State the Issues - June 2002

State the Issues

by Steve Hill, Scott Canepa

To what extent can rising liability insurance costs and lack of available insurance in the construction industry be attributed to either construction problems or to frivolous lawsuits?"

Fighting for the Right to Repair Deficiencies

By Steve Hill

Last September, an independent study by J.D. Power and Associates found that Las Vegas ranked second among 10 major U.S. cities in new-home buyer customer satisfaction. Ironically, an epidemic of excessive and costly lawsuits brought against Southern Nevada homebuilders and subcontractors is generating a crisis that threatens the stability of the local homebuilding industry, and is contributing to skyrocketing new home costs.

As the number of lawsuits grows, an alarming number of major insurance carriers that write coverage for homebuilders are withdrawing from the market; the few that remain are increasing their premiums well beyond the affordability of many industry partners. Meanwhile, homebuilders and contractors have no choice but to pass on those increased costs to consumers, fueling a rise in housing prices that threatens to shut many people out of the "American dream" of home ownership.

While the vast majority of reputable homebuilders and contractors justifiably take pride in the quality of their products, the industry acknowledges there are a disreputable few whose shoddy work is below acceptable standards and an embarrassment. However, we believe, along with the many Las Vegas new-home buyers who responded favorably to the JD Powers and Associates’ study, that those offenders are on the industry’s fringe.

To alleviate the construction liability insurance crisis and rein in spiraling housing costs, the newly-formed Coalition for Fairness in Construction, representing homebuilders, contractors and subcontractors, believes there is a common-sense approach to conflict resolution that will decelerate the number of lawsuits brought against builders in Southern Nevada.

Our approach is two-fold: the coalition is asking state lawmakers to support the industry’s "right to repair" deficiencies that exist in a home, allowing builders and subcontractors to address and correct problems before litigation prohibits contact with homeowners and access to homes to make repairs. We also are asking legislators to develop a "fair definition of construction defect," differentiating between minor, and often cosmetic, problems and actual defects that have resulted or could result in damage to a home. Through these efforts, we hope to provide homeowners with prompt, efficient repairs before becoming mired in lengthy, costly lawsuits – while restoring common sense and sanity to a system that is spinning out of control.

Let’s Not Rescue Bad Builders

By Scott Canepa

When bad builders build bad houses, bad things happen. Bad things happen to homeowners, and bad things happen to good builders. Homeowners are most affected because the largest and single most important investment they can make is jeopardized. Good builders are affected because predatory insurance companies are given a "legitimate" excuse to increase insurance costs to account for their losses. Insurance companies do not fix homes - they pay claims, and thus premiums for all builders, including good builders, increase.

The proposition that frivolous lawsuits have increased insurance costs must fail because it proceeds from a false premise. Homeowners, like most laymen, fear the legal system and do not seek the assistance of counsel unless forced to. Having represented thousands of homeowners in my career, I know of no instance where a homeowner wished to get embroiled in litigation over a "frivolous" defect. It just doesn’t make sense.

It has been said that with great power comes great responsibility. Builders have the power to better lives or to ruin them. Good builders in our community, those who have facilitated the American dream by constructing well-built homes and communities, need to use their considerable wealth, power and influence to curb the negligent construction practices of those builders who would abuse their power. Good builders should not try to rescue bad builders by any means, including appeals to sympathy arising from increased insurance costs.

Likewise, we should closely scrutinize statements by insurers who claim that increased claims are the sole reason for increased costs. There is overwhelming evidence that insurers have themselves to blame for increased costs by refusing to acknowledge and pay legitimate claims quickly so that the victims of construction defects are not forced into years of costly litigation only to have their allegations vindicated in the end.

Steve Hill, Scott Canepa
Steve Hill, president of Silver State Materials, serves as the chairman of the Coalition for Fairness in Construction, whose executive committee includes the Associated Builders and Contractors-Southern Nevada, Associated General Contractors, Nevada Subcontractors Association and the Southern Nevada Home Builders Association. Scott Canepa is a partner is the law firm of Vannah Costello Canepa Riedy Rubino & Lattie and heads the construction defect department of the firm. He is also a member of the Nevada Trial Lawyers Association’s subcommittee on construction defects and has been a registered unpaid lobbyist on behalf of homeowners in four consecutive legislative sessions.