The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 7:30 a.m., on Friday, March 5, 1999, in Room 2135 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Senator Randolph J. Townsend, Chairman

Senator Ann O’Connell, Vice Chairman

Senator Mark Amodei

Senator Dean A. Rhoads

Senator Raymond C. Shaffer

Senator Michael A. (Mike) Schneider

Senator Maggie Carlton

STAFF MEMBERS PRESENT:

Scott Young, Committee Policy Analyst

Beverly Willis, Committee Secretary

OTHERS PRESENT:

Senator Michael A. (Mike) Schneider, Clark County Senatorial District No. 8, stated he was an advocate for consumer rights, noting he had introduced and had been instrumental in passing legislation concerning consumer rights. Senator Schneider claimed introduction of S.B. 286 was further indication of his desire to protect property owners and purchasers.

James L. Wadhams, Lobbyist, Southern Nevada Home Builders Association stated, ". . . we need to get rid of the bad builders." Mr. Wadhams asserted shoddy construction needed to be eliminated. Mr. Wadhams stressed, "We need to preserve, we need to preserve, continue to preserve the right to sue people who will not stand behind their contracts. That is a principle of business that should be inviolate. You stand behind your contract, or you get sued." Mr. Wadhams continued, claiming:

Mr. Wadhams reiterated his claim; builders need to be told where a particular problem is located. He maintained builders need specific information on the location/type of defect that needs to be fixed. Mr. Wadhams stated:

Mr. Wadhams requested close attention to testimony of contractors and homeowners alike. According to Mr. Wadhams, "Houses are consumer products just like motor homes, television sets. The principle is ‘if it does not work fix it. If you cannot fix it, replace it or buy it back.’ If you do not do any of those things, be prepared to be sued." Mr. Wadhams declared the first four sections of S.B. 286 deal with the issue of insurance warranties on home protection. He maintained the warranty issue is the defect issue. Mr. Wadhams asserted, if there is personal injury, none of the process would apply. He proceeded to summarize S.B. 286, section by section. Mr. Wadhams specifically addressed the statute of limitations, suggesting it should be a 4-year limit for construction problems. He maintained local governments are not responsible for the way the house is built; they make sure it is in substantial compliance, that is all. Mr. Wadhams claimed it is the contractor’s responsibility to make sure the house is suitable for the contract.

Mr. Wadhams focused on section 16, and section 19, emphasizing the deletion of the term "subcontractor." Mr. Wadhams stated:

Mr. Wadhams proceeded, commenting on various other components; i.e., homeowner use of warranties to minimize use of litigation, disclosure of the method of repair to the homeowner, and extension of time frame for resolution and acceptance of any action. He put emphasis on the fact that building inspectors should not be responsible for a contractor’s responsibility to deliver a product consistent with the contract under which it was sold.

Robert E. Lewis, Lobbyist, President, Lewis Homes of Nevada, gave background on his extensive experience in home building. He noted his efforts to offer a good product and some of the difficulties encountered. Mr. Lewis claimed there might be instances where trial lawyers, to generate uncontainable contingency fees and run up costs, precipitate a lawsuit. He maintained some trial lawyers might create discontent among home buyers and get a large group to file complaints and enter into litigation against builders. Mr. Lewis reiterated his belief this might be done to create large fees. Mr. Lewis declared his desire would be to find any legitimate problems, meet with the customer and make some sort of repair or recompense.

Senator Rhoads inquired if Mr. Lewis had any knowledge of these situations being a problem in any other areas. Mr. Lewis deferred to Mr. Wadhams who asserted these problems were more prevalent in areas of rapid growth.

Mr. Wadhams read excerpts from a letter sent by Claudia C. Carr (Exhibit C). Ms. Carr’s letter touched on several items; lack of information on potential harm of losing a lawsuit, lack of disclosure that property value immediately drops as a result of being part of this action, problems for potential buyer to obtain financing, etc. Mr. Wadhams highlighted the importance of disclosure of all items noted in Exhibit C.

Mr. Wadhams introduced Kristin Cihos-Williams, Nevadans for Homeowner Protection, who presented a letter outlining problems with a lawsuit precipitated by her homeowner’s association (Exhibit D). Reading her testimony into the record, Ms. Cihos-Williams cited her personal story of equity loss on a California townhouse following a construction defect lawsuit filed by her homeowner’s association.

Peter C. Brown, Attorney, noted his law firm devotes his work exclusively to the defense side in construction-defect litigation. Mr. Brown stated he represented developers, general contractors and subcontractors. He declared through his affiliation with another law firm, their present caseload of currently pending construction-defect matters totaled over 450 and ranged throughout the western states. Mr. Brown asserted this legislation could be an opportunity to repair a relationship between the developer, the general contractor, and the owner. He claimed many of his clients have never been sued before and have difficulty understanding why they have been singled out. Mr. Brown commended the idea of having more time for investigating these cases, along with a more complete disclosure of the defects from the homeowner’s association. He maintained this would help to alleviate the need for litigation. In answer to questions posed by Senator Schneider, Mr. Brown indicated litigation could take place with any type of housing; however, condominiums or tract type housing is more prevalent.

Jeff V. Reinig, Lobbyist, State Director, Farmers Insurance, noted his organization insures small- to medium-size contractors, subcontractors and developers. Mr. Reinig stated the upsurge in defect litigation has increased insurance rates, noting this escalation has caused his company to withdraw from insuring contractors. Mr. Reinig indicated his company would like to return to insuring contractors and those related businesses and hoped this legislation would enable them to do that and at a price that is profitable for both the insurers and developers.

Mr. Wadhams, Mr. Reinig and Senator O’Connell held further discussion regarding problems and solutions for construction-defect problems in California. Senator O’Connell expressed concerns over the high cost of insurance to the homeowner due to litigation costs. Mr. Reinig pointed out warranties could help to keep down insurance costs for the homeowner. Mr. Wadhams, Senator Shaffer and Senator Schneider perused issues pertaining to types of housing most likely to have problems with litigation, as well as those insurers who may no longer insure contractors, developers, etc.

Guy S. Hobbs, Lobbyist, Managing Partner, Hobbs Ong & Associates Inc., and Southern Nevada Home Builders Association, discussed facts and figures covering numbers of jobs created by construction, local revenue generated, etc. Senator O’Connell inquired if insurance costs were factored into the price of a home to automatically cover the price of any litigation. Mr. Hobbs stated all costs were included in the overall cost breakdown.

Mr. Wadhams concluded the issue was not bad builders, noting bad builders would not respond when asked to fix the problem. He stated, ". . . this is an opportunity for the homeowner, who wants his house fixed, . . . to try to get it fixed, before they get into litigation that may take years to resolve." Mr. Wadhams declared, "We ask for no change in the right to sue, we only ask for an opportunity to fix, before the lawsuit starts."

At this time, Legislative Briefing Book from the Nevadans for Homeowner Protection (Exhibit E. Original is on file at the Research Library.), and Home Protection Bill (Exhibit F. Original is on file at the Research Library.), were presented.

Robert C. Maddox, Lobbyist, President, Nevada Trial Lawyers Association (NTLA), concurred with previous statements to the effect that bad contractors should be disciplined and bad attorneys should be disciplined. Mr. Maddox maintained the homeowners of Nevada should not be penalized because some attorneys might file frivolous lawsuits. He claimed the NTLA stood for the concept people should be held accountable for their wrongdoing and mistakes; attorneys and builders alike. Mr. Maddox maintained these issues should not be a part of this demonstration, but should be dealt with in a different forum. Mr. Maddox stated, "S.B. 286 is extremely detrimental to the rights of consumers." He offered information from the NTLA, S.B. 286: Why It Must Be Rejected (Exhibit G). Mr. Maddox provided an overview from Exhibit G. He touched on two policies covered on previously approved legislation. First, defectively constructed homes in Nevada should be repaired; second, homeowners who are suffering defects in their homes have a right for them to be corrected. He asserted these policies would be damaged severely, if S.B. 286 were enacted. Mr. Maddox proceeded with his review of Exhibit G, perusing information on warranties. His next item of contention pertained to the statute of limitations. Mr. Maddox claimed if this legislation were enacted, it could protect intentional wrongdoers. Senator O’Connell and Mr. Maddox discussed reasoning behind the time frames for the statute of limitations. Mr. Maddox referred to information on California’s 10-Year Statute of Limitations (Exhibit H.). Once again referring to Exhibit G, he claimed disclosure was already addressed in real estate law, thus would not be necessary in this legislation. Mr. Maddox addressed the definition of construction defect, in particular his displeasure with the definition of "substantial compliance." He directed his remarks to inspection by the building department, asserting they do not guarantee quality of construction.

Senator Schneider, commenting on compliance responsibility, noted in testimony given by Mr. Wadhams, he (Mr. Wadhams) had noted the building departments did not inspect for compliance with any building code and did not want the building departments to be held accountable. Mr. Maddox maintained, if that is the case, the provision concerning the building inspector should be stricken. Mr. Maddox continued with his testimony, again referring to Exhibit G. He examined items dealing with developer immunity, extension of time limits, escrow settlement funds, etc.

Senator O’Connell inquired about the response by the State Contractor’s Board to builders who continually have a record of building defective homes. Mr. Maddox claimed, "The [State] Contractor’s Board, in the past, [is] not a friend of the consumers of the State of Nevada." He cited an example of his statement, maintaining the State Contractor’s Board should be "tougher." As noted in Exhibit G, Mr. Maddox presented an explanation for his concern in section 21 of S.B. 286. Mr. Maddox concluded his remarks by stating, "All in all, S.B. 286 represents bad public policy." Senator O’Connell requested language to be placed in a law that would be helpful to homeowners to give more ability to the State Contractor’s Board to do the job they need to be doing. Mr. Maddox expressed his gratitude for this opportunity.

Senator Schneider requested information concerning litigation in commercial projects, as opposed to residential projects, as it would pertain to attorney fees. Mr. Maddox declared the basic rule would be, each party pays his own attorney's fees. He continued, claiming there was no particular rule regarding the recovery of attorney’s fees. Mr. Maddox pointed out there could be a clause in a purchase agreement of a construction contract delineating this type of action. He did note, if there was an "offer of judgement," the basic premises would be, "if you make an offer of judgement to the other side, and they reject it, and you do better, then you are entitled to recover attorney’s fees. Mr. Maddox maintained these rules would apply in commercial cases as well as other types of cases. With further explanation, Mr. Maddox noted the attorney fee was put into previous legislation as an element of the damage claim. He pointed out these claims were still settled by a judge, who would determine whether or not fees/judgements were reasonable.

Mr. Maddox introduced Bonnie Sherfield, Concerned Citizen, and presented testimony in the form of a video showing problems she had with construction defects in a condominium she had purchased. Ms. Sherfield pointed out large cracks in the floors and walls of her home, asserting these cracks were so bad, she could not close her sliding doors and had no protection or way to lock her house. She claimed she felt as if she had been robbed, as no one would help her, or answer any questions for her.

Senator Shaffer disclosed he has a general contractor’s license, although it is inactive at this time, and his son is a general contractor. Senator Schneider also noted he had been a building official for 10 years in North Las Vegas, prior to that he was an engineer for the City of Las Vegas. He inquired if Ms. Sherfield had noticed any damage before her purchase, or if she had any unusual landscaping added. Ms. Sherfield replied, "No." Ms. Sherfield claimed after 2 years, deterioration started.

Senator Schneider and Mr. Maddox reviewed problems associated with the statute of limitations. Mr. Maddox pointed out Ms. Sherfield had no recourse because of this very thing; the statute of limitations had run out. Ms. Sherfield told Senator O’Connell she had been told not to sleep in her house and noted the entire complex had been abandoned.

Mr. Maddox presented Scott K. Canepa, Lobbyist, Nevada Trial Lawyers Association, who introduced Ken Barber, President, Jonathan Glen II Homeowners Association, speaking from Las Vegas. Mr. Barber read his testimony (Exhibit I) into the record. Mr. Barber spoke in opposition to S.B. 286, claiming this legislation is unfair to homeowners. He cited several instances of his problem; i.e., roof tiles blowing off the buildings when it is windy, leaks in roofs and windows, and copper plumbing lines breaking because of improper installation. Mr. Canepa introduced Brian Jeff Grill, Construction Consultant, Nevada Homeowners & Contractors, who spoke on the issue of whether or not substantial compliance, with minimum compliance to the building code, should be the policy of the State of Nevada. Mr. Grill gave his qualifications; i.e., internationally certified as a building official, a municipal building inspector and plans examiner in California. Mr. Grill noted he has worked for both homeowner and contractor. He presented excerpts from the 1991 Uniform Building Code (Exhibit J). Mr. Grill offered physical evidence, in the form of deteriorated copper pipe, noting it took 8 years for this damage to be accomplished. He stated this is the type of problem that does not fit into the 4-year time frame.

Senator O’Connell and Mr. Grill examined the type of damage and length of time it would take to cause these types of problems by chemical reaction and/or water on copper plumbing. She noted the area near her home has had serious problems with corrosion. Mr. Grill gave several solutions for various types of deterioration.

Mr. Grill commented on reasoning for standards for the Uniform Building Code. He declared he wanted this reflected in the record and proceeded to read section 102:

Mr. Grill emphasized the need for a minimum building code to be established, stating, "To establish that you have substantial compliance to a truly minimal standard is very dangerous, I believe." He asserted the phrase "approved construction materials" is based on actual tests. Calling on his experience as a building inspector, Mr. Grill claimed, on a single family residence, from the time it is started to the time it is finished, would average a little over 2 hours. He maintained that to expect a building inspection would establish substantial compliance with the building code, or evidence of full compliance with the building code, was unrealistic. Senator Schneider and Mr. Grill perused the subject of whether or not homes are safe upon completion of a final inspection. Mr. Grill maintained at times, he had doubts. Senator Shaffer found this was a disturbing theory.

Mr. Canepa presented the following information; Deposition of Robert D. Weber, (Exhibit K), Deposition of Gary Houk (Exhibit L), and Deposition of Hal Neumann (Exhibit M). Attempting to resolve Senator Shaffer’s concerns, Mr. Canepa referred to Exhibit K, Exhibit L and Exhibit M. He pointed out there are times when an inspection is completed, changes are made after the fact. Mr. Canepa stated:

Mr. Canepa referred to section 15, subsection 3, paragraph (b)., stating he did not feel this portion of S.B. 286 should be adopted in Nevada.

Next to testify, Alyson McCarthy, Consumer Advocate, News 13, spoke from Las Vegas. Ms. McCarthy read her remarks into the record (Exhibit N). Ms. McCarthy noted, although she has testified for consumer protection bills, this would be the first time she had ever testified against a proposed measure. She claimed her purpose in testifying today was to represent the consumer; in this case, the new home buyer. Ms. McCarthy cited an example of a construction- defect complaint that had been referred to her. Speaking from her testimony, Ms. McCarthy noted the number of agencies this homeowner had called before anyone called to help. Among those contacted were the Veteran’s Administration, the Clark County Building Department and the State Contractors’ Board. Referring to the case cited in Exhibit N, Ms. McCarthy claimed, in her opinion, this sort of incident should be illegal.

In summary, Mr. Maddox declared, "Make those responsible for the wrongdoing . . . fix it. Do not penalize the homeowners of the State of Nevada."

Senator Schneider thanked all those who brought these matters to the attention of the committee. He acknowledged there were bad builders throughout the State of Nevada and felt this problem could be addressed and some meaningful legislation would be the result. Senator Schneider maintained there was a lack of checks and balances with the building departments and suggested the possibility of a ‘consumer report’ system for the home builder. He indicated his willingness to work with all those concerned in order to obtain the best possible legislation.

Mr. Maddox stated, "Senator Schneider, anything that would address the real problem, defective construction, we would support. This bill does not address that problem; this bill addresses the problems of homeowners making claims, because of their defective construction. That is wrong."

Senator Schneider thanked the home builders for their input and help with this legislation.

Chairman Townsend stated discussion on S.B. 286 would be continued at a later date.

As there was no further business, the meeting was adjourned at 10:25 a.m.

RESPECTFULLY SUBMITTED:

Beverly Willis,

Committee Secretary

APPROVED BY:

Senator Randolph J. Townsend, Chairman

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