$to$exist$(e.g.,$undersized$ foundations,$installation$of$a$defective$water$piping$system,$etc.).$If$the$builder$sends$the$ disclosure,$homeowners$can$respond$by$requesting$an$inspection.$Thereafter,$those$ homeowners$are$treated$the$same$as$if$they$had$sent$their$own$individual$notice. In$all$cases,$the$statute$requires$the$attorney$for$the$homeowner$to$communicate$any$ offer$made$by$the$builder$to$the$homeowner,$and$in$homeowners$associations$the$attorney$ is$required$to$send$a$copy$of$the$offer$made$by$the$builder$to$each$and$every$homeowner$ within$the$community$with$an$analysis$of$costs$of$litigation$if$the$offer$is$refused.
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RESOLUTION OF A CLAIM Under$Chapter$40,$a$homeowner$who$is$the$victim$of$a$legitimate$construction$defect$is$ limited$to$the$following:$the$reasonable$cost$of$repair$and$relocation$expenses$if$the$ homeowner$is$forced$to$move$from$the$residence$during$the$repairs,$and$reasonable$ attorney's$fees$and$litigation$costs,$if$approved$by$the$court.$$By$its$express$terms,$Chapter$ 40$does$not$allow$a$homeowner$to$collect$any$money$for$pain$and$suffering$or$ inconvenience$(also$known$as$nonKeconomic$damages).$ Thus,$Chapter$40$was$designed$to$do$nothing$more$than$make$homeowners$"whole"$by$ compensating$them$for$the$reasonable$attorney's$fees,$costs$and$relocation$expenses,$in$ addition$to$the$cost$to$repair$the$residence.$Without$Chapter$40's$allowance$for$reasonable$ attorney's$fees,$litigation$costs$and$relocation$expenses,$homeowners$could$never$be$made$ whole.$They$would$always$be$left$with$a$shortfall,$preventing$them$from$having$enough$ money$to$make$repairs$to$the$singleKmost$important$investment$they$will$ever$make.$ PROTECTIONS FOR BUILDERS Chapter$40$also$insulates$builders$from$punitive$damages,$unless$the$builder$fails$to$ responds$to$the$Chapter$40$notice$or$fails$to$participate$in$Chapter$40$proceedings$in$good$ faith.$Similarly,$there$are$protections$afforded$the$building$industry$in$terms$of$attorney's$ fees,$since$the$statute$requires$that$attorney's$fees$be$awarded$by$the$court,$not$a$jury.$ Again,$attorney’s$fees$and$costs$are$not$guaranteed$for$the$homeowner.$The$court$can$deny$ a$homeowner’s$attorney’s$fees$and$costs,$and$award$attorney’s$fees$and$costs$to$the$builder.$ Unfortunately,&litigation&has&been&the&only&viable&alternative&for&many&homeowners& victimized&by&faulty&construction&practices&as&a&result&of&the&builder's&refusal&to&put& things&right.&NJA&believes&that&it&is&incumbent&upon&this&Legislature&to&maintain&the& protection&afforded&the&victims&of&faulty&construction&presently&set&forth&in&Chapter& 40.&
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HISTORY OF NEVADA’S CONSTRUCTION DEFECT STATUTE
5
The$ precept$ that$ the$ purchaser$ of$ a$ defective$ home$ should$ be$ made$ whole$ was$ the$ central$ basis$ for$ the$ formulation$ and$ enactment$ of$ NRS$ 40.600$ et# seq.# (“Chapter$ 40”)$ in$ 1995.$But$laws$providing$recovery$of$damages$for$defective$construction$are$almost$as$old$ as$civilization$itself.$Hammurabi’s$Code,$one$of$the$earliest$known$examples$of$written$law,$ established$severe$penalties$for$Babylonian$builders$of$defective$homes.1 Leviticus$14:33K45$ even$describes$God’s$preferred$method$of$dealing$with$toxic$mold$infestations. $ Chapter$40$was$largely$enacted$by$Senate$Bill$395$of$the$1995$legislative$session.$SB395$ represented$a$major$compromise$between$builders$and$distressed$owners$of$defective$ homes.$The$measure$passed$both$houses$unanimously.$Every$subsequent$revision$to$ Chapter$40$has$passed$with$nearKunanimous$votes$and$support$from$both$homeowner$ advocates$and$builders. $ Between$1982$and$1995,$statewide$permitting$for$new$housing$unit$construction$ increased$more$than$fourfold,$from$8,138$to$32,804.$Over$the$same$period,$valuation$of$new$ home$construction$increased$almost$tenfold,$from$$293M$to$over$$2.7B.2 $Overwhelmed$ builders,$struggling$to$meet$demand,$allowed$housing$quality$to$suffer$even$while$new$ homes$fetched$record$prices. $ $ To$make$matters$worse$for$consumers,$Nevada’s$statutes$were$silent$on$construction$ defects.$This$led$to$application$of$the$economic$loss$doctrine$to$defect$cases,$precluding$ recovery$for$the$cost$of$repair$and$other$economic$damages$in$a$tort$claim.3 $ $ In$1995,$as$shoddy$construction$practices$proliferated,$the$Southern$Nevada$Home$ Builders’$Association$(“SNHBA”)$pushed$SB395,$originally$designed$to$limit$homeowners’$ ability$to$sue$for$major$defects$like$improperly$settling$foundations.$Further,$the$ homebuilders$sought$to$prohibit$owners$of$defective$homes$from$being$made$whole$by$ severely$limiting$recovery$in$successful$construction$defects$claims.4 $ The$legislature$rejected$this$antiKconsumer$proposal$and$instead$unanimously$ supported$a$carefully$crafted$compromise$between$homeowner$advocates$and$builders.$ SB395,$as$amended: • Mandated$preKlitigation$procedures$to$encourage$settlement$outside$of$court. • Established$speci=ic$recoverable$damages$for$owners$of$defective$homes.$
1"Hammurabi,-.-The$Code$of$Hammurabi.-Translated-by-L.-W.-King.-1.2-ed.-N.p.:-Paulo-J.-S.-Pereira,-2011.-http://
www.generalFintelligence.com/library/hr.pdf.
2-United-State-Census-Bureau.-"New-PrivatelyFOwned-Housing-Units-Authorized-by-Building-Permits-in-
PermitFIssuing-Places-in-the-State-of:-Nevada."-2011.
3-Maddox,-Robert.-"In-Defense-of-Chapter-40:-Homeowner’s-Rights."-Nevada$Lawyer-10,-no.-12-(April-2002).-
LexisNexis.
4-Senate-Bill-395-of-the-68th-Session-of-the-Nevada-Legislature-(as-originally-introduced),-https://
www.leg.state.nv.us/Session/68th1995/95bills/SB395.TXT
6
Renny$Ashleman,$representing$the$SNHBA,$urged$passage$of$the$compromise,$stating$that$ the$negotiating$parties$“=ind$themselves$jointly$in$an$undesirable$situation,$because$there$ currently$is$no$mechanism$for$resolving$disputes.”5 $ Following$the$enactment$of$Chapter$40,$Nevada$builders$enjoyed$a$decade$of$rapid$ growth.$By$2005,$45%$more$new$residential$building$permits$were$approved$than$in$1995.$ Valuation$of$new$home$construction$more$than$doubled,$rising$from$$2.7B$in$1995$to$more$ than$$6.5B$in$2005.6 $ The$legislature$subsequently$tweaked$provisions$of$Chapter$40$in$1997,$1999,$2001$and$ 2003$with$broad$bipartisan$approval$and$support$from$homeowner$advocates$and$builders.$ However,$the$legislature$has$repeatedly$rejected$builderKsupported,$antiKconsumer$ overhauls$of$Chapter$40.$ $ In$1997,$Nevada$enacted$Senate$Bill$480,$which: • Required$greater$disclosure$between$the$parties$involved$in$a$CD$claim. • Gave$courtroom$scheduling$preference$to$CD$cases.$ • Allowed$contractors$to$require$certain$third$parties$to$participate$in$mediation$ proceedings.$ With$an$amendment$proposed$by$thenKAssemblyman$Brian$Sandoval,$the$measure$passed$ unanimously.7 $ In$1999,$the$legislature$passed$SB32,$which: • Required$that$a$written$notice$of$a$CD$complaint$must$specify$the$defects$and$ damages$forming$the$basis$of$the$claim,$and$that$any$expert$opinions$rendered$ document$the$existence$and$extent$of$the$defects. • Established$rules$and$timelines$governing$preKlitigation$meetings$and$exchange$of$ information$between$the$parties. • Required$that$homeowners$diligently$pursue$a$claim$under$a$homeowner’s$ warranty,$if$one$covers$the$affected$property. • Required$a$claimant$to$make$certain$written$disclosures$to$a$prospective$purchaser$ of$a$property$that$has$been$involved$in$Chapter$40$litigation,$and$required$ contractors$to$make$certain$disclosures$to$a$purchaser. • Speci=ied$how$to$determine$when$substantial$completion$of$an$improvement$to$real$ property$occurs. • Adjusted$provisions$governing$insurers$who$issue$policies$for$home$protection,$ other$than$casualty$insurance.
5-"History-of-SB395."-Legislative$History$1995:-6.-http://www.leg.state.nv.us/Division/Research/Library/
LegHistory/LHs/1995/SB395,1995.pdf.
6-U.S.-Census-Bureau,-2011. 7-"History-of-SB480."-Legislative$History-1997.-http://www.leg.state.nv.us/Division/Research/Library/
LegHistory/LHs/1997/SB480,1997.pdf.
7
Representing$another$compromise$between$homebuilders$and$consumers,$SB32$passed$ both$houses$with$only$former$Assemblywoman$Sharron$Angle$opposed.8 $ $ In$the$2001$Special$Session,$the$legislature$passed$AB3,$which$replaced$AB133$of$the$ 2001$Regular$Session.$AB133$was$originally$conceived$as$a$wideKranging$Chapter$40$ overhaul$that$would$have$hurt$consumers$by$lowering$building$standards$and$imposing$ unreasonable$burdens$on$homeowners$who$wanted$defects$corrected.$Sine#die$approached$ with$homeowner$advocates$and$contractors$unable$to$agree$on$a$comprehensive$deal.$ Ultimately$the$legislature$overwhelmingly$decided$to$pass$AB3,$a$narrow$agreement$which: • Required$an$af=idavit$in$support$of$an$action$concerning$constructional$defects$ against$design$professionals. • Established$procedures$for$amending$an$action$and$established$the$bases$upon$ which$the$court$may$dismiss$an$action$against$a$design$professional. The$legislature$approved$AB3$with$only$one$dissenting$vote.9 $ In$2003,$the$legislature$rejected$another$attempt$to$cripple$the$1995$legislative$ settlement$between$homeowners$and$builders$that$created$Chapter$40.$As$originally$ introduced,$SB241$would$have$struck$a$severe$blow$to$homeowners’$rights,$with$provisions$ unreasonably$altering$the$de=inition$of$defective$construction$and$limiting$recovery$to$less$ than$the$cost$of$repairs$in$many$cases.$Instead,$Nevada$opted$to$pass$SB241$with$major$ amendments$representing$another$carefully$constructed$compromise$between$the$ stakeholders.$The$measure: • Established$procedures$and$time$lines$for$providing$notice$of$constructional$defects$ to$contractors. • Established$the$right$of$contractors$to$inspect$and$repair$defects,$and$codi=ied$ procedures$for$inspection$and$repair. • Provided$for$dismissal$of$CD$claims$if$the$claimant$fails$to$comply. • Allowed$CD$disputes$to$be$submitted$to$the$State$Contractor’s$Board. • Authorized$a$judge$presiding$over$a$CD$case$to$order$a$representative$of$a$party’s$ insurer$to$attend$a$settlement$conference. SB241$was$the$last$signi=icant$change$to$Chapter$40,$and$passed$with$only$3$dissenting$ votes.10 $ After$a$stand$down$in$2005$and$2007$to$give$the$new$provisions$an$opportunity$to$ work,$the$legislature$again$considered$construction$defect$legislation$in$2009$and$2011.$ AntiKconsumer$proposals$from$the$homebuilding$industry$were$rejected$in$both$sessions.$A$ compromise$reform$package$proposed$by$thenKSpeaker$John$Oceguera—which$gained$the$
8-"History-of-SB32."-Legislative$History-1999.-http://www.leg.state.nv.us/Division/Research/Library/
LegHistory/LHs/1999/SB032,1999pt1.pdf.
9-"History-of-AB3."-Legislative$History-2001.-http://www.leg.state.nv.us/Division/Research/Library/
LegHistory/LHs/2001/AB133,2001_AB003,2001SSpt1.pdf.
10-"History-of-SB241."-Legislative$History-2003.-http://www.leg.state.nv.us/Division/Research/Library/
LegHistory/LHs/2003/SB241,2003.pdf.
8
support$of$the$Nevada$Justice$Association—died$on$the$Senate$=loor$three$hours$before$sine# die$in$a$9K12$vote. Nevada&Democrats&and&Republicans&have&traditionally&acted&with&one&voice&when& addressing&construction&defects,&approving&only&measures&with&broad&support&from& stakeholders.&Only&consensus&measures&should&be&approved.
9
THE RIGHT TO BE MADE WHOLE
10
Common$sense$dictates$that$the$purchaser$of$a$defective$home$should$be$made$whole,$ but$the$construction$industry$is$advocating$policies$which$do$violence$to$this$principle.$ Homeowners$currently$hold$a$statutory$ability$to$collect$reasonably$incurred$attorney’s$ fees$as$damages$after$successfully$proving$a$home$is$defective.$By$eliminating$a$ homeowner’s$right$to$reasonable$attorney’s$fees,$a$ homeowner$can$never$be$made$whole$because$after$ By$parity$of$logic,$the$ paying$attorney’s$fees,$the$homeowner$will$always$be$ Mechanic’s$Lien$statutes$ left$without$suf=icient$funds$to$repair$their$defective$ entitle$contractors$to$their$ home.$$ attorney’s$fees$and$costs$when$
suing$for$monies$owed.$$ In$1995,$there$was$bipartisan$agreement$that$any$ Without$that$statutory$right,$ homeowner$sold$a$defective$home$should$have$the$ contractors$would$have$to$pay$ right$to$recover$funds$necessary$to$=ix$proven$defects,$ their$attorneys$and$their$costs$ costs$of$investigation$and$litigation,$and$reasonable$ out$of$their$award,$and$thus$ attorney’s$fees$as$determined$by$judicial$review.$$In$ could$never$be$made$whole. exchange$for$these$limited$rights,$builder$and$ homeowner$representatives$agreed$that$then$existing$ rights$to$punitive$and$nonKeconomic$damages$(i.e.$pain$and$suffering)$would$be$eliminated. $ More$importantly,$contrary$to$assertions$ otherwise,$attorney’s$fees$are$not$guaranteed$under$ NRS$40.600$et#seq.$$Instead,$NRS$40.650$plainly$states$ that$where$a$homeowner$unreasonably$rejects$a$ reasonable$written$offer$of$settlement$and$thereafter$ pursues$litigation$against$a$contractor,$the$court$may$ deny$the$claimant’s$attorney’s$fees$and$costs$and$ award#attorney’s#fees#and#costs#to#the#contractor.$$ Moreover,$NRS$40.667$states$if$the$claimant$does$not$ prevail,$the$court$may$not$only$deny$attorney’s$fees$ and$costs$to$the$claimant,$it$also$may$award$attorney’s$ fees$and$costs$to$the$contractor.$Therefore,$as$ currently$written,$NRS$40.600$et#seq.$provides$that$ only&the&prevailing&party$in$a$construction$defect$ action$may$recover$attorney’s$fees.$$
& Contractors’&attempts&to&wrongfully&strip&the& owners&of&defective&homes&of&their&legal&right&to&be&made&whole&should&be&rejected.
1. If$a$claimant$unreasonably$ rejects$a$reasonable$written$ offer$of$settlement$made$as$ part$of$a$response$pursuant$to$ paragraph$(b)$of$subsection$2$ of$NRS$40.6472$and$thereafter$ commences$an$action$ governed$by$NRS$40.600$to$ 40.695,$inclusive,$the$court$in$ which$the$action$is$ commenced$may: $$$$$$(a) Deny$the$claimant’s$ attorney’s$fees$and$costs;$and $$$$$$(b) Award$attorney’s$fees$ and$costs$to$the$contractor.
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BACKGROUND AND BASICS ON NEVADA’S STATUTES OF REPOSE
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Nevada’s$Statutes$of$Repose$set$deadlines$by$which$claims$for$property$damage$and$ bodily$injury$arising$from$defective$construction$must$be$=iled$in$court.$$The$Statutes$apply$ to$all$types$of$construction,$and$commence$to$run$when$a$building$is$completed.$$Victims$of$ faulty$construction$must$also$comply$with$the$Statute$of$Limitation,$which$requires$them$to$ =ile$legal$action$within$four&years&from&the&date&they&discover&a&defect.$ The$most$serious$kinds$of$building$failures$involve$negligent$structural,$mechanical,$ electrical,$and$engineering$defects,$which$in$many$instances$do$not$become$known$to$the$ property$owner$until$several$years$after$construction$is$completed$or$when$a$catastrophe$ occurs.$$The$most$horri=ic$example$of$this$fact$was$the$MGM$hotel$=ire,$where$construction$ defects$contributed$to$the$deaths$and$injury$of$over$100$tourists$and$residents.$$Problems$ with$the$hotel$were$not$discovered$until$the$building$caught$=ire$seven$years$after$it$was$ constructed.$$In$fact,$current$law$is$a$re=lection$of$that$tragedy. Known$Defects$–$Defects$Known$to$Builder$at$ Time$of$Construction NRS#11.203 Latent$Defects$–$Defects$Not$Apparent$to$ Homeowner$Through$Reasonable$Inspection NRS#11.204 Patent$Defects$–$Defects$Apparent$to$ Homeowner$Through$Reasonable$Inspection NRS#11.205
TYPE OF CONSTRUCTION DEFECT
CURRENT LAW
10$Years
8-Years
SB161
3$Years
4-Years
6-Years
3-Years
In$the$residential$context,$damage$resulting$from$defective$plumbing$systems,$expansive$ soils,$and$other$serious$construction$defects$often$do$not$show$up$until$years$after$ construction. The&warranty&on&a&home&should&last&longer&than&a&warranty&on&a&car.$Nevada’s& Statutes&of&Repose&are&presently&in&the&mainstream&of&states&countrywide&and&should& not&be&shortened.
13
ADDITIONAL ISSUES TO CONSIDER
14
BUILDING CODES ARE MINIMUM STANDARDS The$Uniform$Building$Code$"UBC"$(now$known$as$the$international$building$code$"IBC")$ is$created$nationally$by$the$International$Conference$of$Building$Of=icials.$$Much$like$our$ traf=ic$laws,$the$purpose$of$the$code$is$to$set$the$minimum&standards$needed$to$protect$ life,$limb$and$property.$The$code$is$based$on$studies$of$building$and$building$component$ failures$from$around$the$world$arising$from$catastrophes$and$the$exposure$of$buildings$to$ the$elements$and$the$test$of$time. $ In$Nevada,$as$in$most$States,$the$uniform$code$becomes$law$through$the$adoption$of$ local$ordinance.$$Changes$to$the$code$are$also$adopted$by$local$ordinance$either$relaxing$or$ tightening$certain$code$provisions$based$on$local$conditions.$$So$important$is$adherence$to$ the$code,$that$most&municipalities&have&also&made&violation&of&many&code&provisions&a& criminal&offense. BUILDING CODES UNDERMINED BY SB161 Under$the$proposed$SB161,$the$builder$has$no$obligation$to$repair$any$code$violation$ until$there$had$been$damage$to$person$or$property.$$This$is$the$truly$dangerous$reality$of$ SB161;$forcing$homeowners$to$live$with$potentially$dangerous$defects.$ SB161$thwarts$the$intent$and$purpose$of$the$code$through$rede=inition$of$construction$ defect.$$The$bill$proposes$that$a$builder$cannot$be$held$civilly$liable$for$violating$the$code$ unless$the$defect$also$“presents$an$unreasonable$risk$of$injury$to$person$or$property,”$or$ unless$the$defect$constitutes$a$code$violation$AND$results$in$damage$to$property$AND$is$ done$in$an$unworkmanlike$manner. Currently$the$violation$of$any$one$of$those$elements$provides$a$homeowner$the$right$to$ seek$repair,$not$wait$until$their$home$is$damaged$or$they$are$personally$injured.$$The$ current$de=inition$was$formulated$in$2003$after$lengthy$meetings$and$discussions$of$the$ Governor’s$Liability$Task$Force.$$This$task$force$was$comprised$of$members$of$the$building$ community,$trial$attorneys,$and$insurers.$$ SB161 EXPOSES HOMEOWNERS TO DAMAGE AND INJURY Presently,$if$a$=irewall$is$not$built$according$to$the$minimum$standards$of$the$building$ code,$it$is$a$construction$defect.$$Under$SB161,$homeowners$will$have$to$wait$until$there$is$ an$actual$=ire$in$their$home$before$they$can$seek$recourse$for$such$a$defect.$ There$are$a$multitude$of$other$defects$which$will$fail$to$qualify$for$repair$under$SB161.$ SB161 REQUIRES UNNECESSARY HURDLES SB161$mandates$each$homeowner$sign$an$af=idavit$stating$they$fully$understand$the$ Chapter$40$process.$$Currently,$attorneys$must$inform$their$clients$of$the$risks$and$bene=its$ of$pursuing$a$claim,$and$that$they$must$disclose$that$their$home$was$the$subject$of$such$a$ claim$to$all$subsequent$purchasers.$$The$SB161$af=idavit$requirement$is$an$unnecessary$ hurdle$to$legitimate$construction$defect$claims.$
15
CAN YOU FILE A LAWSUIT WITHOUT CHAPTER 40? Proponents$of$SB161$argue$that$victims$can$still$sue$in$court$for$code$violations$that$ have$yet$to$injure$person$or$property,$but$that$promise$of$justice$is$hollow$too.$Case$law$ prevents$homeowners$from$=iling$one$lawsuit$for$defects$that$qualify$under$the$new$ de=inition,$and$a$separate$lawsuit$for$those$that$do$not.$$Known$as$splitting$causes$of$action,$ it$is$judicially$prohibited$and$would$leave$the$homeowner$without$further$recourse. IN SUMMARY SB161$puts$homeowners$at$risk$by$living$with$construction$defects$until$those$defects$ cause$damage$or$injury.$$It$prohibits$the$ability$of$a$homeowner$from$ever$being$made$ whole$by$forcing$them$to$pay$their$attorneys$fees$out$of$the$funds$needed$to$=ix$their$home. We&urge&you&to&reject&unfair&and&unjust&legislation&like&SB161&this&session.
16
CONSTRUCTION INDUSTRY PUBLICATIONS ON REDUCING CD CLAIMS
17
Homebuilders$wrongly$blame$consumers$and$lawyers$for$claims$involving$residential$ home$construction$=iled$under$NRS$40.600$et.#seq.$But$with$examination$of$building$ industry$publications,$it$is$apparent$that$shoddy$building$causes$Chapter$40$claims.$Further,$ it$is$clear$that$CD$litigation$is$encouraging$builders$to$adopt$better$construction$practices$ which$result$in$improved$housing$quality$and$fewer$lawsuits. “The$thing$is,$it$is$easy$to$prevent$construction$defects$claims;$it’s$just$not$cheap.” “.$.$.most$claims$are$preventable;$builders$and$developers&need&to&be&more&diligent&about& a&variety&of&items,&to&ensure&a&home&is&solid&and&safe&—&and&claim&free.”
Top$5$Construction$Defect$Claims$4$And$How$to$Avoid$Them."Colorado"Association"of"Homebuilders" Magazine,"2011.
“We’ve$seen$plaintiffs’$attorneys$turn$cases$down,$because$the$big$glaring$problems$aren’t$ there$on$a$house.$They$actually$go$back$and$encourage$the$home$owner$to$ask$the$builder$ to$resolve$the$punch$list$issues$and$not$sue.$If&you&as&a&builder&are&providing&a&good,& quality&home,&are&responsive&through&the&warranty&process,&and&are&keeping&the& home&owner&happy,&it’s&likely&the&home&owner&will&never&have&a&reason&to&call&a& lawyer.”
Kim"Jackson,"Practical$Solutions$for$Preventing$Construction$Defects$Lawsuits."Colorado"Builder"Forum," 2009.
“Construction$defects$can$greatly$be$reduced$when$a$concentrated$program$of$education$ and$training$is$once$again$deployed$throughout$the$industry. Quality$control$systems$and$methods$must$be$taken$seriously,$continuously,$and$be$ religiously$augmented$throughout$by$all$parties$concerned.$By¬&controlling&quality,& construction&defects&and&the&resulting&defects&litigation&cases,&will&only&continue&to& grow&in&the&future.”
Michael"S.$Poles,"Construction$Process$Can$Lead$to$Defects.$San"Francisco"Daily"Journal"Verdicts"and" Settlements"Supplement,"October"7,"1994.
“The$impact$of$defects,$from$both$a$claimsKmade$perspective$and$the$rising$cost$of$general$ liability$and$completed$operations$insurance$coverage,$demonstrates$that$quality&can&be&a& critical&determinant&of&project&and&organizational&success.”
Dr."Ron"Prichard,"Ph.D.,"Getting$a$Grip$on$Quality$in$the$Constructed$Project:$DeEining$Quality."Arcanum" Professional"Services,"2009.
“People&sue&their&builders&when&the&end&product&they&get&doesn’t&meet&the&result&that& they&thought&they&had&the&right&to&expect$—$either$how$a$product$will$perform$or$how$ long$it$will$last.”
Susan"Linden"McGreevy,"Avoiding$Construction$Defect$Lawsuits."Contractor"Magazine,"February"2007.
18
HOMEBUILDING INDUSTRY FACTS
19
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As$of$1/1/2013,$YTD$new$singleKfamily$building$permits$were$up$58%$in$Nevada$ compared$to$the$same$period$in$2011.$Nationally,$they$were$up$only$24%.$While$new$ multifamily$building$permits$were$up$only$16%$statewide,$they$were$up$209%$in$the$ Reno/Sparks$area.$Overall,$new$building$permits$were$up$48%$statewide,$45%$in$the$ Las$Vegas$metro$area,$54%$in$the$Reno/Sparks$metro$area$and$292%$in$Carson$City.$ (NAHB$Building$Permits$by$States$and$Metro$Areas$Data,$published$1/30/2013) The$Las$Vegas$and$Reno$markets$are$ranked$on$the$NAHB/First$American$Improving$ Markets$Index,$which$tracks$new$building$permits,$median$home$prices$and$ employment.$(NAHM/First$American$Improving$Markets$Index,$published$2/6/2013) In$a$presentation$to$BANN’s$“Forecasting$2013$&$Beyond”$event$held$on$1/15/2013,$ ArchCrest$Commercial$Parters$principal$Mark$Krueger$projects$that$2013$new$home$ sales$in$the$Reno/Sparks$market$will$nearly$double$2011$sales$(925$vs.$477).$Krueger$ predicts$18$new$housing$developments$will$be$built$or$planned$in$Reno/Sparks$in$2013,$ and$notes$that$builder$con=idence$is$the$highest$it's$been$since$April$of$2006.$(“We've$ Turned$the$Corner:$Northern$Nevada$Land$Rush,”$presented$1/15/2013) Nevada$leads$all$mountain$west$states$but$Idaho$in$YTD$singleKfamily$building$permit$ improvements.$(NAHB$Building$Permits$by$States$and$Metro$Areas$Data,$published$ 1/30/2013) Home$prices$in$Las$Vegas$jumped$27.1$percent$in$January,$2013$according$to$the$Greater$ Las$Vegas$Association$of$Realtors.$The$median$price$for$2,284$singleKfamily$homes$sold$ in$January$was$$150,000,$up$from$$118,000$in$the$same$month$a$year$ago.$Sales$ decreased$22.1$percent$from$a$year$ago$because$of$limited$choices$on$the$market,$ bolstering$newKhome$sales.$(Las$Vegas$Review$Journal,$published$2/8/2013) Southern$Nevada$home$prices$are$expected$to$continue$to$rise$in$2013$after$hitting$ bottom$in$Spring$2012.$Southern$Nevada$home$values$are$projected$to$rise$3.1$percent$ by$the$end$of$the$year,$with$home$values$in$North$Las$Vegas$and$Henderson$expected$to$ climb$3.2$percent,$according$to$a$study$conducted$by$Zillow.$(Vegas,$Inc.,$published$ 1/21/2013)
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20
HOMEOWNER STORIES
22
32,000 homes had to have their plumbing replaced due to construction defect. Here are a few of their stories: Tracy Rhodes
Dove Canyon/Developers of Nevada Tracy$found$a$leak$behind$her$dishwasher$in$late$2007,$during$Thanksgiving.$$Her$kitchen$ was$=looded$and$when$she$investigated,$she$found$mushrooms$growing$out$of$her$ baseboards$behind$her$dishwasher.$$$Her$insurance$company$denied$her$claims$as$the$leak$ was$a$slow$developing$one.$$Tracy$attempted$to$contact$her$builder$but$she$never$received$a$ response.$$Tracy$scheduled$multiple$doctors$appointments$for$herself,$her$longtime$ boyfriend$and$their$pets$because$she$was$worried$they$might$have$gotten$sick$from$the$ mold$in$the$house.$$A$year$later,$due$to$severe$depression,$Tracy$moved$out$of$the$house$and$ rented$it.$$She$=iled$for$bankruptcy$because$of$the$debt$she$incurred$to$repair$and$remediate$ the$house,$and$she$broke$up$with$her$boyfriend$of$over$8$½$years$due$to$her$severe$ depression.$$Tracy$was$reimbursed$in$full$for$her$outKofKpocket$expenses$through$the$ efforts$of$the$Kitec$lawsuit.$$ $ Christopher Smith Lynbrook/RL Homes Christopher$Smith’s$home$=looded$two$weeks$before$his$wedding,$in$October,$2008.$$He$had$ out$of$town$guests$staying$with$him.$He$was$able$to$have$his$house$entirely$replumbed$due$ to$the$funds$provided$at$the$resolution$of$the$lawsuit.$$ $
Bessie Freeman
Sharp Chartis 35 Bessie$Freeman$is$a$single$mother$living$in$Las$Vegas.$She$had$the$misfortune$to$have$two$ separate$Kitec$related$leaks..$$She$could$not$afford$to$replumb$her$home.$$A$plumber$shut$ the$hot$water$supply$line$off$to$stop$additional$water$damage$from$occurring.$$Bessie$and$ her$children$were$forced$to$heat$up$water$on$the$stove$to$bathe.$$She$considered$walking$ away$from$her$house$because$she$was$tired$of$not$having$hot$water$and$had$no$money$to$ replace$the$plumbing$system.$$Her$home$was$replumbed$under$the$Sharp$Chartis$35$ settlement.
Kimberly Gladden
Copperhead Hills/LBM Development Kimberly$Gladden$is$a$single$mother.$She$had$the$misfortune$to$experience$several$KitecK related$leaks.$She$could$not$afford$to$replumb$her$house,$so$she$shut$off$the$hot$water.$She$ devised$a$system$whereby$her$son$would$bathe$at$home$and$she$would$bathe$at$the$gym$so$ she$would$use$as$little$hot$water$as$possible.$Kimberly’s$house$was$replumbed$through$the$ efforts$of$the$class. $
Cynthia Emanuel ($2.4 million Custom Home)
1798 Mezza Ct. While$on$vacation$out$of$the$country$in$January,$2011,$Cynthia’s$house$suffered$a$massive$ =lood$due$to$a$failed$Kitec$hot$line$brass$=itting.$$Damages$were$in$excess$of$$57,000.$$ Cynthia$received$full$reimbursement$for$her$outKofKpocket$costs$through$the$efforts$of$the$ class.
23
