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A DISASTROUS SYSTEM Construction Defect Litigation Hurting Everybody - Except the Lawyers By Kevin Parsons, Special to the Review-Journal, 08-11-02, P. 3D Recently, I found myself facing an extraordinary dilemma. After being in business for 27 years, I was suddenly on the verge of being shut down because I was unable to acquire insurance. I ran a reputable company with no large claims against it. Why should this be? I sat at my desk the day my insurance was to lapse, asking myself myriad questions. Should I bring all my equipment to the yard, or leave it at the job site? Should I hire someone to bring it in? What should I tell my employees and customers? I would have to tell them the truth: That I was unable to get insured - and therefore we were unable to work - simply because I was a contractor operating in both Nevada and California. Nevada and California lead the country - the world, actually - in construction defect litigation, with settlements in the hundreds of millions of dollars. Just ask any engineer about construction defect litigation. John Kubota of Kubota & Associates in Las Vegas (a highly qualified structural engineer) has been sued in every townhouse, subdivision and condominium project he has designed since starting business in 1991. "What is the point of working on these projects if it is a guaranteed lawsuit?" he now asks. Jim Gair of J.M. Gair & Associates was sued for $15 million on a $9 million Las Vegas project his company built. Finally settling for $3 million, Gair reports that not one of the supposed "defects" has yet been repaired. Instead, homeowners bought big screen TVs and toys with the settlement money. Now, though, the owners are suing their attorneys for not delivering as much cash as promised. Falcon Homes was threatened with a lawsuit, too. Lawyers contacted the homeowners' association there regarding window leaks (a legitimate defect Flacon would have fixed if asked). Attorneys bought a unit and tore the plaster-board off the walls, searching for defects. The only "defects" identified were a few nails 6-7/8 inches (instead of 6 inches) apart. Using that horrifying information, these lawyers forced Falcon to make an $80,000 settlement rather than litigate. My company (and seven others) was dragged into another lawsuit two years ago by homeowner complaints about soil conditions on their site (this had nothing to do with the retaining walls we had built). After a year of attorneys' letters back and forth, we were released from the suit, but not without spending additional money and time. More recently, we were dragged back into the suit, because only two contractors besides us are still in business. Follow the money. These and countless other examples illustrate the petty, invasive, often damaging nature of construction defect litigation. Moreover, everyone usually loses in these suits - homeowners included - except for the attorneys. Homeowners lose the money attorneys extort from them (contingency fees can reach 40 percent). Lawyers also mark up costs of related work - i.e. buying, wrecking, repairing, and selling a condominium unit. Homeowners must also then disclose any defects if they sell the home, costing them more money due to its reduced value. Moreover, homeowners cannot sell their units during litigation - banks will not touch the property until a settlement. Many times, homeowners will simply rent their units and move out. This larger percentage of rental units further degrades the quality and value of the development's other properties. If homeowners do not repair the defects, however, they must pass the money on to new buyers when they do sell. Another surprise may be that consumers do not always actually receive their piece of the settlement. Instead, homeowners' associations get what remains, distributing it arbitrarily. Usually, an association must first recover significant sums spent during the litigation process. Builders are forbidden to repair anyone's home during litigation, so homeowners must now coordinate repairs through the law firm, at rates of $150 an hour or more. For contractors, the losses are obvious. Additionally, however, contractors (if still in business) must pass these losses along to consumers. The recent spike in Nevada housing costs clearly reflects this litigation; the resulting settlement costs; and rising costs of contractors' premiums. And so, with only four hours to go on my last day of insurance, my broker finally came through with only one quote - a 347 percent increase. I had no option but to accept it. While legitimate construction defects must be addressed, this insane system of construction defect litigation needs an overhaul. Instituting the following policies would be a good start:
There are indeed sometimes legitimate defects that need repair, and contractors must be accountable. But this system is disastrous. Just ask any contractor, insurance agent, engineer or homeowner frozen in construction defect litigation. | ||
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WORKING TOGETHER TO ATTAIN FAIRNESS
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