Printer Friendly

Recovering from construction defect claims: navigating builder-friendly state statutes.

[ILLUSTRATION OMITTED]

IN THE PAST 10 YEARS, MORE THAN 25 STATES HAVE ENACTED SPECIFIC BUILDER-FRIENDLY CONSTRUCTION DEFECT NOTICE AND RESOLUTION STATUTES THAT MAY AFFECT YOUR SUBROGATION CLAIMS. IF YOU ARE NOT AWARE OF THE PROVISIONS IN YOUR STATE, THEN YOUR OTHERWISE SOLID SUBROGATION CLAIM COULD BE AT RISK.

In 1989, Texas enacted the nation's first Residential Construction Liability Act (RCLA), Tex. Prop. Code [section]27.001 et seq. Sponsors of RCLA argued that it was needed to remedy an explosion of residential construction litigation brought against home builders under the Texas Deceptive Trade Practices Act (DTPA). Following the passage of the Texas RCLA, builders' organizations in other states began lobbying for adoption of variations of the RCLA. In 2010, Conn. became the most recent state to enact a version of a RCLA statute.

All of the statutes share a common theme: Before a homeowner may file a legal action--or, in some states, commence an arbitration--against a builder seeking relief for construction defects, the homeowner must give written notice to the builder for the claimed defects and provide a fair opportunity to the builder to remedy the defects. In Colo., S.C., Fla. and Tenn., owners of non-residential property are also subject to the notice requirements of those states' acts. In many states, such notice must be provided not only to builders but also to design professionals and even material suppliers. In most states, a legal action may be dismissed without prejudice or stayed until the homeowner has complied with the notice provisions of the relevant state's act. In some states, damages may be limited in the event of non-compliance of the notice provisions.

[ILLUSTRATION OMITTED]

Although the statutes seem straightforward, they leave questions unanswered that may impact an adjuster handling a property damage loss potentially related to a construction defect. Does the statute apply to subrogation claims? Do the requirements of the statute apply to emergency repairs necessary to mitigate further damage? Will compliance with the relevant law toll an impending statute of limitations or statute of repose?

The Contractor's Onus

With the exception of Texas, these statutes do not by their express terms apply to a homeowner's property insurer and its subrogation claim. In Texas, if a loss to a residence has occurred--and this appears to be related to a construction defect and taken place within Texas' statute of repose--then, to preserve any potential subrogation claim, the adjuster, either through his or her own efforts, or with the assistance of recovery personnel or recovery counsel, will need to promptly identify the contractor or other entity that developed and/or constructed the home. This is in addition to pinpointing the defects that may have caused the damages, and providing written notice by certified mail to the contractor of the defects and damages. The contractor is then provided an opportunity within 35 days to inspect the damages and within 45 days, make an offer to repair. Under the Texas statute, if the subrogee (insurer) fails to comply with the act's provisions before performing repairs, then the contractor will not be liable for the cost of repairs or any damage caused by the repairs.

[ILLUSTRATION OMITTED]

On the other hand, the New Hampshire and Missouri statutes do not, by their express terms, apply to subrogation claims. Courts may be asked in the vast majority of states whose statutes do not expressly include or exclude subrogation claims to decide whether, and to what extent, those statutes impact property adjustments and pursuit of subrogation. To date, no court has addressed the applicability of a RCLA statute to subrogation claims.

Typically, the statute defines a "claimant" as a "homeowner" or "purchaser" of the residential property, with no mention of insurance or subrogation. Georgia's statute is broader, applying to "anyone who asserts a claim concerning a construction defect."

One can reasonably argue that without specific reference to subrogation or insurance, the statutes do not and should not apply to a property damage subrogation claim. This would appear especially true where substantial damage has occurred to the home by fire, storm or other sudden and calamitous event opposed to a latent defect that simply reduces the value or utility of the structure, or where immediate repairs are required to mitigate damages, or where an immediate threat to life or safety of the occupants is involved. Indeed, several statutes specifically exempt from their scope emergency repairs necessary to mitigate damages or defects that cause a threat to life or personal safety.

Supporting Evidence for Defects

As with any large loss with subrogation potential, the property adjuster may retain a construction consultant to evaluate and establish the existence of any construction defects and their relationship to the damages. Typically, an early step in any construction loss claim is to identify and notify the potential responsible contractor(s), and invite the contractors to the loss site to take part in a joint inspection. However, given the existence of a RCLA-type state statute, the adjuster should seek to coordinate with the insured and attempt, to the extent possible, to coordinate early notice and inspection efforts with the applicable RCLA requirements, including timeliness issues and the level of detail necessary to describe the claimed defects and damages.

[ILLUSTRATION OMITTED]

Because each state's act differs in some respect from all others, and because each statute contains a complex schedule by which various milestones are to be completed, the relevant statutes should be considered by an adjuster and recovery personnel before committing to any course of action. Knowing when the statute may apply--and the initial information and proper steps--should place the adjuster and the insurer well on their way to pursuing a successful subrogation claim. RCLA-type statutes should not, in general, impede subrogation claims, but it is important to analyze your particular state statute to ensure that you have put yourself in the best position possible to defeat any potential defense based on one of these statutes.

PREEMPTING SUBROGATION SNAGS

To avoid a challenge to a subsequent subrogation claim for damages arising from construction defects, an adjuster should, when handling a loss where the damages may be caused by a construction defect, consider the following actions:

(1) Identify the builder/contractor.

(2) Pinpoint the defects that caused the damages.

(3) Consider involving recovery personnel or recovery counsel immediately to review the applicability of any RCLA statute within the jurisdiction, and any statutes of repose or limitations that may apply.

(4) Provide written notice by certified mail to the contractor or others responsible for the defects, and describe the defects and damages within the time permitted under the statute.

(5) Invite the contractor to participate in an inspection, and permit him or her to remedy the defect in compliance with the time provisions contained within the state's statute. Of course, if the structure has burned to the ground, or has otherwise sustained substantial physical damage, there may be no effective way for the contractor to "remedy" the defect at that point, yet another reason why the RCLA may simply not apply to subrogation claims in that jurisdiction.

Watching The Clock

A majority of the states with RCLA-type statutes provide that the relevant statute of limitations will be extended for a set period of time while the construction defect claim is being considered by the contractor or other party protected by the RCLA statute. However, the tolling period varies from state to state, and a claims professional must be cognizant of the relevant tolling period so that potential subrogation rights are not lost by failing to file suit while the parties informally seek to resolve their construction defect claim. Some states (Georgia, Hawaii, Missouri, Nevada and Texas, for example) do not provide that the statute of limitations will be tolled while statutory pre-suit resolution proceedings are pursued. Instead, these states claim that any lawsuit filed to toll the statute of limitations will be stayed or abated while the parties attempt to resolve the dispute informally.

[ILLUSTRATION OMITTED]

Only a couple of states--Ohio and Washington--toll a relevant statute of repose while the parties resort to statutorily-mandated pre-suit resolution proceedings, and several states have RCLA statutes that are silent about the RCLA's effect, if any, on a relevant statute of limitations or repose. The bottom line is this: Watch the clock very carefully, as the "be safe rather than sorry" maxim applies. Unless the state RCLA statute specifically extends the relevant statute of limitations or statute of repose, file suit if necessary to toll the statute of limitations or statute of repose, even if it means that the suit will be stayed or abated while the parties seek to resolve their dispute informally as required by the state's RCLA statute.

Kevin D. Bush is a member of the Subrogation and Recovery Department at Cozen O'Connor, practicing in the firm's San Diego, Calif. office, and concentrating on construction defect, products liability, and property insurance matters. Bush may be reached at kbush@cozen.com.

Douglas B. Fox works out of Cozen O'Connor's Philadelphia, Penn. office, focusing on subrogation and recovery, property insurance, commercial litigation, and civil litigation, including appellate practice. Fox is experienced in federal and multi-state practice and procedure. He may be reached at dfox@cozen.com.

For more specific information about emerging subrogation and recovery issues, visit http://subrogationandrecoverylawblog.com/.
COPYRIGHT 2011 ALM Media, LLC
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2011 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Author:Bush, Kevin D.; Fox, Douglas B.
Publication:Claims
Article Type:Cover story
Geographic Code:1U7TX
Date:Jul 1, 2011
Words:1542
Previous Article:Fungi surfaces post-disaster: lingering woes from spring tornadoes.
Next Article:Stopping power: forensic brake failure investigations.
Topics:

Terms of use | Privacy policy | Copyright © 2019 Farlex, Inc. | Feedback | For webmasters