MINUTES OF THE meeting
of the
ASSEMBLY Committee on Judiciary
Seventy-First Session
March 13, 2001
The Committee on Judiciarywas called to order at 8:00 a.m., on Tuesday, March 13, 2001. Chairman Bernie Anderson presided in Room 3138 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
COMMITTEE MEMBERS PRESENT:
Mr. Bernie Anderson, Chairman
Mr. Mark Manendo, Vice Chairman
Mrs. Sharron Angle
Mr. Greg Brower
Mr. John Carpenter
Mr. Jerry Claborn
Mr. Tom Collins
Mr. Don Gustavson
Mrs. Ellen Koivisto
Ms. Kathy McClain
Mr. Dennis Nolan
Mr. John Oceguera
COMMITTEE MEMBERS ABSENT:
Ms. Barbara Buckley (excused)
Ms. Genie Ohrenschall (excused)
GUEST LEGISLATORS PRESENT:
Senator Michael Schneider
Speaker Richard Perkins
Speaker Emeritus Joseph Dini, Jr.
STAFF MEMBERS PRESENT:
Nicolas Anthony, Committee Policy Analyst
Risa B. Lang, Committee Counsel
Deborah Rengler, Committee Secretary
OTHERS PRESENT:
Bob Maddox, Chairman of the Nevada Trial Lawyers Association, Construction Defect Committee, Reno, NV
Scott Canepa, Nevada Trial Lawyers Association, Las Vegas, NV
Elvera Sedgeman, Homeowner
Robert Girard, Attorney for Elan Homeowners Association, Las Vegas, NV
Joe Sedgeman, Homeowner
Dave Persiano, Nevada Trial Lawyers Association, Carson City, NV
Barbara Holland, Real Estate Property Manager in Southern Nevada
John Christ, Homeowner
Jim Wadhams, Attorney, Southern Nevada Homebuilders Association, Las Vegas, NV
Fred Hillerby, Legislative Advocate, Hillerby & Associates, Reno, NV
Scott Rasmussen, Attorney for Nevada Subcontractor Association. Las Vegas, NV
Socrates Delianides, Homeowner
Mark Ferrario, Southern Nevada Homebuilders Association
Leslie Bausher, Vice President Corporate Systems, American West Homes, Las Vegas, NV
Dick Peck, President, Sierra Tahoe Lath, Plastering & Drywall, Las Vegas, NV
Jim Gair, Southern Nevada Homebuilders Association
Mark Fiorentino, Attorney, representing the American Consulting Engineers Council of Nevada, Las Vegas, NV
James Duddlesten, President, G.C. Wallace, Inc., Engineers/Planners/ Surveyors, Las Vegas, NV
Chairman Anderson stated a quorum was present and continued his opening remarks. He indicated some of the issues had been heard in the past and, while the committee was not bound in any way by previous legislation or legislators, every time the issues were heard it should be considered a new process. Chairman Anderson wanted to address three principle ideas: (1) the homeowner had a clear line of redress so whatever problems were identified could be taken care of; (2) subcontractors were notified so problems could be fixed in a timely fashion; and (3) those at fault would be identified so plaintiffs were not reaching well beyond the definition of who was actually involved in a particular home.
Chairman Anderson opened the hearing on A.B. 81, which was requested by the Assembly Committee on Judiciary at the request of the Nevada Trial Lawyers Association.
Assembly Bill 81: Revises provisions governing claims for constructional defects, dissolution of corporations and limited-liability companies and common-interest community associations. (BDR 3-989)
Bob Maddox, Chairman of the Nevada Trial Lawyers Association (NTLA), Construction Defect Committee, said Nevada homebuyers faced a crisis when they believed they were buying a dream house and it turned into a nightmare. A.B. 81 attempted to provide help for homeowners who were dealing with those nightmares. Exhibit C, “A.B. 81 – What It Does,” would be discussed by Scott Canepa.
Scott Canepa, NTLA, believed A.B. 81 left in place existing legislation, Nevada Revised Statute (NRS) Chapter 40, which made substantial improvements in specific areas needed to help homeowners with certain identifiable problems. The first three sections of A.B. 81 were bill drafter amendments. Section 4 amended NRS 40.645 requiring a builder who made an offer to repair to also pay for an independent person selected by the homeowner to oversee, inspect and approve the reconstruction (repair). It would also give the homeowner the added assurance the repair would be done properly by requiring the contractor to post a bond equal to the amount of one-and-one-half times the estimated value of the repair. The bond would guarantee the repair would be done (a performance bond) and it would be a payment bond guaranteeing that any subcontractor hired by the contractor to complete the repair would be paid so that the homeowner would not be left with liens on their property.
Section 5 amended NRS 40.655 relating to provisions within the sales and purchase agreements that defeated the entitlements under NRS 40. Mr. Canepa read Section 11 of Exhibit D, Contract of Sale. He believed “law prevails over contract” and this contract was contrary to legislation cited in NRS 40 where it stated a homeowner with a legitimate construction defect should be made whole, meaning they should be able to recover the cost to fix their defect as well as any attorney fees and litigation or expert costs incurred in connection with trying to get the repairs.
Section 6 amended NRS 40.667 providing penalties against a contractor who failed to properly make a repair. Section 7 amended NRS 40.670 providing penalties against a contractor who refused to correct the defect in a timely manner resulting in imminent threat to the health or safety of the inhabitant. Section 8 amended NRS 78.585 stopping contractors from dissolving corporations or limited liability companies (LLC) to avoid liability for construction defects.
Section 9 amended NRS 78.615 and Section 10 amended NRS 86.505 with minor bill drafting language amendments. Section 11 amended Chapter 13 preserving a homeowner’s right to jury trial by preventing contractors from enforcing costly and unfair binding arbitration provisions. Exhibit D had a clause that referred to binding arbitration. Mr. Canepa made reference to Exhibit E, an invoice from the American Arbitration Association for arbitration fees prior to the hearing ever taking place.
Section 12 amended NRS 116.115 clarifying ambiguous language related to requirements that must be followed by a common interest community before it could commence a civil action. Section 13 amended NRS 624 with bill drafting amendments. Section 14 amended NRS 624.300 allowing a contractor whose license had been revoked to reapply for reinstatement if the court’s order revoking the license was reversed on appeal. Section 15 contained bill drafting amendments only.
Other exhibits became part of the record without verbal testimony:
Exhibit F – Statement from Elizabeth Catalan, Homeowner, Las Vegas, NV, submitted by Bob Maddox.
Exhibit G – Mediation and Arbitration Agreement (sample), submitted by Bob Maddox.
Exhibit H – HADD (Homeowners Against Deficient Dwellings) newsletter “Your HOME MATTERS”, pages 1-3, submitted by Bob Maddox.
Exhibit I – Home Buyers Warranty Booklet (HBW 207 NH 4/1/97), submitted by Bob Maddox.
Assemblyman Carpenter was concerned how those in rural areas would be able to obtain three bids to determine market value of the repair.
Mr. Canepa replied that issue might need to be addressed in another matter. Since the purpose for determining the market value of the bid was for the valuation of the bond, another vehicle might be needed to make that determination in the rural areas. It was not the intent to leave it to either the homeowner or the contractor, but to have an independent way to determine the value of the work so that the appropriate bid amount could be obtained. Mr. Maddox suggested an engineer’s estimate would be acceptable to address that problem, as opposed to requiring three bids.
Chairman Anderson queried where in A.B. 81 such language would go. Assemblyman Carpenter said Section 4, line 21. Mr. Maddox then restated as an alternative to three bids to say “or an engineer’s estimate for the cost of repair.”
Assemblyman Carpenter said there had to be some way to accomplish this in the rural areas; in many of those communities there were not three contractors and maybe not even an engineer.
Assemblyman Nolan felt the term “independent person” was too broad. How could a homeowner be assured the person would be qualified to do the inspection? Might there be a better way to qualify that?
Mr. Canepa agreed the concept was there but the language was not exactly as submitted; it was not a perfect bill, it needed some work. Clarification of the language might be needed, yet the original intent was there “independent person must be selected by the claimant and must have appropriate license and qualifications.” The purpose of allowing the claimant to select that person was to avoid a situation where the home building industry “helped themselves.”
Chairman Anderson stated there had been ongoing discussions over a number of previous sessions relative to what the qualifications should be for a licensed home inspector; there was a national standard. It was important that those who did the inspections were not those who did the repair.
Assemblyman Brower said it might make more sense to have the independent person selected by both parties, the homeowner and the contractor. Why allow the claimant alone to select the inspector?
Mr. Canepa stated the NRS Chapter 40 process began with a defect that was not the homeowner’s fault. By allowing the homeowner to select the inspector, it was an effort to “level the playing field.” He did not have a problem with the selection being made by agreement, but then another problem might occur if they did not agree.
Assemblyman Brower felt to assume that there would not be an agreement, left arbitration as the only solution, and the proposed steps to early resolution would probably never happen. One side or the other could always find a so-called expert to give them what they want. If everybody agreed upon an expert, the matters could come to a quicker resolution.
Assemblyman Brower questioned a provision in A.B. 81 Section 6, page 6 that required the court to revoke the license of the contractor. He felt it was an unprecedented role for a court to play.
Mr. Canepa agreed it was unprecedented, but by the time that circumstance had occurred, it was obvious there was misconduct. If the committee felt it would be more appropriate for the state contractor’s board, and the board would go along with that, he did not have a problem with that. This would present an egregious situation where the homebuilder had turned his back on the homeowner faced with serious problems.
Assemblyman Brower felt in that situation it should be easy for the contractor’s board to make such a decision. He had reservations about the court stepping into that role.
Assemblyman Brower noted in Section 11, page 9, which addressed when an association could commence a civil action; if a majority of the association could not agree, then the association should not be a party to the claim.
Mr. Canepa agreed that was a logical response. The problem occurred when a property manger of a 5,000 home tract could not get 51 percent of the people to vote in favor of anything. This was especially a problem in town home and condo communities; people bought them because of the ease of lifestyle, not to be involved in the day-to-day decisions regarding maintenance, etc. Even at annual meetings where budgets were discussed, barely a quorum would show up.
Mr. Maddox presented a video on repair issues (Exhibit J), which was not completed due to time constraints. Seven segments in favor of A.B. 81 and in opposition of A.B. 133 were included on the video (Exhibit J) as follows:
Elvera Sedgeman, a resident of the Elan Complex for eight years, explained the last four years had been the worst she had ever gone through. Nobody wanted to help her; letters were written to the construction company, but she received no replies. Chairman Anderson asked how the repairs were paid for. Ms. Sedgeman said the attorney and homeowners association helped.
Robert Girard, attorney for the Elan Homeowners Association, interjected he had an amendment to Section 7 of A.B. 81. Chairman Anderson said he was only willing to hear homeowners at this time, due to time constraints. Mr. Girard continued saying 80 letters had been sent, 145 pipe breaks had occurred at the complex, residents had to be evacuated. The defendant in the case refused to make repairs.
Assemblywoman Koivisto asked, “Where were all the building inspectors? How did something like this pass the inspections? What were the building inspectors doing? Were they not being paid a salary?”
Mr. Girard had heard those same questions from every homeowner client. They purchased a new home believing it was built right. Their biggest disappointment was when they found out it was not! There was too much construction and too few building inspectors, a major problem in southern Nevada.
Assemblyman Collins said in Clark County, electrical, mechanical and plumbing workers were required to either have a card (ticket) from an organized labor union or a certificate of qualifications from Clark County, State of Nevada. Are the building inspectors checking the tickets & certificates?
Mr. Girard reported in numerous instances building inspectors noted concerns and problems that were not fixed by the contractor/subcontractor.
Mr. Canepa stated testimony given by municipal building officials in previous cases was very clear; they look at 1 to 2 percent of the total construction as it went on, that was all they had time for. One point that should be noted, they did not know what happened after the inspection.
Joe Sedgeman, resident of Elan Complex, reported leaks in walls, mold and mildew. He just wanted to get back to normal.
Dave Persiano, Nevada Trial Lawyers Association, introduced witnesses from Las Vegas.
Barbara Holland, Real Estate Property Manager in southern Nevada, managed approximately 2,000 association units. She found it ironic the legislature was restricting the powers of the board of directors, and yet A.B. 81 Section 10 would allow the board the freedom to begin construction defect lawsuits without homeowner approval by placing “to protect health, safety and welfare of the members of the association” under one of the exemptions. She felt what was previously in the law protected the homeowners. Stigmatized properties involved in construction defect lawsuits had direct impact on the ability of homeowners to sell their properties. It had a direct impact on the ability to refinance, FHA and VA would not finance homes involved in construction defects. There was also a lowering of property values.
Ms. Holland said associations of 5,000 units or more were the exception to the rule, most associations consisted of 100 to 250 units. It had been difficult to obtain a majority, and one reason was because the legislature made significant changes to proxies.
Chairman Anderson voiced his concern that Ms. Holland opposed A.B. 81. Ms. Holland confirmed she opposed Section 10 of A.B. 81. Ms. Holland said the law talked about “good faith effort” without defining what was meant.
Chairman Anderson reiterated if anyone in Las Vegas had information they wanted to become a part of the permanent record, they should submit that to staff in Las Vegas and it would be sent to Carson City.
John Christ, representing himself, supported A.B. 81. He believed inspections were needed for all construction and inspectors needed to have the right to criticize developers for omissions. The benefits of the Uniform Building Code (UBC) should not be abolished, nor the privilege of the building departments to improve over and above the UBC.
Chairman Anderson announced the committee had heard those in support of A.B. 81. The general opinion was A.B. 81 was acceptable with some concerns about Sections 10 and 11. He then entertained those who wished to testify in opposition to A.B. 81.
James Wadhams, on behalf of the Southern Nevada Homebuilders Association, had two issues for the committee. The previous witnesses had identified there were construction problems, he concurred builders should be held responsible. Unfortunately, it was Mr. Wadhams’ opinion A.B. 81 failed totally in that regard. Instead of attacking the problem, it attacked the freedom of contract in Sections 1, 2, 3 and 11. Instead of attacking the problem, it attacked corporate structure and long standing Nevada law on corporations in Sections 8, 9 and 10. Instead of promoting the desire to fix, it forced a fight in Sections 6 and 7. It was unconstitutional in its delegation of executive authority to the courts in Section 6. It completely subverted the notion of majority rule in Section 12.
Fred Hillerby, representing the Nevada State Contractors’ Board, was concerned about Section 6 where it allowed the courts the ability to revoke a license. He agreed it was unprecedented, generally reserved for the licensing board. Section 13 proposed to put into civil statute a prohibition against binding arbitration; putting the contractors’ board in a position to interpret contracts, what parts would be valid or void. He believed that provision should not be part of the licensing statute.
Chairman Anderson asked if associations and contractors were treated differently because licensing was dealt with in a different legislative committee. The State Contractor’s Board took some dramatic steps in the last four years in its efforts to hold contractors accountable; could this not be another opportunity to hold contractors accountable for their actions, or would it lessen the authority of the board?
Mr. Hillerby stated if a court made a finding against a contractor, the board would consider it in any disciplinary proceedings the board might take. The other obligation put on the board by A.B. 81, relative to interpreting contracts, binding arbitration or not, would be dispute resolution not contracting.
Assemblywoman Koivisto asked where the funding came from for the contractors’ board, and from where did the members come? Mr. Hillerby answered the Governor appointed those who served on the contractor’s board. The funding came primarily from license fees; it received no General Fund money.
Assemblywoman Koivisto asked what the qualifications were for those who served on the contractors’ board? Mr. Hillerby answered the majority of the board were various types of contractors, it was fairly specific in statute, and there was a public member on the board as well.
Assemblyman Collins asked how did the contractors’ board deal with contractors who did not use qualified individuals on the jobsites? Mr. Hillerby answered that when the use of unqualified personnel resulted in poor workmanship and other problems on the projects, the contractor’s license would be in jeopardy.
Assemblyman Collins asked if there was an ongoing effort on the part of the contractors’ board to proactively eliminate this problem? Mr. Hillerby answered in previous sessions the Assembly Committee on Commerce and Labor had given the contractors’ board more tools to use to fight these problems and undertake disciplinary proceedings. He did not have exact numbers before him, but he would be happy to provide that information to Nicolas Anthony, Committee Policy Analyst.
Assemblyman Collins asked that information also be provided regarding coordination with the local building inspectors throughout the state in regards to complaints from the consumer as well as from local governments. Chairman Anderson clarified that the nature of the complaints relative to the number of inspectors should be included in the additional information to be submitted.
Scott Rasmussen, legal counsel for the Nevada Subcontractors’ Association, the largest residential subcontractors’ association in the state of Nevada, opposed A.B. 81. Chairman Anderson clarified that Mr. Rasmussen would be willing to participate in a working group to amend A.B. 81. Mr. Rasmussen agreed.
Socrates Delianides, homeowner from Reno, related he had not received help from the contractors’ association; he went to city inspectors and was told, “What’s new?” He went to Governor’s Office and got no response. Homeowners had nowhere to turn except this legislation. He thought it was criminal to overlook homeowner problems, and believed the committee had a responsibility to submit A.B. 81 for approval.
Chairman Anderson closed the hearing on A.B. 81 and called a brief recess.
Chairman Anderson entertained committee introductions of three Bill Draft Requests (BDRs).
· BDR R-323: Urging the Department of Human Resources to review the federal Foster Care Independence Act of 1999 to determine the feasibility of amending the state plan for Medicaid to create a new Medicaid eligibility group for young adults who have “aged out” of foster care (A.C.R. 10).
ASSEMBLYMAN MANENDO MOVED TO INTRODUCE BDR R-323.
ASSEMBLYMAN CARPENTER SECONDED THE MOTION.
THE MOTION PASSED UNANIMOUSLY WITH MR. NOLAN, MS. OHRENSCHALL AND MS. BUCKLEY ABSENT.
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· BDR 38-324: Authorizes division of child and family services of Department of Human Resources to enter into agreements for provision of maintenance and other services with certain persons (A.B. 342).
ASSEMBLYMAN MANENDO MOVED TO INTRODUCE BDR 38-324.
ASSEMBLYMAN CARPENTER SECONDED THE MOTION.
THE MOTION PASSED UNANIMOUSLY WITH MR. NOLAN, MS. OHRENSCHALL AND MS. BUCKLEY ABSENT.
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· BDR 11-325: Provides for integration of state and local child welfare services (A.B. 343).
ASSEMBLYWOMAN KOIVISTO MOVED TO INTRODUCE BDR 11-325.
ASSEMBLYMAN CARPENTER SECONDED THE MOTION.
THE MOTION PASSED UNANIMOUSLY WITH MR. NOLAN, MS. OHRENSCHALL AND MS. BUCKLEY ABSENT.
Chairman Anderson opened the hearing on A.B. 133 and welcomed Speaker Emeritus Joseph Dini, Jr. to the witness table.
Assembly Bill 133: Revises various provisions regarding claims against contractors for constructional defects and against design professionals for professional negligence. (BDR 3-667)
Speaker Emeritus Joseph Dini, Jr., District 38, testified in favor of A.B. 133. When a person bought something and found it did not work as it was supposed to, one expected the person who sold that item to repair or replace it. Over the last six years, the legislature had tried to make sure that opportunity was available to constituents who bought homes. Some homeowners have had to wait over three years for lawsuits to be resolved. He supported giving these problems attention without going to court if possible. It was known some contractors would not respond and would need to be sued; but we needed to make sure that homeowners identified problems and the builders had the right to take care of their responsibilities.
Chairman Anderson agreed that homeowners should be given a clear opportunity to get their problems addressed and subcontractors should be given a clear opportunity to fix those problems; and those people were sued that deserved to be sued, and those people who should not be sued were not a target of “deep pockets.”
Mr. Wadhams approached the witness table with attorneys Mark Ferrario and Scott Rasmussen. Mr. Wadhams agreed with Speaker Emeritus Dini’s introduction. There were problems with construction; there were builders who did not stand behind their work. Those who needed to be sued; should be sued. Those who could repair and would repair provided a quick resolution for homeowners with problems. The issue under discussion would be making sure that homeowners had a clear right and a clear line of redress, that subcontractors were notified in a timely manner and had a right to repair their work, and to keep this process narrowed down so that those who caused the problems were involved in the issue and those that did not cause the problems were not unnecessarily involved.
This was the fourth session the issue of “right to repair” had been discussed. No one, except lawyers, wanted to go to court. Homeowners did not want to go to court, they did not want to wait three or four years, they wanted the problems fixed. Those that did not fix or did not fix properly should be liable for civil damages.
Mr. Wadhams said an independent survey had been done within the last year that showed 85 percent of people who bought houses statewide were satisfied, a very significant number. That did not mean 15 percent were unhappy, it did mean that within the 15 percent were people who were unhappy and that was recognized. The opportunities must be kept available for those homeowners to get the problems addressed quickly before litigation.
Mr. Wadhams described “section by section” details of A.B. 133. Section 1 was bill drafting language. Section 2 was an identification of the phrase “building code” that referred to government regulations on construction. Section 3 created a rebuttable presumption that once inspected the building was presumed to be in compliance with the building code; not a conclusive presumption. It did establish that if the inspection took place, the building code had been met. On the top of page 2 there were exemptions for fire safety and imminent threat, issues that would override all other considerations. Section 4 was a critical piece requiring notification to all who had an interest (other parties, lien holders, creditors) in the house that a problem existed.
Section 5 was, in Mr. Wadhams’ opinion, the critical component of A.B. 133. It said the claimant had to allow the contractor reasonable access to cause the repairs. It also said the contractor had to complete the repair in a timely fashion (top of page 3). It had to be done in a workman-like manner and in compliance with applicable building codes. The key portion of Section 5 was the repair; it did not excuse a contractor or subcontractor from doing a substandard job, it required a standard job, warranted to the extent that was it not adequate, redress was still available beyond that. It did clearly identify there was a right to repair items that were not in dispute. There might be other issues that were not repaired, but those not in disputes should be done.
Sections 6 and 7 dealt with design professionals. This fell within the category of those who were responsible ought to be part of the solution; those not responsible ought to be out. There should be verification there was a design problem prior to naming people, eliminating the “shotgun approach” when not necessary. Section 8 was bill drafter language.
Section 9 defined constructional defect, and identified problems not included were those already in substantial compliance and not causing any damage to the house, such as cosmetic issues. Section 10 paralleled Section 5 providing the right of repair. Section 11 required before going to mediation process (before litigation) a last opportunity be given to the claimant to establish what the claimant needed allowing the mediation to be more focused. Section 12 identified the economic value of the loss; the cost of repairs or the loss of market value, whichever was less. This issue identified substantive and serious defects from those that had no effect or little effect on the value of the house. Section 13 was drafting language included in Sections 2 through 7.
Section 14 dealt with imminent threat, this was important and demanded an immediate response from the contractor. If there was a certification of imminent threat, the contractor must take reasonable steps to respond as soon as practical; this was not a disputable matter any longer (page 10, lines 19-26). Section 15 adjusted the statute so that if repairs commenced, the time the claimant had was extended for that period of time until the repair was concluded. Section 16 complimented Section 15 by extending the time. Section 17 was the effective date.
In conclusion, Mr. Wadhams said A.B. 133 attempted to create a clear opportunity for the repairs to be made and to create rights for the person that built the house to repair. It did not obligate the homeowner to settle for unsatisfactory repairs, additional redress could be taken if the repairs were not completed correctly.
Assemblyman Carpenter was concerned about language in Section 14 that allowed the contractor to take “reasonable steps” to repair when imminent threat had been reported. Assemblyman Carpenter believed this type of language took the contractor “off the hook” to act quickly.
Mr. Wadhams drew the committee’s attention to language in the existing law (page 10, lines 19-26). The intent was to eliminate a delay in any determination of imminent threat and certification of the imminent threat. The terminology “reasonable steps” were words put into statutes routinely, what was reasonable or practicable in an imminent threat would be very timely. When a certificate of imminent threat was issued, a response must take place.
Assemblyman Carpenter believed language was needed to put the contractors “on the spot” to take care of these types of situations immediately. Mr. Wadhams agreed and said he was willing to work on the language.
Assemblyman Carpenter questioned the language in Section 5 having to do with attorneys consulting with at least five design professionals. If a design professional did something wrong, why would it be needed to consult with five of his peers to determine if he had really done anything wrong?
Mr. Wadhams agreed that Assemblyman Carpenter had identified a practical issue. This was another effort to try to narrow who was at fault, what was faulty and what was not. This issue required some diligence before complaints were filed.
Chairman Anderson questioned the terminology in Section 9 that referred to “the existing code at time of construction.” Did this mean the contractor could not be held responsible for any alterations and their subsequent effect that would be made by the homeowner after the house was built? Mr. Wadhams agreed and said a law in existence for approximately six years covered such circumstances. If a homeowner or third party made alterations that changed the drainage of the property, the contractor would not be held responsible because that was not the way he built it.
Chairman Anderson asked if 10 to 15 years later when a subcontractor made extensive additions to the property, did he go to the subcontractor with problems or the original contractor who was still in the area?
Mark Ferrario, representing the Southern Nevada Homebuilders Association, answered the provision attempted to set a standard by which the developer or contractor would be judged. That standard could only be the building codes in effect at the time the contractor or subcontractor performed the work. If a subcontractor was hired to perform work some years later, and they pulled a permit to do the work on the house, they might be subject to an updated version of the code.
Chairman Anderson asked what happened when a narrow period of time existed, maybe less than a year, between the original building and an addition. What happened if a design flaw showed up based on the updated version of codes? Mr. Ferrario answered if the original contractor did not comply or substantially comply with the codes in effect at the time of the original construction, and another subcontractor came in after the fact doing an addition and discovered failures to comply with the code in effect at the time of the original construction; then certainly the builder would be held accountable. If the contractor complied with the code in effect at the time, future findings would not deem it a construction defect.
Chairman Anderson reported Nevada was the fastest growing state in the United States and changes happened all the time. Mr. Ferrario agreed stating there were a number of things that spawned changes to the building codes, often happening in states other than Nevada and addressing conditions that did not manifest themselves in Nevada. The building codes were evolutionary; they evolve over time and address various issues. The builder could only comply with the law in effect at that time, not anticipating what might happen in the future.
Vice Chairman Manendo wanted to clarify in Section 6 who the homeowner sued, the design professional or the builder? Did the builder sue the design professional? Mr. Ferrario stated most often it was the builder versus the design professional.
Assemblyman Carpenter felt A.B. 133 was difficult to read. Section 3 stated exemptions for “fire safety and certifications of imminent threat to the health and safety to the inhabitants or residents.” Did this mean that a building inspector would certify to those items before a resident could start an action? Mr. Wadhams responded regarding information in Section 14 where a certificate from an engineer or contractor triggered the responsibility of the contractor to respond either as soon as practical or whatever language was finalized. Imminent threat had to be dealt with immediately, that was an exception to the rule.
Assemblyman Carpenter asked who certified the imminent threat? Mr. Wadhams replied the language in line 3, page 2 said building inspector, and on line 5, page 10 said engineer, contractor or building inspector. These sections would need to be made consistent. If there was an imminent threat and it was identified by someone responsible for doing that sort of thing, which would trigger immediate action.
Ms. Leslie Bausher, an employee of American West Homes (AWH) in Las Vegas since 1984, supported A.B. 133. She was proud to announce AWH did not have any outstanding warranty items longer than 30 days. AWH had been sued several times by homeowners that never contacted AWH for warranty service issues. Four years later, the case was settled, insurance rates quadrupled, and several valued subcontractors were damaged irreparably. She believed A.B. 133 would give American West Homes the opportunity to go out and repair homes, keeping out of the litigation process and getting the homeowners happier faster.
Chairman Anderson asked how Ms. Bausher was involved with American West Homes. Ms. Bausher answered she was the last line of defense, not the first. American West Homes had a very capable warranty service department that was well staffed and handled those types of issues. Ms. Bausher got the letters from the lawyers.
Dick Peck, subcontractor for American West Homes (AWH) and board member of the Nevada Subcontractor Association (NSA), supported A.B. 133. Chairman Anderson asked Mr. Peck to clarify what he did for AWH. Mr. Peck did 100 percent of stucco work and part of the drywall for AWH. Chairman Anderson asked how Mr. Peck kept track of which houses he worked on. Mr. Peck said he kept a complete record and AWH gave him 14 days to complete any repairs.
Jim Gair, owner of JM Gair & Associates, a small to medium size builder of town homes in southern Nevada, supported A.B. 133. He was also on the board of Southern Nevada Homebuilders Association and was a nonpaid lobbyist. He related circumstances in regards to a lawsuit involving a development in Summerlin, which had experienced minor airflow problems. When the lawsuit commenced, he was “locked out” from helping any homeowner with simple fixes. It would have entailed about 30 minutes per unit, a total of 5 weeks for 208 homes, and $40 cost to his air conditioning subcontractor with no cost to the homeowner. After three-and-one-half years, the lawsuit had been settled through five different law firms, and to date nothing had been fixed. Mr. Gair got sued without knowing of any problems and without having any history of complaints from the homeowners that filed the class action lawsuit against him. He believed A.B. 133 would rectify many of the problems he had experienced.
Assemblywoman Angle asked Mr. Gair what the insurance costs were to protect against litigation? Mr. Gair commented the cost of his insurance for general liability tripled the first year and then the next year it doubled. This past year seven insurance carriers turned him down until he found an underwriter that would take him as a builder. He had also lost many of his subcontractors who had been precluded from even bidding on multi-family housing projects in Nevada by their insurance carriers.
Assemblyman Carpenter verified that Mr. Gair had received no complaints from homeowners prior to the lawsuit. Mr. Gair said he received a few customer service requests, maybe 15 out of the 208 homes, he made the repairs and those 15 were happy. None of the other homeowners notified Mr. Gair of any problems.
Mark Fiorentino represented the American Consulting Engineers Council of Nevada. He introduced James Duddlesten, Chairman of the Nevada Legislative Committee for the Engineers, and John Kubota, President of Kubota & Associates, an engineer affected by this bill. Mr. Fiorentino believed Sections 6 and 7 directly impacted the engineering community, providing a valuable and necessary tool to achieve those goals as discussed at the beginning of this hearing, namely (1) find an efficient way to insure people who had problems with their homes got those problems fixed, and (2) a way to efficiently identify people who had real liability and real fault in these cases and hold them accountable.
Mr. Fiorentino recounted how the process worked. Engineers were often named as part of the “shotgun approach” when a lawsuit was filed, whether they might or might not have liability or whether any real investigation had been done into any potential liability. The engineers were forced to spend thousands of dollars through the discovery process to find out if they had any real liability. Many times, after the discovery process and after spending money that only benefit the attorneys on the case, the engineers were dismissed from the case or were forced to pay a settlement because it was cheaper to pay than to go into protracted and possibly unnecessary litigation. The concept of Sections 6 and 7 would require early in the litigation process to hire a person to complete a report that stated whether there was potential liability for the engineer or not.
James Duddlesten reported his company spent $43,000 in attorney fees and a settlement of $10,000, a fraction of what it would have cost to correct the deficiencies; it was better to pay than to continue the process. Sections 6 and 7 went to the heart of the issues for the engineering and design professionals brought into the construction defect cases.
Chairman Anderson asked if the insurance carriers, not the subcontractors, made the decision to move to a settlement. The result was higher insurance premiums because of the number of litigations, which was what put contractors and subcontractors out of business. Mr. Duddlesten said he could not speak for the contractors or subcontractors; but regarding his attorney fees, they came out of general overhead and operating costs because of the insurance deductible.
Assemblyman Brower asked why Section 7 Subsection 2 was necessary? Mr. Fiorentino agreed it might not be necessary; he would review it and get an answer back to the committee.
Bob Maddox, NTLA, believed A.B. 133 had virtually nothing to do with getting homes fixed. It was a mean-spirited and unduly harsh bill for Nevada homeowners. The homeowners typically brought their claim to the developer; the developer or the developer’s insurance might take the “shotgun approach” with subcontractors and design professionals. At least 90 percent of the cases were homeowners against the developer; the insurance company for the developer brought in the other parties. In his 25 years of representing homeowners in construction defect cases, he had never stood in the way of any builder wanting to correct a defect in a home. Mr. Maddox called attention to Exhibit K – “A.B. 133 Another Attack On The Rights Of Nevada Homeowners.”
Some of the main points included:
Mr. Maddox also called attention to Exhibit L – “Home buyers pay hefty price for inadequate state inspections” (Reno Gazette-Journal, December 27, 1998) that focused on the failure of government entities to assist homeowners with construction defect problems.
Chairman Anderson commented in February 1999 this legislature took up a major piece of legislation relative to construction defects. Were not these issues addressed in that legislation? Did Mr. Maddox believe A.B. 133 rolled back to where the law was before; was that why he was bringing forth the question?
Mr. Maddox said A.B. 133 was regressive; it attempted to lower building code standards. With those exemptions for fire safety and imminent threat, building inspectors were again involved; building inspectors who deemed themselves as customer service for builders. So building inspectors, who did not catch the defect the first time, would certify the imminent threat; that was not reasonable. Why should a homeowner only be allowed to pursue claims for defects that involved imminent threats to safety? If that were the case, when you bought a home there should be a disclosure regarding protection only against imminent threats; they would need to accept the possibility that roofs might leak, windows might leak, air conditioning might fail on peak days, plumbing would leak, cracks would form in floors and walls, and surface water would flow through the house.
Section 9 tried to redefine construction defect to include if it was in “substantial compliance” with applicable building code it would not be a defect. Also it would not be defective unless it had already caused damage to real property or caused injury to a human being. The Uniform Building Code states the purpose of the code was to set “minimum standards” to safeguard life or limb, health, property and public welfare. If A.B. 133 were enacted, it would create “substantial compliance” with “minimum standards.” Secondly, the building code did not address all aspects of construction; again, just minimum standards.
Chairman Anderson understood Mr. Maddox opposed A.B. 133. Chairman Anderson stated he and Senator Townsend had received a great deal of mail from homeowners that listed specific construction defects. Most of those letters were very detailed and specific. Mr. Anderson wondered where the homeowners got the technical questions to ask.
Mr. Maddox remarked there were many homeowners in the audience who were willing to share the heartbreaking anxiety they had experienced trying to get their homes fixed. When the homeowners had a serious problem, they went to the builders, they went to the contractor’s board, but they came to NTLA last. Homeowners research and know more about many of these issues than the NTLA.
Other exhibits became part of the record without verbal testimony:
Exhibit M – City of Las Vegas Comments on A.B. 133, submitted by Dan Musgrove, Legislative Advocate, Las Vegas, NV.
Exhibit N -- Statement from Jan Marie Brown, Homeowner, Carson City, NV, submitted by Bob Maddox
Exhibit O -- Statement from Susan Zink, Homeowner, Reno, NV, Submitted by Bob Maddox
Exhibit P -- Statement from Randa Steele, Homeowner, Las Vegas, NV
Exhibit Q -- Statement from Sheri Kolbet, Homeowner, Reno, NV
Exhibit R -- United States District Court, District of Nevada, Deposition for Case No. CV-S-92-507-HDM-RLH, Submitted by Bob Maddox
Exhibit S -- State Contractor Board Meeting Minute Summaries listing Contractors, Complainants, Charges and Action Taken, from 6-10-908 to 2-23-00, Submitted by Bob Maddox
Chairman Anderson closed the hearing on A.B. 133.
Chairman Anderson recapped for the committee concerns heard regarding A.B. 81. He then recapped concerns heard regarding A.B. 133. Legal Division had completed a summation on the two pieces of legislation that would be distributed to committee members. A.B. 81 and A.B. 133 would not be sent to the work session or a subcommittee immediately.
Meeting was adjourned at 11:00 a.m.
RESPECTFULLY SUBMITTED:
Deborah Rengler
Committee Secretary
APPROVED BY:
Assemblyman Bernie Anderson, Chairman
DATE: