MINUTES OF THE meeting

of the

ASSEMBLY Committee on Judiciary

 

Seventy-Second Session

April 8, 2003

 

 

The Committee on Judiciarywas called to order at 7:44 a.m., on Tuesday, April 8, 2003.  Chairman Bernie Anderson presided in Room 3138 of the Legislative Building, Carson City, Nevada, and, via simultaneous videoconference, in Room 4401 of the Grant Sawyer State Office Building, Las Vegas, 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.

 

 

Note:  These minutes are compiled in the modified verbatim style.  Bracketed material indicates language used to clarify and further describe testimony.  Actions of the Committee are presented in the traditional legislative style.

 

 

COMMITTEE MEMBERS PRESENT:

 

Mr. Bernie Anderson, Chairman

Mr. John Oceguera, Vice Chairman

Mrs. Sharron Angle

Mr. David Brown

Ms. Barbara Buckley

Mr. John C. Carpenter

Mr. Jerry D. Claborn

Mr. Marcus Conklin

Mr. Jason Geddes

Mr. Don Gustavson

Mr. William Horne

Mr. Garn Mabey

Mr. Harry Mortenson

Ms. Genie Ohrenschall

Mr. Rod Sherer

GUEST LEGISLATORS PRESENT:

 

Speaker Richard Perkins, District No. 23, Clark County

Assemblyman David Goldwater, District No. 10, Clark County

Assemblyman John Marvel, District No. 32, portions of Humboldt, Lander, and Washoe Counties

 

 

STAFF MEMBERS PRESENT:

 

Allison Combs, Committee Policy Analyst

Risa B. Lang, Committee Counsel

Deborah Rengler, Committee Secretary

 

 

OTHERS PRESENT:

 

Mark Sektnan, Assistant Vice President, State Affairs, American Insurance Association, Sacramento, California

Bob Maddox, Nevada Trial Lawyers Association

Herb Goldsmith, Homeowner and President, Duck Creek Village Condominium Community

Dennis Green, President, Legends Green Valley Homeowner Association; and a member of Safe Homes Nevada

Hank Kripitz, Homeowner; and a member of Safe Homes Nevada

Stephen G. Giles, Homeowner, Promontory Point; and a member of Safe Homes Nevada

Scott Canepa, representing the Nevada Trial Lawyers Association

Danny McLaughlin, Board of Directors, Safe Homes Nevada; and President, Pueblo at Santa Fe Homeowner Association

Michael Hirschhorn, Homeowner; and Director, Canyon Willow Homeowner Association

Antonio Reyes, Homeowner, The Village at Craig Ranch; and a member of Safe Homes Nevada

Steven D. Hill, President, Silver State Materials Corporation; Chairman, Government Affairs, the Associated Builders and Contractors and Associated General Contractors; and Chairman, Coalition for Fairness in Construction

Nick Solarno, Attorney, representing the Coalition for Fairness in Construction

George F. Ogilvy III, Attorney, representing the Coalition for Fairness in Construction

Linda Burch, Homeowner, Double Diamond Development

William Shephard, Homeowner, Director Echo Bay Homeowner Association; and a member of Safe Homes Nevada

James L. Wadhams, Attorney, Wadhams & Akridge

Nancy Hart, Deputy Attorney General, Office of the Attorney General

 

 

 

Chairman Anderson:

[The Chair reminded the Committee members and those present in the audience of the Standing Rules and appropriate meeting etiquette.]

 

[Roll called.]  There is a quorum present; 14 members are present.

 

It is not possible hear all of the people who wish to testify on the three bills.  Let me indicate that if you already have heard information presented, there is no need for you to repeat the statements for the Committee.  The depth of this problem in construction defects has been generated several times.  While we have five freshman legislators on the Committee who have not heard the testimony, the rest of us have heard various parts of this in the past; we understand some of the issues.  Your particular perspective is very important to us, [but we must comply with] the time restraints as we try to get to all the bills.

 

The first bill on the agenda today is Assembly Bill 373, Assemblyman Marvel’s bill.  Assemblyman Marvel has been at this issue since I was a freshman [in 1991].  It is a pleasure to see you in the Assembly Committee on Judiciary.

 

Assembly Bill 373:  Limits period during which certain actions may be commenced or claims made relating to constructional defects. (BDR 2‑734)

 

Assemblyman John Marvel, District No. 32, portions of Humboldt, Lander, and Washoe Counties:

This bill is not meant to be contentious; I am trying to create a format to get all the players together.  Legislators probably received a lot of testimony from the Insurance Commissioner last summer [2002].  There were some very responsible people who testified as to the reasons why they actually sold their businesses and got out of construction.  One of the primary reasons was the high cost of liability insurance, plus the fact that many builders found themselves in court before they had an opportunity to address the problem.  Today I have with me a member of the Construction Liability Insurance Task Force.  I hope to establish a dialog where we can get the homebuilders, the insurance people, the lawyers, and the homeowners themselves together. 

 

At one time I was a CRA (Community Reinvestment Act) director of a financial institution.  The federal government and regulators look very closely at how financial institutions loan money; they want to make sure that you’re serving the needs of low-income people and the first-time homebuyers.  What was distressing was the fact that while you were trying to qualify people, those in the construction business were experiencing an increase in their insurance premiums and the cost of housing was increasing.  It makes it more difficult for financial institutions to qualify homebuyers.

 

Assembly Bill 373 is somewhat patterned after California’s Senate Bill 800.  We have an expert who was on the Construction Liability Insurance Task Force; he can probably explain the details and how successful it has been in California.  I think primarily what we are trying to do is shorten the statutes of limitation when litigation can be started, but it does not preclude the homeowners from actually being able to go to court.  Other than those [time periods] specified in the bill, we would go back to the ten years that is presently in the statutes.

 

With that, I would like to turn it over to Mark Sektnan of the American Insurance Association.  He was on the Construction Liability Insurance Task Force.

 

Mark Sektnan, Assistant Vice President, State Affairs, American Insurance Association, Sacramento, California:

[Introduced himself and submitted Exhibit C.]  The American Insurance Association is a national trade association made up of over 400 insurance companies, writing a significant amount of business in Nevada.  We also represent most of the insurance companies that have traditionally provided construction liability insurance; we prefer to consider it construction dispute legislation.  As Assemblyman Marvel mentioned, I was an insurance representative who helped negotiate California’s S.B. 800.  I was also the insurance representative on the Governor’s Contractor Liability Insurance Task Force in Nevada.

 

I have come to talk about the relationship and similarity of Assembly Bill 373 to California’s S.B. 800.  I brought a document titled “Appendix A” (Exhibit C), put together by the California Building Industry Association (CBIA) that shows the statutes of limitation; these California provisions are identical to A.B. 373.  California’s S.B. 800 was a cooperative negotiation between the plaintiffs’ attorneys in California and the CBIA.  I want to stress that it was a cooperative venture; it was determined that if they didn’t end up with a bill that was an agreement between those two parties in particular, the bill would not go forward.  The plaintiffs’ attorneys in California did agree to these types of statutes of limitation. 

 

Also, if you notice the way the bill [A.B. 373] was drafted, and it is true of California’s S.B. 800, most of these time limits do not apply to what we would call “life and safety” issues.  California’s S.B. 800 and other bills in Nevada are handled somewhat differently.  California’s S.B. 800 also creates what we call functionality standards, which are definitions of what is or is not a defect.  We believe that these bills and this bill [A.B. 373] will help to offer a small step towards providing what insurers crave in this market, which is an ability to predict the losses that they may incur on writing a policy and accurately price it for their contractors at an affordable rate.  We believe it will have a positive impact.  However, and I quote a plaintiff’s attorney in California who was a lead negotiator, “Take time.” 

 

Unless this bill [A.B. 373] is retroactive, and I do not believe that it is, the types of cases that it will affect will not be felt for four or five years because those homes that this bill could apply to are now being built.  Typically, the construction dispute cases start appearing four or five years afterward.  We hope this will improve the insurance market in Nevada, which you have heard quite a bit about.  We have companies in Nevada that were losing up to 400%; for every $1 in premiums, they were paying $4 in claims.  To give you an example, the insurance industry tends to get nervous at a 1 to 26 ratio.  State Farm, one of the largest insurance companies in the country, stopped writing new homeowner’s insurance in California when they started losing $1.26 for every $1 they were taking in. 

 

We would like to come back to this market, and the insurance industry in general, with some predictability and an ability to price a product that the contractor can afford.

 

Assemblyman Carpenter:

How long has this statute [California’s S.B. 800] been in effect in California?  What has been the experience with the insurance rates since it has been in effect?

 

Mark Sektnan:

Insurance companies tend to move slowly.  The law that was passed last year was effective January 1, 2003.  The bill in California requires that notice be provided to homeowners who buy houses after January 1, 2003.  So it has just taken effect; at this point it is too early to anticipate what the final outcome will be.  At a meeting with the Insurance Commissioner on Wednesday, [April 2, 2003], the general perception of the insurance industry was that this will be a helpful step and we hope that in a couple of years…  Remember, insurance companies have to base their rates on prior years’ experience, so we need some prior years’ experience.  It is going to take a while for these cases to come to court.  Everybody speaks quite positively of this particular concept and other concepts that have been in California’s S.B. 800.

 

Assemblyman Carpenter:

Have there been any other states that have tried this [concept]?  Do you have more of a handle of what the experience might be?

 

Mark Sektnan:

The other two states that I am most familiar with are Arizona and Washington.  They both have slightly different laws and both of those also took effect last year.

 

Chairman Anderson:

Prior to the passage of California’s S.B. 800, were the timelines for construction of this type dramatically different?

 

Mark Sektnan:

Are you talking about the timelines for dispute?  [Chairman Anderson replied in the affirmative.]  Yes, they were.  In California, like most cases where there is a litigation situation, statutes of limitation were all 10 years, as they are in most states.  This changes that for some, but not all, of the housing components. 

 

Assemblyman Horne:

How did you determine the statutes of limitation for these incidents?

 

Mark Sektnan:

These particular elements were based on what the reasonable life expectancy is for each component.  One of the key components was “fit and finish.”  Fit and finish, as any contractor will tell you, especially over a period of time, becomes a very difficult issue, which is why there is a very short statute of limitation.  There was a discussion among the plaintiffs’ attorneys and the builders to determine what the reasonable life expectancy was for various components.  Those statutes of limitation are tied to that expectation.

 

Assemblyman Horne:

But if it is based on the reasonable life expectancy, if we are talking about defects, doesn’t it skew that number?  For instance, if it is a good fixture or good construction, those timelines may be adequate.  But if it’s poorly manufactured, you might have a diminished life expectancy, so you may not be able to rely on these numbers.  For example, a plumbing product has a one year statute of limitations.  I know from personal experience…we had a leak that we didn’t know where it was coming from.  It was finally determined to be coming from a toilet fixture.  We did not know until long afterwards that the whole thing had been installed incorrectly.  Because it was installed incorrectly the first time and it could not be determined until it was pulled up, it would not have fallen under this [statute of limitations]. 

 

Mark Sektnan:

I have two answers.  First, the reasonable life expectation, the discussion that ensued with people who do this on a daily basis…what their perception was is that if a product is going to fail, if it is a manufacturing error, generally what will happen is that it will fail fairly quickly because the error will make itself evident.  The thought was that it would fall within those things [statutes of limitation].  In your particular case, I believe there is a different between the plumbing fixture, by which we meant mostly faucets, and the plumbing system, which has a four‑year statute of limitations.

 

Chairman Anderson:

Any other questions for Mr. Sektnan? 

 

Anybody else [wishing to] speak in favor of A.B. 373?  In opposition to A.B. 373?

 

Bob Maddox, representing the Nevada Trial Lawyers Association (NTLA):

[Introduced himself and submitted Exhibit D.]  Indeed A.B. 373 may be of some benefit to insurance companies, but we think it would deprive homeowners of justifiable, righteous claims before they even know the claims exist.  I would like to go through numerous provisions of the bill, explain why we are so opposed, and how those provisions could deprive homeowners of righteous claims because of construction defects, including life/safety defects.  But first, with your indulgence, we would like several homeowners to address this Committee on specific problems they have dealt with that might relate to issues in this bill.

 

Herb Goldsmith, Homeowner; and President, Duck Creek Village Condominium Homeowner Association:

[Introduced himself and submitted Exhibit E and Exhibit F.  We have a community of about 330 families, ranging from the elderly retired to young families just getting started.  In 1997, our developer ended construction in our community abruptly before building a needed floodwall.  The floodwall was required by the county as part of the civil engineering plan.  Even worse, the developer did not place the required drainage outlets within our downstream block wall to allow water to flow. 

 

When we had the 100-year flood, the water flowed into our property.  Once in our property the water could not leave it; there were no drainage outlets.  We had a reservoir and our homes quickly flooded.  If you will take a look at the second picture (within Exhibit E), that’s my 36-foot diesel motor home floating down the river.  That’s how much water was flowing through our property at the time.  The developer saved money by not providing us with the required drainage control.  I brought photos and a video (Exhibit F) that show what our developer’s cost-cutting measures meant to us.  [Video was run.]

 

Strong rains and flooding occurred two years after our community was built.  Until then we did not know that our homes would be destroyed as a result of our developer’s lack of care.  Under Assembly Bill 373, builders will not be accountable for the same neglect we experienced.  I urge you to oppose A.B. 373 and protect the rights of homeowners.

 

Chairman Anderson:

I have been in Las Vegas when it has rained.  Prior to the 120-day sessions, the Legislature used to go to Las Vegas for a couple of weeks.  In 1991, I was there during a relatively large flood; you could not drive up Las Vegas Boulevard or any of the main streets of the city.  Doesn’t Las Vegas itself have a major problem with their drainage system for some time?

 

Herb Goldsmith:

Yes, they have had a problem with their drainage system, but it has never affected us in the past.  With the exception of some very minor floods in the past, we were never bothered by this.  What happened was that the developer left the area without allowing us the ability to have a protected floodwall in place.  When the flood did come, it flooded our area and the walls that he built to surround our area did not have the proper drainage areas placed into them.  The walls therefore created a dam, which held the water in and forced us to attempt to break holes in the wall in order to relieve some of the situations.  We had about three feet of water in our homes.

 

Assemblyman Mabey:

I was there for that storm; it was incredible.  It was a 100-year storm, so if he had put in the floodwall, it would have made a difference?

 

Herb Goldsmith:

No doubt about it.  It would have angled the water out of our area; we would not have been flooded.

Assemblyman Mortenson:

I have had a house in Las Vegas for over 40 years.  I sometimes believe the problems in Las Vegas are not so much a builder’s problem, but the flood control, the city or county’s lack of taking into account water problems and drainage problems throughout the whole city and county. 

 

Herb Goldsmith:

If the wall had been in place at the time, we would not have been flooded.  The fact is that he abandoned our area.  We have been through a construction defect lawsuit with this particular builder, his contractor, and his subcontractors.  This has been something that has evolved over the years.  This gentleman has rebuilt in our area under three different names with three different companies.  Rather than putting the $500,000 or $600,000 into the needed floodwall, he abandoned the property and left.  We would not have had the flooding if he would have done what he should have done to start with.

 

Assemblyman Brown:

I certainly sympathize with any personal disaster on a large scale for your entire community.  However, you have characterized the developer as one who was cutting corners, cost-cutting, et cetera.  Is there any evidence that there were codes that were violated?  I am trying to figure out how you make the leap from cost-cutting to abandonment issues.  Was there anything in the design or civil engineering that said, “This has to have this particular wall” and that he consciously or knowingly failed to install that?

 

Herb Goldsmith:

I would have to assume that because the county…  We contacted the county building department based on our problem.  Eventually, the county gave us the requirements for that wall.  He [the developer] had funds in a construction account, a recovery fund, that he had deposited, which were used to construct the wall.  It [the wall] was built according to the county standards.  I have to assume that was the code.

 

Assemblyman Brown:

If there was any evidence of that fact, I would like to look at it; that would be compelling.

 

Bob Maddox:

In response to Assemblyman Mortenson’s comment that it’s obvious that Clark County has a problem with flooding, it’s a problem of the governmental entities, but it’s also a problem that is exacerbated by inadequate drainage installed in subdivisions by developers.  We have some other homeowners who would like to address this issue.

 

Dennis Green, President, Legends Green Valley Homeowner Association; and a member of Safe Homes Nevada:

[Introduced himself and submitted Exhibit G, and shared personal background information.]  I am 1 of 195 families that live in the community.  Nine months after I moved in, I was one of the first homeowners elected to the board of directors to serve with the builder.  Prior to then, the builder held all director and officer positions.  I served as a director from November 1996 until November 1997, while the builder still controlled the association by filling a majority of the director and all officer positions.  In November 1997, the homeowners took control of the association.  I was elected President then and have served in that capacity ever since.

 

Even before I was elected to the board, it was obvious that there were construction defect problems throughout the community.  Homeowners complained of excessive noise between units and water leaking through the windows, decks, and roofs.  At one of the first board meetings that I attended when the builder controlled the association, they admitted and agreed that the excessive noise problem was construction-related.  They said essentially, “Yes, we know it’s a problem, but there’s nothing we can do about the units that are already built.”  However, they also said that they would be adding soundboards that would eliminate the problem to the units that were still under construction.

 

We now know that both of those statements were false.  After several years of litigation, the builder’s own experts agreed that there was a noise problem throughout the community, including those units that were allegedly built with soundboards, and there was a way to fix the problems in all of the homes.

 

Homeowners were also reporting water leaks through the windows, decks, and roofs.  Homeowners on the first floor would report water leaking through the second floor windows and decks that were causing stains, peeling paint, and deterioration of wallboard.  Some first-floor homeowners even had leaking all the way down to their carpet.  I and many of my neighbors made numerous complaints to the builder related to these and other issues.  I also understand that many homeowners made numerous unsuccessful complaints to the Nevada State Contractors’ Board.  We either got no response whatsoever or were told, “We’re working on it.”  When repairs were attempted, they were simply Band‑Aid type repairs to the symptoms, rather than repair of the true construction defects that were causing the damage over and over again. 

 

After a couple of years of trying to work directly with the builder, we gave up and hired an attorney.  The attorney arranged to have licensed architects and engineers investigate our community and identify our problems.  The experts made a list of problems they found and our attorney sent that list to the builder in a certified letter on April 29, 1998. 

 

Although the builder was required by Nevada Revised Statutes (NRS) Chapter 40 to inspect our community and respond to our certified letter within three and a half months, it requested and got us to agree to give it more than a year extra to inspect the community and make a response to our claims.  The lawyers hired by their insurance company promised us that a credible offer to resolve all of our problems would be made if we gave them extra time.  This also turned out to be false.  On March 12, 1999, we got our response from the builder.  They didn’t offer to repair anything.  Instead, their insurance company offered us $199,076.02.  In response to one of our primary concerns, the noise problems, they wrote, “None observed.”  We later found out that the builder’s experts had calculated the costs to repair our defects in excess of $5 million.

 

We were forced to authorize our attorneys to file a lawsuit on our behalf in July 1999.  We were then forced through three more years of litigation, enduring no fewer than five trial continuations before finally getting our day in court in late June 2002.  After six weeks of trial, the jury returned a verdict in our favor in the amount of $12 million.  The jury found that the builder was guilty on each and every one of the defects that the builder caused.  We recently were able to settle the case after the trial and will begin repairs next month.

 

What made this lawsuit especially troubling for the homeowners was the fact that FHA and VA financing were taken from our community.  We understand that we will only be able to get FHA and VA financing back once all of the repairs are made to all of the condominium homes.

 

In closing, I want you to know that neither myself nor any of the homeowners in the community wanted to be involved in a lawsuit.  Unfortunately, we were forced to do so because our builder would not stand behind his product.

 

Hank Kripitz, Homeowner; and a member of Safe Homes Nevada:

[Introduced himself and submitted Exhibit H and Exhibit I.]  In 1998, my wife and I bought a new home in Las Vegas.  We were very excited and we poured much of our savings into purchasing and furnishing our new home.  Unfortunately, my builder did not ensure that the floodwall behind our home was properly built.  Had he taken appropriate drainage control measures, I would not have endured the tragic events captured in the video about to be shown (Exhibit I).  [Video run.] 

 

As you can see, drainage-related construction defects are real.  The flood completely destroyed everything in our life, our material things, and a lot of our emotional selves.  Everything from our furniture, clothes, pictures, artwork, and Christmas tree ornaments was terribly damaged in our home.  We lost so much because of the builder’s complete disregard for our well-being.  I will never forget the day that my home was destroyed.  I heard a bang and looked out my back door.  The block wall had collapsed and the water started pouring in.  But it wasn’t just water; it was muck and sewage four feet deep forcing me to flee from my home.  I asked, begged, and demanded that my builder make things right.  His response was that he would fix my home if I paid him and signed a complete release.  That was the extent of his efforts to stand behind his work.  To restore my home, I had to take out a large personal loan.  I now pay the equivalent of two mortgages. 

 

Builders must be held accountable when they take construction shortcuts that harm homeowners.  Please do not pass A.B. 373.  I thank the Committee for its considerate attention, and I would be happy to answer any questions.

 

Assemblyman Claborn:

Could you tell me, do you have any idea how many homeowners had flood insurance, if any?

 

Hank Kripitz:

To the best of my knowledge, nobody on the street where the homes were destroyed had any flood insurance, as we were in a non-flood area at the time of this flood.

 

Assemblyman Brown:

What was the date of the flood?

 

Hank Kripitz:

July 8, 1999.

 

Bob Maddox:

We note that A.B. 373 would shorten the statute of limitation for drainage defects to one year from completion of construction.  As we all know, these types of storms only occur every few years, not necessarily within one year of completion. 

 

Chairman Anderson:

We are going to have to start running a clock so that we can make sure that we get through the three bills today.  Let me indicate [to the next witness] that I am going to start a clock, I will tell you when your time is up; you have five minutes.

 

Stephen G. Giles, Homeowner, Promontory Point; and a member of Safe Homes Nevada:

[Introduced himself and submitted Exhibit J.]  I have chosen to testify at these hearings because I want the Assembly to understand the nightmare my family and I have had with our home in Henderson, Nevada.  I have heard a lot of talk and read a lot of newsprint suggesting that builders should be protected from lawsuits by homeowners for construction defects.  If anything, we, the homebuyers, need protection from builders.  I hope my story will assist you in understanding why.

 

We purchased our home in Henderson from Gateway Development Group in 1995.  For my family, it was a dream come true.  We took great pride in decorating and landscaping our home.  A few of the pictures provided with my statement (Exhibit J) show the landscaping in our backyard, including our koi pond.  Little did we know that these improvements, not to mention our home, would be ruined because of our builder’s failure to follow its original engineer’s recommendations during the grading and construction of our home.

 

The first signs of a problem occurred in late 1997, when we began noticing water seepage at the slope at the back of our property.  My neighbors on each side of me were having the same seepage.  Because our homes sit below a tall slope, we thought perhaps a pool might be leaking or a pipe broken.  We contacted our up-slope neighbors and then the City of Henderson.  We did confirm there were no broken pipes or leaky pool.

 

I have included pictures of the conditions as they worsened.  You can see standing water around my home.  Our landscaping was destroyed.  We dug trenches to keep the water from seeping into our home.  As the flow of water increased, I was forced to rig a temporary sump pump to pump the water to the street.  Over the past four years, this pump has run continuously; we pump around 3,000 gallons a day from our backyard.  This is necessary to keep the water from coming into our home.

 

When we first noticed the problem, we contacted our builder, Gateway Development.  We did so because from all we could tell this was a very large and significant problem, which appeared to relate to the original construction of our home.  The builder sent a representative to our home, my neighbors and several others.  However, the builder refused to do anything about the conditions.  Instead, the builder told us in writing that it had done everything it was supposed to do and that we were on our own.  The letter is included in the statement.  [Letter was not included in Exhibit J.]

 

Left with no alternative, we contacted an attorney for direction and advice.  Through our attorney’s efforts, we obtained the reports and recommendations of Gateway’s own engineers to address this water condition.  The soils experts recommended a subsurface drainage system be installed during grading to collect the water.  This system was recommended because of a series of compaction faults that crisscross our development and cause zones of water seepage to occur.  Without the subsurface drainage system, the anticipated irrigation to the north of our development would result in the water conditions we were currently experiencing.  Apparently, the builder chose to disregard these recommendations, as no subsurface drainage system was installed in my neighborhood. 

 

The water condition has affected the majority of homes within the development.  With no alternative, a group of us banded together and filed a class action lawsuit against Gateway Development.  Our case has been pending for over four years.  Recently, we partially settled the case for $7.2 million, which is subject to the court’s approval, set for hearing on April 2, 2003.

 

As time has past, our problem has worsened.  With all of the water around our home, we developed an airborne toxic mold condition.  This condition has caused my family to move out of our home; we have not lived in the home for over a year.  This same mold condition has affected many other homes in the development, and we understand other homeowners were forced to abandon their homes.

 

Without the help of our lawyer, David Pursiano, in guiding us through the legal process, we would have lost all hope, not to mention our investment.  Our dream home has become our nightmare and has resulted in a tremendous mental and emotional toll on our family.  Our builder created this condition.  It certainly wasn’t created by us, the homeowners, or our lawyers.  Our laws should protect the victims, the homeowners, who suffer the consequences of their builder’s decisions to disregard the requirements placed on them, which assure that homes are safe and built to the minimum standards of the building code.  Safe homes built in compliance with these standards must be our goal.  A builder who fails to adhere to these requirements and fails to disclose its short cuts to an unsuspecting homeowner must be held accountable.

Bob Maddox:

Now we have a brief PowerPoint presentation (Exhibit K) where we would like to further demonstrate the shortcomings of A.B. 373.  [Chairman Anderson questioned the timing.]  It will take five to seven minutes.

 

First, currently we have to deal with two separate time limits for bringing construction defect claims; one runs from completion of construction and the other runs from when a homeowner knew or should have known of the defect.  We are showing you what some of the time periods are (Exhibit K). 

 

• If the claim is based on willful misconduct or fraudulent concealment, there is no time limit. 
• If the defect was known by the builder, it is 10 years.
• For latent deficiencies, those not immediately apparent, it is 8 years.
• For patent deficiencies, it is 6 years.
• NRS 11.220 defines a 4-year limit from the time a homeowner knew or should have known of a defect.
• NRS 116.4116 for common-interest communities, stipulate statutory warranty claims are 6 years from completion.  If the developer presents the homeowner with a separate agreement that’s clearly written and separately signed by the homeowner, that time period can be reduced to 2 years.

 

Under A.B. 373, a great many defects that may not even become noticeable to a homeowner are barred one year from completion.  The time limits in A.B. 373 are [as follows]:

 

• Five years for painting and staining
• Four years for plumbing, electrical, sewer system defects, pathways, patios, driveways, sidewalks, and untreated steel fences
• Two years for landscaping and dryer duct defects
• One year for a whole series of defects shown on the slide (Exhibit K)

 

These include some issues I do want to address: windows, plumbing systems and plumbing products or fixtures, fireplaces, and then landscaping or irrigation drainage system:

 

• Windows—One of the common problems is the installation of the windows and incorrect window flashing.  What we end up with is water that goes down inside the perimeter wall cavity.  That is not apparent to the homeowner living inside the home.  It may not become apparent for a long time; thereafter, mold has developed and worked its way through the wall. 

 

• Plumbing—Assembly Bill 373 has a four-year limitation for plumbing system defects and one year for a plumbing product or fixture.  In the Highland Pine subdivision in Reno, Nevada, [referring to slide within presentation] all the ugly mold was contained within the perimeter wall cavity.  The siding has been removed on the outside, we are looking into the bathtub and above that is the tile.  These defects were not discovered until six years after the homes had been sold.  There was mold in the home from numerous sources.  Homeowners had discovered other sources but had not discovered this problem related to a plumbing system until six years after the home was sold. 

 

• Landscaping, Irrigation or Drainage—Assembly Bill 373 has a two-year limitation on any landscaping defects and one year on irrigation or drainage.  I grouped these because irrigation defects and landscaping defects often run together.  Looking at the home of Ken Barsy in The Village at Craig Ranch in North Las Vegas, the problem here was that the geotechnical engineer had told the developer, “Do not plant within 10 feet of the foundation.”  There are plantings and an irrigation system within 10 feet of the foundation installed by the developer and the water that gets into the expansive soil does the damage shown here.  Another home in that same subdivision owned by Jill Hollinger, a schoolteacher, had the same issues with irrigation and landscaping against the foundation, and water caused the expansive soil to expand and cause damage.  Mr. Barsy bought his home in 1995; the damage did not begin to show up until 1999.  Ms. Hollinger bought in 1996; the damage in her home did not begin to show up until 1999.

 

• Fireplaces—Defects in fireplaces would be barred one year after the home is sold.  I have had a number of cases involving fireplace defects.  Most fireplaces are considered to be zero-clearance fireplaces, meaning they can be installed directly against combustible materials, including the wood framing.  I had a case in North Lake Tahoe where the fireplace had been damaged sometime prior to installation; the walls of the fireplace had been pushed together so that the insulation that would be created by the airspace between the metal walls of the fireplace was compromised.  The dent happened to line up with a nail in a stud that was directly against the firebox.  Heat from the firebox transferred through the walls touching each other directly into the nail and over time the heat in the nail caused that wood to dry out, so much so that the North Tahoe Fire Department determined that the fire that destroyed several buildings in that condominium complex started as a result of spontaneous combustion because of the heat transfer.  That did not happen until four years after those homes were built.

 

• Life/Safety Defects—We heard some testimony earlier that these short time limits do not address life/safety defects.  We have demonstrated to you that fireplace defects can be life/safety defects; window defects can be life/safety defects; roof defects can be life/safety defects; and drainage defects can most definitely be life/safety defects.

 

Assembly Bill 373 imposes unreasonably short time periods and we ask you to reject this bill.

 

Assemblyman Horne:

Do you believe there are some of these time limits for defects where the scope may be too large?  I look at five years for painting and staining; shouldn’t a homeowner be able to detect a defect in the painting or staining within five years?

 

Bob Maddox:

I have not had too many problems in cases I have dealt with involving painting; I do recall one where the paint simply failed prematurely.  I believe that was after four or five years.  Painting is painting; I don’t think we are going to get into a life/safety defect there.  That may not be one that we focus on here.  That’s not one that we are excited about, but we do feel that we should maintain a consistent method of dealing with statutes of limitation. 

 

We think that the idea of having all these separate time periods is far too confusing to homeowners.  We think that statutes of limitation ought to be simplified as we are proposing in Assembly Bill 446.  We don’t like the idea of having different time periods for different defects.  We think that homeowners are so reluctant to file a lawsuit; they shouldn’t be forced to have to do it in a big hurry.  They simply should have enough time to try to work things out with the builder and not be forced to file a lawsuit in a hurry.  We suggest that there not be anything passed related to A.B. 373.

 

Assemblyman Brown:

What’s the typical warranty period for a fireplace?

 

Bob Maddox:

I am not aware.

Scott Canepa, representing the Nevada Trial Lawyers Association (NTLA):

On the unit itself, on the actual product, it can range from one to three years.  But the problems we have seen in cases that we represented did not have much to do with the product itself, it had to do with how that product was installed into the building.  This bill, A.B. 373, does not delineate; it only says for fireplace defects.  We have had many examples of homes that have caught on fire 7, 8, or 10 years after the fact on account of faulty installation of that unit. 

 

Assemblyman Brown:

It was my understanding that the one-year period dealt strictly with the manufactured product.  I need to study the bill a little more, I though perhaps it might be one year plus any expressed warranty as it is outlined in lines 34 through 36, on page 2.  Second, I would agree with Mr. Canepa, I don’t think that it’s delineated at all; I am not sure that this would apply.  It appears that this bill doesn’t necessarily limit defects of a fireplace installation.  Do you read subparagraph (e) beginning on line 19, page 2, as pertaining to the manufactured product?

 

Scott Canepa:

When I read it I think of what lawyers will do with the verbiage subsequent thereto and it says, “manufactured product installed in the residence,” so I am not sure, under this bill, that it’s limiting it to a defect in the product itself or whether it would encompass any problems that arose from its installation.

 

Assemblyman Brown:

I would imagine lawyers would have a “field day” with the language.

 

Scott Canepa:

In response to Mr. Sektnan’s comments, one of the things that I did was to forward to all the Committee members a comparison chart that reviews the Nevada statutes of limitation and repose to all of the other states in the country.  That was sent by e-mail about two weeks ago.  If you look at that you will see that Nevada falls within the mainstream of states—ten years for most significant defects. 

 

I also was curious why consumer attorneys in California would agree to these draconian reductions in the statutes of limitation and repose, so I placed a phone call.  What I was told by those consumer representatives was that they essentially exchanged some rights for none because one of the things that California’s S.B. 800 does is that it legislatively overturns a California Supreme Court Decision called Aas,which took away homeowners’ rights in tort for property damage arising from construction defect cases.  The consumer attorneys were fairly candid that in order to undo that Supreme Court decision, which was adverse to the interest of homeowners, they agreed to these reductions in time frames.  It was better to have some rights than none.  Fortunately, we are not encumbered similarly here by an adverse decision like the Aas decision.

 

Assemblyman Brown:

A concern that I have is that we may be moving toward an Aas decision.  Are we not tracking California’s earlier statutes with our current Chapter 40 [of the NRS]?

 

Scott Canepa:

I don’t entirely understand the question, but Chapter 40 does not resemble California’s S.B. 800 in any way, shape, or form.  Prior to California’s S.B. 800, there was a bill called the Calderon Bill [Calderon Process], which was a notice and opportunity to repair bill much the same as Chapter 40.  Those bills were similar in material respect.  California’s S.B. 800 is a significant departure.

 

Assemblyman Brown:

I understand that, but prior to California’s S.B. 800, did Nevada’s [NRS] Chapter 40 resemble what California used to have?

 

Bob Maddox:

Are you referring to the statutes of limitation in Nevada that relate to construction defects compared to California’s statutes of limitation prior to their S.B. 800?

 

Assemblyman Brown:

…our general defect statutory schemes.

 

Bob Maddox:

There is nothing comparable in California other than the Calderon Bill, which vaguely has some similarities to Nevada’s Chapter 40.

 

Scott Canepa:

I was also on the Construction Liability Insurance Task Force with Mr. Sektnan; I sat for Matt Sharp on that committee.  The stated premise for A.B. 373 is that it is going to bring insurance rates down.  I encourage you to read the Task Force report and review the hearings because there was no insurance company representative that testified that shortening the statutes of limitation and repose would reduce insurance rates.  Testimony is not on the record from any insurance carriers; it is not there.

Chairman Anderson:

Anybody else speaking in opposition to A.B. 373? 

 

Danny McLaughlin, Board of Directors, Safe Homes Nevada; and President, Pueblo at Santa Fe Homeowner Association:

I am here to oppose A.B. 373 on behalf of 168 homeowners living within my community.  The five-year limitation that is proposed is so unreal that it must be some kind of a joke.  My 2003 vehicle and my new toaster have a longer warranty than this bill proposes.  The exemption list in the bill covers every construction defect in our present litigation that took at least seven to eight years for them to service.  Again, I see another tomahawk missile being fired not at the builders who do shoddy workmanship, or maybe it is aimed at the attorneys because they represent the homeowners, but again, the defect in this weapon has caused it to miss its mark and it has hit the innocent, helpless homeowner, causing collateral damage to my mental state and constitutional rights.  Builders who take pride in their workmanship and care about the person who buys their product do not need this kind of a bill.  Mr. Chairman, our fate is now in your hands.  I pray that God will give you the wisdom and knowledge to do what is fair and just to protect our constitutional rights as homeowners.

 

Vice Chairman Oceguera:

Any questions for this witness?  Anybody else wishing to speak on this bill?

 

Chairman Anderson:

Let me close the hearing on A.B. 373 and bring it back to Committee. 

 

We are going to move the bill out of order; we are going to look at A.B. 449 and then A.B. 446.  If you are preparing to testify on A.B. 449, I would ask you to come forward to the witness table. 

 

Assembly Bill 449:  Revises various provisions governing contractors and claims and transactions relating to real property. (BDR 10-870)

 

Chairman Anderson:

Let me set some parameters in order to hear a couple of bills.  We will take as much testimony as possible and also leave us some opportunity for work session this morning since the Speaker has graciously not called a Floor session today.  This Committee needs to get other things out of the way in addition to construction defects.  If you can limit yourself to a time certain, how long is your opening presentation on the bill?

Scott Canepa:

The PowerPoint presentation will take about 5 to 7 minutes and we have 3 homeowner witnesses, which will take 10 to 12 minutes total for all three.

 

Chairman Anderson:

So if I gave you 20 minutes that would include the PowerPoint but not questions from the Committee.  [Scott Canepa agreed.]  Let me set my clock for 20 minutes.

 

Scott Canepa:

[Submitted Exhibit L.]  Assembly Bill 449 is a piece of legislation that is by no means perfect; there are some provisions in the bill that need to be amended out of the bill.  Before we get into the details of the bill, there are three homeowners that wish to speak and whose testimony will help shed some light on the purpose behind this bill.

 

Michael Hirschhorn, Homeowner; and Director, Canyon Willow Homeowner Association:

[Introduced himself and submitted Exhibit M.]  I’m here to testify on behalf of the board of directors and the homeowners that live in the Canyon Willow Homes.  Our community is made up of 720 condominium homes; I believe, the largest in Clark County.  We are presently involved in a lawsuit because of numerous construction defects in our community and homes.  Although we followed the rules and gave the builder an opportunity to fix the problems in our community, the builder refused and turned the matter over to its insurance company.  Before we filed suit, the insurance carrier offered us $750,000, even though the experts hired by them estimated that it would cost at least $8,821,261.86 to repair all of the construction defects and code violations the builder caused.  The insurance companies have now sued more than 25 subcontractors.

 

Making matters worse, the roof, window, and plumbing leaks are so bad in the community that our Association has spent almost $1 million to date tearing out drywall, carpet, and fixtures to clean up toxic mold in more than 120 homes.  This has caused terrible grief for many of our families.  We had to borrow money and establish a line of credit for additional mold remediation that keeps occurring almost on a daily basis in other units.

 

Our Association recently became a member of Safe Homes Nevada.  On behalf of the 720 families that live in Canyon Willow, we urge you to adopt A.B. 449 to help homeowners, not hurt them.

 

As an example, the individual building valves on 90 buildings are all defective.  You can turn the valve off but it won’t turn back on.  Any time we have been forced to turn a valve off, we have had to replace it.  What compounds the problem is the fact that these are supposed to have section valves being a continuous water flow, in other words, the water coming in at both ends through the main feed.  You should be able to turn off two section valves and isolate approximately eight to nine buildings.  Some of these section valves have been asphalted over or buried in dirt; we have only been able to find 10 to 20 percent of them, making the whole system inoperative.  Therefore, to repair a leak, in some cases to replace a washer in a sink in one unit, we have to shut down the water to 720 condominiums.  [It also happens when we try] to replace a water heater, same effect.  If it wasn’t for this occurring in some cases two or three times a month, it would be almost funny. 

 

Another example is the mold, which ranges from moderate to the most dangerous like stachybotrys chartarum, which incidentally was used by our government in the creation of a biological weapon.  This is the type of mold that we have in some of our units. 

 

We have given the builder every opportunity.  Most of the time, they ignore our letters and we have to make the repairs ourselves where health and safety issues are involved.  There has been a few times, once or twice, that they have made repairs, for example, mold remediation on a number of units, which incidentally failed inspection; toxic mold was still there.  We had to come back in and re-remediate the units, causing more inconvenience and grief for the homeowners; it then passed inspection.  That should give you a basic overview of the nightmare we are currently going through.

 

Antonio Reyes, Homeowner, The Village at Craig Ranch; and a member of Safe Homes Nevada:

I am here to support A.B. 449.  My wife and I moved to Nevada in 1975.  We currently live at The Village at Craig Ranch.  When we moved to Las Vegas, we purchased a home that we lived in for more than 22 years.  We never experienced any problems with our home.  Then we decided to buy a new home; we were very excited about owning a new home.  Within a few months our dream turned into a nightmare. 

 

Beazer Homes was very helpful to us when we were buying our home, but then we began to have problems.  We sent in numerous complaints regarding cracks in the walls, near windows, around the fireplace, and along shelves (Exhibit N).  We were told that it was normal settling.  Now four years later, we live in a house plagued with cracks in most walls, around windows, around doors, and shelves.  The walls are separating from the ceilings, and even the front door will not close properly.  We told Beazer about the front doors not closing, and the only thing they did to fix it was to move the strike pad; it was a Band-Aid repair that was not effective.  This presents danger to my family and we do not feel safe in our home.

 

The problems we are forced to face because of the negligence of builders has placed a substantial hardship on our family.  The pride and joy that we should feel in our home has been replaced by anger, frustration, resentment, and fear.  We live in a home that might be structurally unsafe to live in.  It is unattractive with its overabundance of holes, cracks, and a buckling driveway.  We feel cheated and robbed.  Homeowners like myself should be enjoying the “American Dream”; instead we are enduring the “Nevada Nightmare.”

 

Please help us and other homeowners to protect our rights.  We are ordinary, working-class people.  Please do not let other homeowners suffer as my family has.  The builders must be held responsible for the poor quality they produce and the pain and suffering they create for our families.

 

Scott Canepa:

We have put together a brief PowerPoint presentation (Exhibit O).  Assembly Bill 449 would provide adequate protections for homeowners that are confronted with the types of problems that you have seen here today and were discussed by the homeowners who have taken time off from work to tell you about their problems.  Many of the provisions in this bill are actually endorsed and supported by the Construction Liability Insurance Task Force, which convened and held hearings from October 2002 through the end of January 2003.

 

Section 1 requires certain builder disclosures to homeowners at the time the homeowners seek to buy their house. 

 

• The first is a disclosure of prior defect claims.  This feature was actually endorsed by the Task Force, which recommended that “contractors be required, upon request, at the time of sale of a new home, to disclose to the buyer any closed construction defect claims.”

 

In a list of numerous, complex cases that we provided to the Task Force, which is presently being updated, and will be provided to the Committee in due course, there were several builders that were repeat offenders.  We think it would be a good idea if homeowners were given the right and opportunity to know whether or not their builder had been embroiled in numerous prior construction defect claims.  That’s the spirit in which this provision was advanced.

 

• The next item would require disclosure of prior Nevada State Contractors’ Board complaints.  In the same analysis from the Task Force, it was recommended that “contractors and their insurers be required to report all closed construction defect claims to the Nevada State Contractors’ Board and the Division of Insurance.” 

 

This would provide some tracking and appropriate disciplinary action could be taken in the event a contractor was found to have violated the provisions of NRS Chapter 40 or NRS Chapter 624.  Maybe they shouldn’t be out there building and selling more homes to the public.

 

·        The next item would require disclosure of insurance.  We have to tell you that the Task Force did not recommend this, but the analysis reported,

 

“There was discussion regarding whether contractors should be required to disclose to new homebuyers whether or not they carried general liability insurance during the course of construction.  A minority [myself] feels it would be important information for consumers to have when going into one of the most important transactions of their lives.  However, other Task Force members felt that this would be a bad business practice and the information would not be helpful to consumers.” 

 

We respectfully disagree with that conclusion.  We think that homeowners when buying a home and making a substantial investment should be afforded the opportunity to know whether or not the person they are buying from has insurance to cover construction defects in the event they arise. 

 

• One of the last two provisions would be disclosure of subcontractors; I don’t think there is any dispute about this.  Certainly in S.B. 241 coming from the other house, it requires the disclosure of subcontractors.  I don’t think there is any contention on this point.

 

• Finally, disclosure of building code violations.  This is to say that builders should disclose to the homeowner prior to the close of escrow whether or not there are any code violations in the house.  This is pretty straightforward; it mirrors existing law under NRS 116.4115, which says a builder is not liable for a defect in a residence to the extent that the defect is disclosed to the homeowner prior to the transaction.  We think that premise and that protection should be afforded to homeowners other than common-interest community homeowners.  NRS 116 doesn’t apply to all homeowners, just to common-interest communities. 

 

[Scott Canepa continued.]  That takes care of Section 1 of A.B. 449. 

 

Section 2 clarifies time bar statutes and provides for a term called “tolling.”  In common-interest communities, the real estate developer will often occupy the majority of the positions on the board of directors until a certain point in time in the future when a certain number of homes have been sold; generally speaking, that number is 75 percent.  Up until that point in time, when 75 percent of the homes are sold, the developer controls the decisions of the board of directors.  In large communities, especially in southern Nevada, where you have 1,000 homes, the amount of time that passes until 75 percent of the units are sold can exceed the statutes of limitation and repose applicable to the claim.  In other words, the board is left in the position of making a decision for the homeowner association about whether to bring a claim against itself.  Equitable tolling has been adopted by judicial decisions in other jurisdictions that say that during the period within which the real estate developer occupies the majority of positions on the board of directors, the statutes of limitation and repose shall not be counted against the homeowners.  The statutes of limitation and repose shall not commence to run until the board of directors is actually controlled by the homeowners.  That’s what we are trying to capture in Section 2.

 

As Mr. Maddox alluded to [in his testimony] in opposition to A.B. 373, right now we have four statutes of repose and one statute of limitation.  The statute of limitation says that you must commence a claim within four years of the date that you discover or reasonably should have discovered that you have a construction defect.  The 6-year statute is for patent defects, 8 years for latent, and 10 years for defects that were known to the builder.  Sections 3 through 8 will eliminate substantial confusion and significant litigation over the interplay between the statutes of repose and the statutes of limitation.  If it is a patent defect, it should be 6 years irrespective of anything else.  If it is a latent defect, it should be 8 years irrespective of anything else.  If it is a known defect, it should be 10 years irrespective of anything else.  That’s the concept we are trying to capture here.

 

Sections 9 and 22 permit appropriate disciplinary action by the Nevada State Contractors’ Board.  This concept will be elucidated by the following comment.  This is taken from a hearing for Nevada State Contractors’ Board made by an attorney on behalf of a builder, the names aren’t important:

Let me make sure we’re on the same page.  The Board can still take evidence but cannot act on it.  They cannot discipline a licensee for construction defect claims.  Those have been, by the Legislature, set aside for the district court to handle, not the Nevada State Contractors’ Board.

 

[Scott Canepa continued.] Frankly, that doesn’t make any sense to us.  If you are a licensee, you are hauled into court on account of construction defects, you are in the community building additional homes and selling those to consumers, if disciplinary action is warranted arising out of the same facts that led to the first lawsuit, then the Nevada State Contractors’ Board’s jurisdiction should not be cut off.  Again, we will provide a list of the cases where you can see there have been multiple instances where the same builder has caused defects in one community after another.  When the Nevada State Contractors’ Board tries to take disciplinary action, the contractors say, “You can’t proceed against us because we are in a lawsuit in district court.”  That’s what this seeks to avoid.

 

There is a provision there [in Section 22] that the contractor may apply for reinstatement if the decision taking [his license] away is reversed on appeal.

 

The next item [Section 10] intends to amend NRS 40.655, which sets the limit on what homeowners may recover in construction defect claims.  Assemblywoman Angle may remember this from the 1999 Legislative Session; there were substantial disclosure requirements enacted in Chapter 40 [of the NRS].  If you are a homeowner like those who have testified before you today and you initiate a NRS Chapter 40 defect claim, just initiate it, it never goes to a lawsuit, everything is resolved, NRS Chapter 40 requires that you disclose the notice of the defect, any expert reports, and all other collateral information in perpetuity.  

 

What A.B. 449 proposes is that to the extent that a real estate appraiser says that disclosure obligation decreases the value of your house, the homeowner should be entitled to recover that.  I think the analogy that is best used here is the crashed car; a car that has been in a serious accident and gets repaired isn’t worth the same as a car that was never in an accident.  To the extent that we are going to require homeowners to engage in these widespread disclosures in perpetuity about their house and to the extent that it causes a decrease in the value, the homeowner should be entitled to collect those amounts.

 

Section 10 also clarifies that builder fraud is not protected.  That was bill-drafting language, but the concept is that to the extent that a homeowner is proceeding under NRS 11.220, which is fraudulent concealment or willful misconduct, the limitations on damages under NRS Chapter 40 should not apply.  In other words, we should not arbitrarily be protecting people who engage in fraudulent conduct from damages.  

 

[Scott Canepa continued.]  Section 11 requires proper repair of life/safety defects and it eliminates red tape.  Mr. Hirschhorn previously testified regarding the efforts that his homeowner association made to try to get its builder to make remediation to mold units.  He testified that they remediated in excess of 120 units.  My firm represents that homeowner association.  [He referred to] the letter we sent.  Nevada Revised Statutes 40.670 says if the builder refuses to address that life/safety or imminent threat defect, under present law the only way you can perfect your rights is if you can get the building department to agree it’s an imminent threat.  So we wrote the letter to the building department saying, “Please help us.”  We got a letter back from the district attorney that said, “The building department does not have the qualifications to determine or certify as to whether the contamination constitutes an imminent to the health and safety of the inhabitants of the units.” 

 

We are amending the statute so that we don’t have to go through the red tape of the building department.  The way that the statute is amended to read is that if we get a certification…  By the way, in the case we are talking about, Linda Stetzenbach, who is with the University of Nevada, Las Vegas, Chemistry Department, said that these units needed to be remediated and that they were unsafe.  Because of this arbitrary decision [by the district attorney], the homeowners could not pursue the builder immediately on that claim.  We seek to eliminate that red tape on that claim.

 

Finally, Section 11 discourages bad faith conduct.  What it says is that the builder shall not in bad faith refuse to remediate conditions under NRS 46.70 that constitute or present an imminent threat to the homeowners.  It discourages bad faith conduct by saying that if there is a determination made by the trier of fact that their conduct was in bad faith, then the limitations on damages no longer apply, and their license is subject to revocation.

 

Mr. Maddox will deal with the next section that addresses something that is rarely talked about unfortunately, and that’s how do we build homes right the first time so that we don’t have to sit in these hearings every year and figure out what we do after things go wrong.

 

Bob Maddox:

As Mr. Canepa indicated, we think it is very important that this Legislature and other governmental bodies that have jurisdiction over building homes make greater efforts to help prevent defects from occurring in the first place.  Some of the homeowners that have testified today have told you about situations where builders didn’t do what they are supposed to have done and where engineering designs called for certain protections for homeowners that did not get installed. 

 

With Section 13, no certificate of occupancy could be issued for the home unless there was a lot drainage certification from a licensed engineer carrying at least a $1 billion liability policy.  Currently, most jurisdictions do require some sort of drainage certification.  Every one of those homeowners who testified about drainage problems had drainage certifications.  We think this needs to be taken more seriously and with a requirement that the engineer provide that proof of liability insurance coverage, maybe they will take their jobs a little more seriously.

 

Section 14 would impose similar requirements for geotechnical evaluation of a project.  It would provide that the governmental entity, the building department, would have the benefit of a licensed professional engineer to evaluate the soils reports presented by the developer’s soils engineer.  Also, it would get the benefit of that soils engineer certifying that what was recommended in the soils report was actually done.  In the example of Mr. Reyes, who previously testified, the soils engineer had recommended things that were intended to prevent the damage to Mr. Reyes’ home.  But the builder, Beazer Homes, did not do what the soils engineer told them they should do.  We want to do something about that, we want to assure that where a geotechnical engineer says, “We’ve got dangerous soil or soil that could cause serious problems to the building at a given site,” that the recommendations of that soils engineer are actually taken care of by the builder. 

 

Section 15 follows up with another aspect of construction, the structural design, the design of the foundation and framing.  Similar to Sections 13 and 14 with regard to drainage, grading, and geotechnical issues, Section 15 would require the builder to pay for an independent engineer who would be at the disposal of the building department to review and approve or require corrections to structural designs and then to certify to the building department that in fact the structural design was put in place as it should have been done.  [Chairman Anderson asked Mr. Maddox to quickly summarize.]  We have a position paper (Exhibit L), which we have presented to you.  Anything that we haven’t covered so far will be covered there.  Mr. Canepa has a closing comment.

 

Scott Canepa:

The last sections of the bill, Sections 18 through 21, mandate practical examinations for contractors to be determined by the board.  The Task Force unanimously recommended this.  It also mandates continuing education for contractors, also unanimously recommended by the Task Force.  There is a line regarding triple damages in the bill at lines 44 and 45, on page 8, and lines 1 and 2, on page 9.  This was reprocessed from a prior session; we did not intend for there to be a triple damage penalty, and we made that known to the members of the Coalition for Fairness in Construction that we were not seeking that legislative change, so we would like to have an amendment on that.

 

Chairman Anderson:

Please bring those to my attention again, the triple damages.

 

Scott Canepa:

The triple damages are in both bills, but in this one [A.B. 449] it is at page 8, at the bottom, lines 44 and 45, and page 9, at the top, lines 1 and 2.

 

Chairman Anderson:

Are those the only amendments to Assembly Bill 449 that you intend to bring?

 

Scott Canepa:

I believe so.

 

Assemblyman Horne:

You testified about previous construction defect actions being disclosed.  I have a fear that this could be harmful to the contractor who hires the subcontractor who is at fault.  If I get this disclosure form as a homebuyer, I put that onto the contractor when it is not his fault, and then I choose not to buy those types of homes.  Wouldn’t it be better if the subcontractor disclosed to the contractor that they have had a construction defect, that way the contractor is liable for hiring someone he knows has a bad record?  That’s what we are trying to prevent, somebody who does shoddy work.  Then the contractor would only be mandated [to disclose] his own defects to the homebuyer. 

 

Scott Canepa:

I understand what you are getting at, but in large measure, contractors in general and developers don’t build anything; they supervise subcontractors who build stuff.  When homeowners go to a builder, they don’t know who the subcontractors are at that point in time, although it may become part of existing law.  This provision is not meant to prevent the contractor or developer who has to disclose the prior claims from also explaining exactly what you just said, that the defect was the result of negligent workmanship on behalf of a subcontractor.  Nor does it prevent a contractor from saying, “We fixed it.”  So it can also be an opportunity for the developer or general contractor to let the homeowners know that they stand behind their work.

 

Assemblyman Carpenter:

There are number of places in the bill where it says the engineer is selected by the city or the county, but then the developer pays the engineer’s fees.  Could you explain how you feel that would be of benefit?  What concerns me is that when somebody else selects and I have to pay, that bothers me.

 

Bob Maddox:

We are just trying to find something that would help prevent defects from happening.  They are happening all too often, they are creating such enormous anxiety and heartache for homeowners; we think something needs to be done.  This is our attempt to come up with something.  I understand what you are saying, the person who is paying the bill is liable to get his way.  But with this requirement that the engineer carry the professional liability insurance, hopefully that would make the engineer think twice about shading his report back to the building department.  We need to have independent people making evaluations regarding the geotechnical engineering requirements.  Homeowners couldn’t possibly ever begin to understand, that’s not something that a homeowner would be able to deal with.  They won’t even know there is something wrong about the way something is built if the builder did not follow the geotechnical engineer’s recommendations.  We need somebody to help make sure that those things get done right and that’s why we are proposing this.

 

Assemblyman Carpenter:

It seems to me that there also has to be some expertise in the building departments.  That’s one of the big problems, even since when I was a county commissioner.  I think many times the reason that cities and counties have building departments is to collect fees.  I don’t know if they ever really…maybe they have improved in the later years.  I know a lot of times they are just there to collect the fees.  Seems to me you need some expertise there too.  I understand what you are trying to do, but I think we also need to look at the practical aspects of whether it really is going to fit the bill as to what we are trying to do or not.

 

Bob Maddox:

I couldn’t agree with you more.  Every home that we have looked at was passed by a building department, every one of them.  We have a failure in the system and it needs to be corrected somehow, someway.  Governmental entities have immunity; they can’t be held responsible, certainly not very easily if they let these things happen.  Something needs to be done about it.

 

Assemblyman Mabey:

I would like to follow up on what Mr. Horne said about Section 1.  Our life experiences mold how we feel about these things.  As a physician, as I told the Committee yesterday, I was named in four lawsuits in my life.  In every one of them I honestly felt I did not do anything wrong.  The first one I had to settle; I didn’t have to, I would call it extortion.  I ended up paying $2,500 just to have it go away.  One case Mr. Canepa’s firm represented, it was settled, and I was named because they named everybody.  The panel found for me that I did not commit malpractice, but I had to settle for $10,000 just to make it go away.  I would call that extortion too.  The other two, I was dismissed completely because somebody else settled. 

 

I am concerned because in these cases, you tend to name a lot of people, people that may not even be involved, and they just built part of the house.  For the rest of their lives, they are going to have to disclose that they had this case against them and they settled for nothing or their insurance company found it was cheaper to pay out a claim.  I understand where you are coming from, and I agree that if there is a bad contractor out there, there needs to be a system.  But to name everybody, I don’t think that is correct, and we need to fix that.  In my case, every time I apply for something, I have to tell them about my four lawsuits.  I don’t have any problems because in my heart I know I didn’t do anything wrong, but it is just a pain.  I really have some issues with Section 1.

 

Assemblyman Claborn:

I personally like the concept of A.B. 449.  What I am looking for is the right to repair and some time limits to start and complete these repairs.  I don’t see this in A.B. 449.  If it is in there, could you explain it to me?

 

Bob Maddox:

No, it’s not in this bill; there are other bills that will be dealing with that.  We hear what you are saying and we will do our best to work out something that fits your needs.

 

Chairman Anderson:

One of the things that concerns me about the construction defect issue as a whole is the city’s or county’s responsibility of looking at the house during its construction, making sure that the codes are being followed and applied where they need to be, and some meaningful responsibility from government to be there when it says it’s going to be there so construction can proceed.  I hear from the contractors and subcontractors all the time that they stand around and wait for the inspector to show and it delays their project day after day.  Time is money. 

 

The problem I am having is with subcontractors that are pulled into construction defect suits who were merely walked across the property but were not really the major player in this particular problem.  What kind of a screening mechanism does this bill give us so that the people truly at fault to fix the problem will be notified in a timely fashion?  I would like to make sure that the problem never took place in the first place; I think everybody in this room would like the house to be proper in the first place.  The reality is that mistakes happen.  How are we going to screen those people out so that we only get to the people at fault?  Who does that?

 

Bob Maddox:

We have a provision in A.B. 446 that’s intended to provide some protections to subcontractors who get dragged into lawsuits where they didn’t do anything wrong.  We agree that is not appropriate and agree that those subcontractors should be able to extricate themselves from lawsuits when they are totally blameless.  Dealing with the provisions in this bill, the developer has to take over all responsibility.  The developer brings in the subcontractors; if the subcontractor makes a mistake, the developer is supposed to have supervision of the subcontractors.  The developer has the responsibility to make sure that the engineering recommendations are followed.  It’s the developer’s responsibility to get that information to the subcontractor, make sure that the subcontractor knows what needs to be done, and get it done right.  Unfortunately, that’s not happening, as we see in all of these cases that have been brought before you from these homeowners. 

 

What we are trying to do…we can’t do much more than sue the developers and make them pay.  Hopefully, someday, those that are making the mistakes will decide, “We better not be doing this anymore because we don’t like getting sued.”  In the mean time, we think that the governmental entities need a little bit of a boost. 

 

I have been representing homeowners in construction defect cases for 25 years.  I have stood before groups of homeowners hundreds of time.  I can tell you I am “batting 1,000”; at every single meeting, someone raises a hands and asks, “Where were the building inspectors on this job?”  It’s a violation of the public trust.  People feel that they should be able to rely on building departments to get things done.  We don’t want to be pointing fingers at building departments; what we are trying to do with this bill is say, “maybe they need a little bit of extra help,” and that’s what we are trying to provide with A.B. 449.

 

Chairman Anderson:

I believe that we have heard from the Nevada Trial Lawyers Association and Safe Homes Nevada in support of the legislation.  If you are a member of Safe Homes Nevada, then this call is not for you.  If your issue has not been addressed, in support of the legislation, and you feel that you need to bring forth to the Committee a particular point that has not been raised or covered in the presentation to this point, this is an opportunity for you to come forward and speak in support.  [No response.]  Let’s take a look at the other side of the issue.

 

Vice Chairman Oceguera:

As you and most of the folks on either side of this issue know, I served an internship for Judge Michael A. Cherry, a district court judge [in the Eighth Judicial District, Department 17, Clark County].  I was e-mailing with Legal and wanted to state that for the record.  He handles most construction defect cases on his civil docket, but I have no pecuniary interest or commitment in a private capacity as a result of that internship.  I will be voting on all these bills.

 

Steven D. Hill, President, Silver State Materials Corporation; Chairman, Government Affairs, Associated Builders and Contractors and Associated General Contractors; and the Chairman; Coalition for Fairness in Construction:

[Introduced himself.]  The Coalition for Fairness in Construction is a large group of homeowners, affordable housing advocates, contractors, and many other stakeholders in this large issue.  We have an exceptional number of company members that represent tens of thousands of homeowners and employees throughout the state.  The goals of the Coalition…and with your permission and in the interest of time, my introduction will serve as an introduction and our position for both bills [A.B. 449 and A.B. 446].  [Chairman Anderson agreed.] 

 

The goals of the Coalition are to get homes fixed quickly and correctly before lawsuits.  Lawsuits are not doing anyone involved in this process that we are here for today any good at all.  We have seen that they are a “black hole,” homes don’t get fixed and costs go out of sight.  Our goals also include providing better options and methods for resolving differences between homeowners and builders.  We want to preserve and expand homeowner rights and their ability, as we have heard discussed on several occasions, to be in control of their home, their largest investment, and what happens with that home.  Also, we agree with the principles of holding builders responsible for faulty construction; we think that proper enforcement of that is very necessary. 

 

The bills we are going to talk about today we feel work contrary to those goals; they widen the gap between homeowners and builders, increasing those differences.  We think they remove additional methods of dispute resolution and while we feel that the Nevada State Contractors’ Board and the building departments should be involved in these conversations, in many ways these bills remove their oversight.  We don’t think that’s productive. 

 

In addition to those issues, the bills affect relationships between homeowners and builders.  These laws dismantle some longstanding legal principles that apply not only to residential construction but also to a wide variety of issues in our state.  Additionally, we think, as Mr. Canepa pointed out, that these bills are not perfect, by any means.  In fact, they are poorly crafted and they are an opportunity for additional disagreements in all kinds of areas of writing of the bill.  Those disagreements are often fought in courtrooms and, as we have all found out, courtrooms are not getting homes fixed in a prompt and correct manner.  It is important that we not pass legislation that will cause additional lawsuits. 

 

The premise of these bills seems to be that the industry needs to be punished more in order to quit making mistakes.  The Coalition has not spent time talking about trying to correct the problems within the industry because we realize that we cannot correct those problems without getting homes fixed in a quick and prompt manner.  These pieces of legislation today are predominantly talking about and will cause additional litigation.  That is the reason that I have with me today George Ogilvy and Nick Solarno; they are litigators and understand these issues much better than I.  They are here to talk about the details of the bill. 

 

Nick Solarno, Attorney, representing the Coalition for Fairness in Construction:

We defend developers, general contractors, and subcontractors in several construction defect lawsuits in the state of Nevada; in fact, my firm has been involved in every case involving the homeowners testifying today.  I am familiar with those cases.  I have been asked by the Coalition for Fairness in Construction to talk about the impact of the proposals in Assembly Bill 449 to the litigation process in NRS Chapter 40 in general.  Those sections primarily concern Sections 10 and 11 of the bill. 

 

Nevada Revised Statutes Chapter 40 was intended to be a limitation of damages in exchange for the substantial benefits conveyed by the statutes, such as the right for attorney’s fees to claimants, the right to preferential trial setting, and numerous other procedural benefits in the statute.  The changes I see proposed by this bill vastly expand NRS Chapter 40 beyond that, which creates the undesirable effect of litigation throughout the state that we are all dealing with today; it only makes it worse. 

 

I would like to address those sections.  If you look at Section 10 there are two aspects that concern me.  On page 7, lines 21 through 23, those concern the element discussed by the presenters relating to the stigma damages and the effect that can have, creating an additional element that can be recovered as damages in trials or through settlement.  The concern I have with that is the current disclosure requirements by NRS 40.688 require that any claim that is made is disclosed, not just a claim that recovery is received for or a claim that has merit—any claim that is made.  This element of damages, if added to Chapter 40, would actually create an incentive to make claims that may not be well supported by fact or law because it would actually create an extra element of damages that could be recovered regardless of the merits of the claim and regardless of whether they prevail on the claim.  They would actually get to submit that stigma aspect of damages at trial before anybody has ruled on the merits of the claim.  They would actually get an element of damages under that proposal just for making a claim. 

 

The other aspect that concerns me the greatest is within Section 10, lines 7 through 40, the exception to the already existing limitation of damages.  The presenters mentioned that they were carving out NRS 11.202, which relates to fraud.  Currently, there is no such exception, and that violates the limitation of damages already existing as well as the types of claims that can be pursued.  There is another very important and vastly broad aspect not mentioned by the presenters, and that is the exception of NRS Chapter 116.  As I am sure you are all aware, NRS 116 concerns common-interest developments; it governs both the construction by the developers of those communities and the governing of the HOAs (homeowner associations) during the period the developer is in control.  Virtually any theory of liability can be contrived based on NRS Chapter 116, so if that exception is allowed, it eliminates any limitation of damages in NRS Chapter 40 altogether.

 

With regard to Section 11, page 8, lines 31 through 45, and proceeding on to page 9, lines 1 and 2, this again appears to be another proposal that would eliminate the limitation of damages in NRS Chapter 40, which are already rather extensive.  If an architect or professional designer certifies something as a life/safety issue, it goes to the jury, it may be prejudicial to a jury because they could be perceived as neutral, and eliminates the limitation of damages outright, arguably, allowing punitive and exemplary types of damages.  Those of us in the industry know that you can find a professional or design engineer to certify just about anything; experts are out there for hire.  That concerns me, it could be improperly weighed by a jury. 

 

George F. Ogilvy III, Attorney, representing the Coalition for Fairness in Construction:

I represent contractors who primarily do commercial construction and therefore are not involved in NRS Chapter 40 litigation, but I do represent the Coalition for Fairness in Construction.  I have some comments regarding the non-Chapter 40 aspects of A.B. 449.  Specifically I will be addressing the disclosures necessitated by A.B. 449, the tolling aspects of the bill, and the repeal of NRS 11.190 with respect to construction defect claims.

 

Concerning disclosures, as Mr. Hill related to the Committee, the section is poorly worded, ill conceived, overly broad, and with respect to Assemblyman Horne’s concerns, it would require disclosure of every claim that is made against a builder and any claim made against any subcontractor, materials supplier, or design professional related to a house.  “Any claim” could be a phone call to the builder saying, “I have an issue with my drywall.  Can you come out here and fix it?”  The builder comes out, gets the drywall subcontractor out, and within a day or two or a week, that issue is resolved without a need to file any litigation or threatening letters, just a simple phone call.  That is a claim; all those types of claims would have to be disclosed. 

 

Going to the issue raised by Assemblyman Mabey, it is similar to a hospital having to disclose every claim that’s ever been made against any surgeon, nurse, orderly, or anybody else involved in a surgery, prior to someone going in for surgery.  This is overly broad and it’s totally impractical; there’s no way a builder can get the entire claims history of a subcontractor or materials supplier. 

 

With respect to the litigation, the disclosures would require the terms of any order; again, it’s overly broad.  There are any number of orders that are issued in the ongoing sequence of litigation that would have to be disclosed, although they are completely irrelevant such as dealing with the exclusion of witnesses, but they are orders that are related to construction defect litigation.  This bill would require the disclosure of the terms of that order.  Again, it is extremely broad. 

 

Regarding disclosure of complaints to the Nevada State Contractors’ Board, these complaints are often frivolous and are made with ulterior motives.  Even if the complaint is ultimately determined to be without merit by the Nevada State Contractors’ Board, that complaint would have to be disclosed, as proposed in A.B. 449, in the contract for sale at the time of the sale of the house. 

 

With respect to the insurance policies, Mr. Canepa testified that the Construction Liability Insurance Task Force had a split of opinion on this.  Not even the Task Force anticipated the disclosure of all of the elements of insurance policies.  At the absolute most, all that should be required is the disclosure that in fact there is a policy that covers any construction defect concerns.  There is absolutely no merit to providing to a homeowner the terms of a policy; it’s not for the benefit of the homeowner such that the homeowner is a first person on that policy.  The homeowner would have to go to the policy through the builder; it’s the builder’s policy.  Whether or not the builder has insurance rather than the terms of the insurance may be important.

 

Relative to the names of subcontractors, we agree that such disclosure is appropriate; the Coalition would support that aspect of the bill.

 

[George Ogilvy continued.]  Concerning the tolling aspects of A.B. 449, the testimony earlier was that the developer who controls the community should not be immune from lawsuits simply because he can foreclose the ability of lawsuit being brought since he controls the homeowner association board.  That’s not all that this bill does; this bill would also toll the filing of an action by an individual homeowner against that builder.  For example, if the builder controls the board and an individual homeowner who bought six years ago has an issue regarding drywall, the statute of repose hasn’t even begun to run in those six years in respect to that individual homeowner.  Again, it’s overly broad and there’s no reason to extend the statute of repose for specific homeowners or specific defects. 

 

That’s another problem with the tolling; it should be defect-specific in that if I have a problem with my home as a homeowner, if I have a problem with my drywall, then perhaps we should toll the running of the statute of repose with respect to that claim.  But that claim, that defect with the drywall, has nothing to do with a truss or some exterior painting.  Yet, we are tolling the running of the statute of repose for that entire house by the fact that we have a claim or a repair relative to a specific defect.  Again, it is over broad and will lead to a great deal of litigation as to what the meaning of that statute would be. 

 

As was described in the presentation pertaining to the elimination of the confusion between statutes of limitation and statute of repose, it’s not an elimination of the confusion, it is a repeal of NRS 11.190 with respect to construction defect claims.  Now, if I, as a homeowner, have knowledge of a claim in year one after substantial completion of my house, a latent defect, I can sit on my rights for the entire running of the latent defect before I need to bring that claim against the builder.  The builder may have absolutely no knowledge of it.  That runs contrary to public policy of having people enforce their rights once they know their rights.  That is the reason that we have statutes of limitation in NRS 11.190.

 

Regarding the certifications required by a private professional engineer, there was a statement during the presentation that the building departments cannot be held liable.  Well, the cynical view is that’s exactly right.  The point of Sections 12 through 16 is to afford an additional “deep pocket,” i.e., the professional engineer that is being hired to conduct these tests.

Assemblyman Horne:

In your opposition to Section 10, your basic argument against it is that attorneys are going to manufacturer claims if this [A.B. 449] were to pass.  Regarding page 8, you say that experts for hire will be used.  I was hoping for something more substantive in your argument against revision, particularly on the market value of the home if it’s been damaged and the value is less.  Why shouldn’t a homeowner be able to recoup that if they are going to have to disclose it later?

 

Nick Solarno:

What I think is important to understand is the section regarding the reduction in market value is linked to the disclosure the homeowner is required to make as a result of filing the claims.  It’s almost a circular thing.  I did not mean to intimate that claims would be manufactured; I just meant that it creates an element of damages for things, which you may never know if there is merit to in most cases.  Nine out of 10 of these cases get settled short of litigation, so there is never a determination on the merits.  The disclosures required under NRS 40.688 relate to any claim made whether they prevailed on it or recover on it or whether there was any determination of merit to that claim.  This creates an element of damages for stigma value that may be associated by the homeowner’s own making of the claim, regardless of the merit of the claim.  It manufactures an element of damages that may not be based on merits or an actual reduction in value linked to merits in any way.

 

Assemblyman Horne:

In your opinion, can this be narrowed?

 

Nick Solarno:

I am not sure how you can reconcile that because you are asking for an element of damages based on a claim that is made by the person seeking the damages before there is a determination of the merits of that claim.  The current statute includes a reduction in market value for structural claims.  I believe that is being eliminated by this change.  Many times there is an argument that repairs are much cheaper to make than the reduction in market value.

 

Steven Hill:

In response to Assemblyman Horne’s and Assemblyman Claborn’s questions, there will be a bill coming before your Committee within the next few weeks that answers several of these questions.  We had a right to repair process in that bill that we think helps homes get fixed and keeps lawsuits from happening.  It will affect contractors that cause the diminution in value of a home to be responsible for those damages.

 

Assemblyman Horne:

The issue of tolling, particularly the one where the builder sits on the homeowner association board, it seems that your suggestion…a problem would actually lessen an opportunity for a class action suit, thus making a builder have to defend multiple actions.  Are you saying, and maybe I misunderstood you, the tolling of this takes the right away from the homeowner to seek redress at an earlier stage?

 

George Ogilvy:

No, that’s not what I was saying; I apologize for not articulating it well.  I will use an example.  If an individual homeowner finds a latent defect, which has an eight-year statute of repose pursuant to NRS 11.204, in year one after substantial completion, the homeowner does not need to take any action.  In addressing your concern, he absolutely can at that point, but he need not take any action until, as the presentation states, the homeowner association is no longer controlled by the developer under one subsection of the bill or under the other section of the bill where it eliminates NRS 11.190, up to eight years.  So essentially, they have extended the opportunity for the homeowner to the prejudice of the builder when the homeowner knew of the defect early on after substantial completion when the builder may not have had any idea whatsoever.  That runs contrary to our public policy of requiring people to enforce their rights once they know they have the rights; that’s the public policy behind our statutes of limitation.

 

Assemblyman Horne:

Don’t you see a problem in circumstances where you do have the builder who sits on the board for most of the time until much of the development is completed?  Would that be a problem?  How would you address that then if they are in control and can basically suppress any potential suits that may come up in those early stages?

 

George Ogilvy:

I agree that is a distinct issue that could be addressed, but it is not addressed.  It is too broadly addressed in this proposed bill.  The homeowner association has the ability to file an action on some community interest as opposed to the individual homes themselves.  What I am suggesting is that if we want to protect the homeowner association from being able to file suit or bring a claim against the developer on something of common interest to the community as opposed to residential individual residents, that’s one thing.  But this bill encompasses all of the claims and again is not defect-specific.  If there is one claim, one defect, it is tolled for the entire residence.  It is overbroad.

Assemblyman Brown:

I have made this disclosure before, but I think I probably ought to make it again.  I am an attorney that represents many construction subcontractors in that practice; most of those are commercial contractors.  I have had only a few instances where I have been asked to represent clients on construction defect cases.  Notwithstanding that, the impact of any of these bills going forward would not influence my clients any differently than any other contractors.

 

I also have a question.  Would you comment on Section 1, subsection 1(e), dealing with the statement?  Mr. Ogilvy was going through the disclosure list and I was curious regarding his comments on that if any.

 

George Ogilvy:

The reference was to the disclosure of the deviation from the applicable building codes.  There is absolutely no requirement that this be a willful deviation; there is not, as we say in the law, any scienter that is required.  For that reason, it is overbroad.  Additionally, I believe that it requires the developer to make an admission against its own interest, which is contrary to any other types of disclosures that we require in any industry.  As was stated in the presentation, the builders themselves, the general contractors, do little of the actual building; they supervise the construction and may not know of any defects in the construction, particularly those that a building inspector has not identified who is in the best position to be able to do so.

 

Assemblyman Sherer:

In Section 18, it requires a contractor to basically pass an examination; the same concept is included in Section 19 as far as continuing education.  How do you feel about that?

 

Steven Hill:

I was chairman of Governor’s Construction Liability Insurance Task Force, and Mr. Canepa was correct, we unanimously recommended those additions.  What I would like to point out though is that the industry is certainly in favor of education and we take pride in our workmanship, we take pride in improving our workmanship, and these two components of this bill we could talk about today, but we would be talking about less than 1 percent of the volume of education that goes on.  The amount of work and additional training that would go into this bill wouldn’t add up to the amount of training that goes on in my company.  We are talking about training one person, a qualified employee, in each company, which is a noble thing to do; we support that effort. 

 

But we also think that if we are going to put a program together for education in the law, we should examine what will be effective and take into consideration all of the education that’s being done in the industry now.  The Southern Nevada Homebuilders have put together a quality control program that is the first in the nation; it’s being used as a model.  It has grown over the last year in its application to subcontractors and builders.  Programs like that are real, they are effective, and they make the industry better.  Training a single individual is fine; it’s just a very minute portion of the education that the industry performs.

 

Assemblywoman Ohrenschall:

I want to make a declaration that I am a member of the State Bar.  I have previously represented contractors and subcontractors; I am not presently representing any.  I will not be affected in any way differently from any other member of the State Bar.  I will be voting on these bills.

 

Chairman Anderson:

It would appear there are no additional questions from the Committee.  Are there any other closing statements that any of you would like to make?

 

Steven Hill:

Again, I would like to reiterate that the goals of the Coalition are to get homes fixed quickly, promptly, and correctly.  We do not feel that these bills will help in any material way.  The goals of building homes correctly and educating the workforce are noble goals but are not addressed with any scope.  When they are addressed with scope it is very broad and will cause more litigation, which is exactly the opposite of what homeowners have testified to and what the construction industry would like to see.  We thank you for your time and consideration and would ask that you reject this piece of legislation [A.B. 449].

 

Chairman Anderson:

Is there somebody else who wishes to speak in opposition to A.B. 449?  I keep thinking this is simple, but it never seems to be.  Let me close the hearing on A.B. 449 and bring it back to Committee.  [Ten minute recess.]

 

Let me bring the Assembly Committee on Judiciary back together.  We will take a look at Assembly Bill 446.

 

Assembly Bill 446:  Revises certain provisions relating to constructional defects, dissolution of corporations and limited-liability companies and commencement of civil actions by unit-owners’ associations. (BDR 3‑869)

 

Scott Canepa:

[Introduced himself and submitted Exhibit P and Exhibit Q.]  Assembly Bill 446 seeks to give further protection to homeowners confronted with construction defect problems.  The bill’s second purpose, and a purpose no less important, is to try to help subcontractors brought into construction defect lawsuits by real estate developers extricate themselves from those suits more efficiently and more swiftly.  We have prepared a brief PowerPoint presentation (Exhibit Q), and then we have four homeowners who would like to provide some adjunct testimony.

 

Chairman Anderson:

Let’s do the time thing here:  nine minutes for the PowerPoint and four minutes for each homeowner.  Ready to go?

 

Scott Canepa:

Assembly Bill 446 ensures court access to homeowners.  Sections 1, 2, 3, and 13 of the bill preclude mandatory arbitration provisions in contracts between homebuilders, real estate developers, and their homeowner clients.  What we are talking about is binding arbitration provisions that say that you may not proceed to district court, you may not have your dispute heard in front of a judge and a jury, and instead you will agree to submit to binding arbitration.

 

[Referring to a slide in the presentation] We tried to enlarge a provision that was included in a contract of sale that my law firm was involved in.  The print was so small that despite the best efforts of a computer to enlarge it to be seen, you can’t.  I want to read to you the last sentence of that binding arbitration provision:

 

The decision of the arbiters shall be in writing and signed by such arbitrators, or a majority of them, and shall be final and binding upon the parties.  Each party shall bear the fees and expenses of counsel, witnesses, and employees of such party, and any other costs and expenses incurred for the benefit of such party.  All other fees and expenses shall be divided equally between buyer and seller.

 

The next slide that we have shows a copy of the invoice that was sent to my law firm by AAA (American Arbitration Association), which is a widely recognized arbitration association.  As you can see, the bill to my homeowner clients, as 50 percent of the administrative expenses alone, was $1,750 to start the case.  These are homeowners in a single-family home case.  According to the provision that I read to you earlier, those fees would be borne by those clients.  We actually estimated that before these homeowners could get through the arbitration process, they would incur in excess of $10,000 in arbitration fees and related costs so that they could have their dispute heard on account of that contract.  We asked the district court to strike this provision as being unenforceable and unconscionable; the district court agreed with us and struck down the contract.  

 

[Scott Canepa continued.] The purpose of A.B. 446 is to prevent these types of contracts from being circulated amongst our community because a lot of homeowners don’t know they can go to the courts and have these provisions struck down.  When they read it, when they find out it’s going to cost them $10,000 to get their dispute heard, they are not going to assert their claim.  That’s not right.  We ask you to consider this provision of the bill as a measure of protection against contractual provisions that deprive a homeowner of the right to pay $120 to file a complaint, whatever the fees are for a jury demand, and have their dispute heard by other citizens in the community.

 

Section 13 does permit parties who want to enter into voluntary arbitrations the right to do so.  If a homeowner and a builder decide that arbitration is the best vehicle and they don’t want to go through the court system, this bill specifically says that it shall not preclude the right of the homeowner and the developer to enter into either a binding or non-binding arbitration.  Section 13 also honors existing ADR (alternative dispute resolutions) schemes.  For example, the court system has a mandatory non‑binding arbitration provision for claims valued at less than $40,000.  This bill does not in any way affect the court system’s right to do that, nor does this in any way affect the rights of homeowners and the obligations of homeowners and contractors to submit their claims to mediation in NRS Chapter 40 construction defect cases, both before and after the lawsuit is filed, if the parties desire.

 

The next section of the bill is an important measure; it protects subcontractors from unwarranted developer lawsuits.  Assemblyman Mabey referenced a lot of parties get “brought in” in the context of disclosures.  I am here to tell you that in the vast majority of cases, 95 percent of the cases, subcontractors are brought into construction defect lawsuits not by homeowners but by real estate developers and the insurance companies’ lawyers who defend those developers.  That is not to say that there aren’t instances where homeowners have had to bring claims against subcontractors because of the defunct or absent nature of the developer; but most of the time, those claims are brought by the developer. 

 

Section 4 of the bill proceeds from the premise that subcontractors should not be liable for covering up construction defects that they didn’t cause or know about.  I have an example of one of these provisions, so that you can read how expansive these contractual provisions can be.  I want to direct your attention to the last sentence:

 

Subcontractor by the performance of his work accepts the working conditions of the work contiguous with or related in any manner of the work of subcontractor and assumes any and all responsibility for that work performed.

 

[Mr. Canepa continued] Here is the hypothetical [scenario] that I offer you.  If you are a stucco subcontractor, by definition, you are going to putting your stucco over the work of the framer because the stucco covers up the framing.  Under that provision, the stucco subcontractor can be held liable for defects in the framing even though the stucco subcontractor may not know anything about framing, structural engineering, installation of structural straps, or the like. 

 

I also want to point out that there is support for doing away with those types of provisions.  In particular, during the Task Force hearings, a subcontractor attorney named Chris Moore spoke.  He identified positive ideas to the Task Force from the NTLA (Nevada Trial Lawyers Association).  You will notice the first bullet point there is that the subcontractor should not be responsible for covering up other trade’s work.  That shouldn’t be a rule across the board and we agree with that.  As it is written in A.B. 446, the exception to that rule is if the contractor can establish that the subcontractor had actual knowledge of the defects that were covered up and failed to notify the contractor of those defects, then the subcontractor should be held liable for covering up those problems.  

 

Finally, this bill would declare as void any subcontract provisions that purport to establish liability for a subcontractor for covering up construction defects of another trade even before the work is done.  We think this is important in terms of helping subcontractors not being brought into these cases in the first time and getting them out.

 

The next section also deals with protecting subcontractors from unwarranted developer lawsuits.  Section 9 disables provisions that would prevent subcontractors from settling claims.  The next slide is a good example of a common indemnity provision that exists in subcontract agreements between subcontractors and real estate developers.  Without reading the whole thing to you, it basically says that the subcontractor shall indemnify, defend, save and hold harmless the developer for any and all claims arising out of the subcontractor’s work and also out of the supervision by the developer of the subcontractor’s work.  If you have a defect and the defect is 95 percent the responsibility of the developer’s negligence and 5 percent the subcontractor’s negligence, the subcontractor under this provision eats the whole thing. 

 

[Scott Canepa continued.]  There is a way around this and I want to suggest to the Committee members that these provisions are the single biggest reason why subcontractors can’t get out of lawsuits.  This says that they are going to be liable for the developer’s negligence all the way up to, theoretically, 99.99 percent.  There is a way out of this; what A.B. 446 does is it uses a statute that all defendants can use to buy their piece to get out of a lawsuit.  What it does is it says that if a judge…if the stucco subcontractor, who is accused of covering up the framing subcontractor’s work, comes to the homeowner and says, “You know what, we think we are 10 percent responsible” and the homeowners agree, the homeowners and the stucco subcontractor can go to the court and if the court determines that 10 percent payment is a good faith settlement, then the subcontractor gets out of the lawsuit entirely and cannot be held in the case on account of that provision.   We talked about doing this with the subcontractors in prior sessions.  This provision was also supported by the defense lawyer, Chris Moore, on behalf of subcontractors.  We think it’s an important measure that will allow subcontractors not to be dragged through four years of litigation because the real estate developer, and more importantly, the real estate developer’s insurance company, won’t let them out.

 

Assemblyman Mortenson:

I am having a problem visualizing and understanding a situation where, if the subcontractor does all the work, how can the developer be responsible and get rid of that responsibility by making the subcontractor…?

 

Scott Canepa:

Here’s an example.  One of the things we saw earlier this morning was a lot of leaking windows that caused water to fall into the wall cavity and mold to grow.  In order to install a window into a building, there are three trades involved:  a framer frames the opening in the building, a stucco subcontractor has to flash the stucco around, and the person who installs the window makes sure the fins are properly nailed.  Each of those subcontractors is an expert in their own field, but it’s the general contractor who has to coordinate the sequence so that all of that happens.  What occurs, and we have seen it a lot, is that the developer, in a hurry to get the project done, will cause one of those trades to perform its work out of sequence.  That is a supervision error, it commonly occurs, and that is what we are talking about here.  At that point, what we are saying is that maybe it was 10 percent the framer’s fault, and if the framer pays 10 percent of the freight, he should be able to get out of the lawsuit and not be held in for the entire amount.  That’s the concept.

 

Assemblyman Horne:

Isn’t there a possibility that litigation may arise between the contractor and subcontractor?  If the contractor disagrees with the settlement, saying, “No, you are on the hook for 50 percent of this.”  It is prudent upon the contractor to challenge this settlement because he does not want him out, if I understand this, it is with prejudice.

 

Scott Canepa:

That’s correct.  Right now there is a vehicle by which the contractor and the developer can contest whether 10 percent is the number or 20 percent; it’s called a motion for good faith settlement.  The papers have to be filed with the court with substantial evidence presented in order for the subcontractor to get out of the case.  This is not a rubber-stamp process where the subcontractor says that 10 percent is good and the homeowner says that 10 percent is good.  They actually have to go to court and, under present law, a good faith determination by the judge extinguishes claims for contribution and for implied indemnity. 

 

The only claim that doesn’t extinguish is contractual indemnity and that’s the third leg on the stool that we want to add to that statute, so that there is no further way that subcontractor can be held in on the claim.  If you ever attended one of these motions for good faith settlement, they are hotly contested.  They sometimes even turn into evidentiary hearings where the court will take substantial evidence to make sure that, in fact, it was a sequencing problem and it was just a problem of the subcontractor to exercise due care.

 

One of the things that the insurance commission did was to solicit ideas from insurance companies as part of the Task Force hearings and prior thereto actually.  I wanted to point out that one of the insurance companies, anonymously referred to as Unidentified Insurance Company Number 6, an insurance company for subcontractors, pointed out this precise problem and said one of the things that the Committee should do is to consider this.  If you look at it at the top it says,

 

…pervasive problem is that powerful general contractors and developers often routinely include in their written agreements with subcontractors strongly worded language or clauses of indemnification.  These provisions often require the subcontractors to bear obligations and responsibilities out of all proportion to the scope and the value of their work.

 

It goes on to say that what we have proposed to you in A.B. 446 is the answer: let the judge make a determination as to whether they are paying their fair share of liability, so they can get out of the case.  If they get out of the case, the insurance company’s defense costs are lower, the indemnity payments are lower, and ostensibly insurance rates come down.  

 

[Scott Canepa continued.]  The next sections of A.B. 446 ensure proper repairs.  Section 5 requires independent supervision and inspection of repairs.  Under the current NRS Chapter 40, a homeowner is obligated to give notice of the defect to the contractor and the contractor is given the opportunity to inspect the defect.  In a non-complex claim, the contractor is required to make a written response saying whether they will pay a settlement to the homeowner, fix the defect, or disclaim liability.  In a non-complex case, a lawsuit comes, but after that the contractor is obligated to elect one of those three options. 

 

What this section says is if in fact the contractor is going to undertake a repair, we want to make sure those repairs are done properly.  The homeowner has a right to select an independent third party to supervise the repairs at the contractor’s expense.  The contractor shall post a performance and payment bond in the amount equal to one-and-a-half times the reasonable market value of the repair.  If the repairs weren’t finished, for example, the performance bond would come in.  If the repairs were done badly, the homeowners would have a measure of protection on the other bond.  This goes to helping homeowners; you have a good sense of things from those homeowners who have testified and you may from those homeowners still to come forward.  A lot of the time, repairs that contractors perform don’t solve the problem; they are band-aid repairs.  This seeks to avoid that problem.

 

Assemblyman Carpenter:

How easy is it to get those bonds?  I have heard that it is practically impossible to get bonds now.

 

Scott Canepa:

We have not looked at that.  There is certainly the availability of insurance.  There is a claim that insurance is more difficult to obtain because of the number of claims of faulty workmanship.  I had not heard that the bonds were more difficult to obtain.

 

Assemblyman Brown:

I have concerns about the supervision and inspection.  To what extent would you anticipate supervision?  Would it be continuous personnel on the site?  Regarding the independent person, what type of qualifications are you anticipating?

 

Scott Canepa:

Section 4, subsection 1(a), at lines 19 and 20, say that the independent person must be selected by the claimant and must have the appropriate license and qualifications.  We would be open to an amendment if we want further clarification, but it’s assumed that the homeowner would only be authorized under statute to have somebody that is qualified to oversee and inspect those repairs.  Frankly, I don’t know why a homeowner would want somebody who wasn’t; that was the point we were trying to make.

 

Assemblyman Brown:

Would you anticipate full-time supervision?

 

Scott Canepa:

Yes, during the course of repair.

 

Section 7 of A.B. 446 penalizes [those who make] bad repairs.  Again, as in the earlier bill, there is a triple damage provision that we would support an amendment taking that out; it was not our intent for that to be there.  Under Section 7, if the repairs were not done properly, we would propose that the limitations of damages under the statute, the section that protects builders from all manner of claims, would no longer apply.  If the court determines that the repairs were done improperly, the contractor’s license would be subject to revocation. 

 

Here’s the importance of proper construction, to put this in some perspective.  One of the things that we did was determine why we had building codes to start with.  We discovered that building codes were promulgated by the insurance industry, because it wants to make sure that the people they are insuring have an objective standard by which their performance can be judged.  In fact, one of the things we found curious was that the property and casualty insurers, the ones that write your homeowner policies, also rely heavily upon the contractor’s conformance to those applicable building codes. 

 

This is just a quote [referring to PowerPoint presentation] you can read later.  When Hurricane Andrew hit south Florida, they found some communities were entirely devastated while others immediately adjacent to it were not nearly as damaged.  They determined the reason for that was failure to comply with the code.  One of the justifications we advance is not to victimize the homeowner twice.  If it’s the contractor or someone hired by the contractor that makes those repairs, let’s make sure those repairs are done properly.  If that person doesn’t do those repairs, then he should be taken to task before the Nevada State Contractors’ Board.  There is another reason; we don’t want homeowners’ insurance policy premiums to increase on account of the failure of contractors to conform their work to the code.

 

One of the insurance companies, who was asked what was causing the problems with the increase in insurance premiums, that the opponents of the prior bill were talking about, stated, “While the high cost of litigation is one reason for claim severity, they believe that the most critical cost driver from a claims perspective is the substandard construction practices and poor workmanship by the contractors.”  We offer that as an independent and separate justification for the repair provisions set forth in A.B. 446.

 

[Scott Canepa continued] Sections 10 through 12 protect homeowners from corporate dissolution.  Under present corporate law for a limited-liability corporation (LLC) and limited-liability companies [partnerships] (LLP), a person can form an LLC or LLP, build a subdivision of 100 homes, and immediately upon the sale of the last home, they can file papers of dissolution with the Secretary of State’s office.  Then, two years later, no more claims can be asserted against them—even though we have statutes of limitation and statutes of repose that go well beyond that. 

 

Here’s the kicker—that person doesn’t need to tell the homeowners that they have an LLC and they don’t need to tell the homeowners that they are filing the papers of dissolution.  I had a client homeowner association in Las Vegas that had serious water intrusion defects, which did not manifest themselves until four to five years after the last home was sold.  They found out that the developer had dissolved the corporation, and the developer’s insurance company took the position that they did not have to pay any of their insurance policy proceeds because their insurer had dissolved that company.  That case went all the way to the Nevada Supreme Court and there was never a decision rendered by the Supreme Court because we settled that lawsuit for not as much money.  Those homeowners were worried that the Supreme Court was going to uphold that dissolution statute and hold that the homeowners had no claims.  Again, the homeowners did not know it was an LLC and they did not know that the contractor had filed papers of dissolution. 

 

This [A.B. 446] seeks to undo that; it says that a LLC can’t do that and that insurance companies can’t use the fact of dissolution as an arbitrary reason not to pay legitimate policy proceeds for which they received a premium.

 

Assemblyman Brown:

On the revocation issue, you stated it in terms of “subject to revocation”; I would interpret that as it is “a possibility.”  As the bill is structured, it is a revocation.  This goes back to page 8, Section 7, subsection 4.  You mentioned they should be taken to task if they fail to correct or repair the defect properly.  The way you had phrased it was that their license might be subject to revocation.

Scott Canepa:

We certainly don’t want to deny any contractor’s due process.  It says that if the court determines that the repairs weren’t done properly, the court shall revoke the license.  Assumed within that is that the contractor would have the right in front of the court to dispute the claim that the repairs were inadequate.  We support an amendment that clarifies that to the extent necessary.

 

Assemblyman Brown:

Regarding the case where the corporation was dissolved, I am interested in knowing who was named in that action.  Were you able to name the insurance company?

 

Scott Canepa:

Without naming names, the original contractor was sued.  That contractor’s insurance undertook the defense even though the company was dissolved.  There was a significant legal battle.  Ultimately, we were forced to name the trustees of the company, so that there was a legal entity in place and so that the insurance company couldn’t avoid paying its policy proceeds.  That was the remedy that the court fashioned.  But frankly, the remedy that the court fashioned was appealed to the Nevada Supreme Court on a writ and the Supreme Court accepted the writ; papers were pending at the time the homeowners settled the claim.  The homeowners were concerned that they were going to end up with zero based on a technical reading of the dissolution statutes.  That’s what A.B. 446 seeks to avoid.

 

Assemblyman Brown:

No subcontractor was named?

 

Scott Canepa:

I can get that information to you; I don’t want to speak out of turn.

 

One of the things the NTLA asked the Task Force to look into was the issue about dissolving companies and what effect it has had on price and availability of insurance.  The Task Force did not undertake to look at that; there is no assistance from the Task Force on that subject.  

 

Finally, the last provisions in the bill are in Sections 14.  These clarify the homeowner association voting requirements.  I know that this Committee has taken testimony in recent hearing on other bills about the tremendous amount of voter apathy that exists within homeowner associations.  There is a dispute over what the language in NRS Chapter 116, which requires a majority vote before a civil action can be commenced, means.  Frankly, it is not the clearest language in the word, but here is what we propose in A.B. 446. 

 

If a homeowner association intends to initiate a construction defect action against its builder, it must attempt to take a good faith vote of the homeowners within the community.  If 50 percent of the people vote against proceeding with that civil action, then the civil action does not go forward.  That’s our solution to the problem. 

 

There is going to be another bill coming before this Committee that says you have to have 50 percent of the people to vote in favor of proceeding; we think that merely intends to capitalize on voter apathy.  At that time we will offer testimony, and you may have heard testimony, that homeowner associations in Nevada can’t get 50 percent of the people to vote on anything, even if it was a vote to give them all $100.  That is in large measure due to the fact, especially in condominium projects, that people move there for the reason that they don’t want to be hassled with the day-to-day involvement, maintenance, and care of the association. 

 

My final comment is that before we had any voting requirement in NRS Chapter 116, enacted in the 1997 Legislative Session, the decision whether to proceed with a civil action was left to the board of directors, just like it is left to the board of directors of any corporation in the country.  They are judged by the good business judgment rule; they have to have a good business judgment reason to proceed forward, otherwise they are going to be held personally responsible.  This proposal gives recognition to the fact that if you have a homeowner association of 100 people and you take a vote and you have 48 people voting yes and 1 person votes no, under the proposal by the opponents for the prior bill, they could not go forward. 

 

Recently, this Legislature has processed changes to common-interest community statutes that have substantially reduced voting requirements for all other manners of business for an HOA, and we see no reason why civil actions should be any different, whether that civil action is for construction defect, to get an injunction to stop somebody from coming on the property, or whatever civil action it is.

 

Linda Burch, Homeowner, Double Diamond Development:

[Introduced herself and submitted Exhibit R.]  In June 1997, my husband and I purchased a home in the Double Diamond Development.  In January 1998, after a problem with our garbage disposal, we made discovery in our crawl space of standing water, mud, and mold.  We reported the problem to the builders; they sent over their customer service representative, a person named Linda, and without opening the crawl space or going under the house, she told us that it was not covered by our homeowner’s warranty and that we had watered too much in the previous summer, even though it was now January.

 

We hired a licensed engineer and he inspected under our house and found the most severe case of mold and mildew in a new home that he had ever witnessed.  He likened the entire crawl space to a sauna. 

 

We reported the problem also to the Nevada State Contractors’ Board and found out that it was not an avenue for homeowners to take; we were told it represented the contractors and they laughed at our situation.

 

To fix the problem, Double Diamond attempted to blame it on our landscaping and said that we had not landscaped our property properly even though we had hired the landscapers that Double Diamond recommended.  We gave them the first chance to repair our home.  They opened the crawl space, which happens to be in our master bedroom closet, and they started blowing toxic and moldy air from the crawl space into the bedroom with two giant fans that they rented.  They closed all of the vents to the outside, so all the moldy air was being blown into our home.  They left the saturated, moldy insulation in while circulating the toxins.  I felt this was the wrong thing to do, so I called the engineer we had hired.  He said to open all the vents, close the crawl space, and stop channeling the air into our home. 

 

Then we tried to let Double Diamond fix the problem again, and they supplied two giant propane heaters to dry out the space.  According to the geotechnical engineer, that was the wrong thing to do also.  We had to hire an attorney at this time, a geotechnical engineer, and a biologist for more extensive inspections.  We removed the saturated insulation ourselves, reopened the closed vents to the outside, and closed the crawl space.  We also installed rain gutters and a French drain. 

 

We were sent to arbitration and we appealed that to the Nevada Supreme Court after more experts had been called in.  The case was won by Mr. Maddox in front of Justices Robert E. Rose, Miriam Shearing, and Nancy A. Becker.  Double Diamond requested a rehearing in front of the same justices; the decision stood.  Double Diamond requested another hearing in front of all seven Supreme Court Justices and the decision still stands.  This was about our homeowner’s warranty booklet that we thought would protect our home. 

 

We purchased what we thought would be our dream house and we have ended up being held hostage by the builders.  Because of the mold problem, we are unable to sell our home, while we were bounced from one legal situation to another.  The case ended up in the Nevada Supreme Court only to win the right to take the builders to court to see that our house is properly repaired.  We were victorious in the Supreme Court, but we have owned our house for six years and we have been in litigation for four and a half of those years.  It does not seem fair that our builder has never offered to properly repair our house or to compensate us for the enormous costs we have incurred.  I ask you to please pass A.B. 446 and hold the builders accountable.

 

Bob Maddox:

That case, titled Burch vs. District Court, is found at 118 Nevada Advanced Opinion No. 46; the holding is summarized in the position paper we presented.  It is really important that this Committee be aware of a problem that is widespread.  These standard-form homeowner warranties, sometimes called 2-10 warranties, contain provisions as found by the Nevada Supreme Court that reduce a homeowner’s rights under Nevada law.  They are sold as a plus to the homeowners, but they reduce rights. 

 

The Nevada Supreme Court, in that case, found that the homebuyer’s protection warranty was unconscionable and unenforceable and that the binding arbitration provisions could not be applied—the binding arbitration provision where the insurance company for the developer selected the arbitrator and the rules of arbitration.  This is a serious problem that affects consumers who buy homes and in other areas as well.

 

William Shephard, Homeowner; and Director, Echo Bay Homeowner Association, and a member of Safe Homes Nevada:

[Introduced himself and submitted Exhibit S.]  We have a large community with 408 condominiums in 51 buildings, located at the intersection of Vegas Valley Drive and Nellis Boulevard in northeastern Las Vegas.

 

Our community was built with improper drainage from one end to the other.  We knew we had a bad problem with the drainage when we had our first flood.  There are three gates at the community.  When there is a heavy rain we collect water from upstream and it gathers at the entrances and exits.  Cars and emergency vehicles have trouble getting in.  Some homeowners even had to sandbag their doors.  I have a few pictures of the flood (Exhibit S).  We asked the builder to look at the drainage.  He came out, but only agreed to do minor repairs.  We had a civil engineer look at the problem and we learned that it would take a lot of work to drain the site correctly. 

 

This wasn’t the only problem we had.  There are a lot of seniors who bought homes in the community to retire.  Many of us were told that the homes would be quiet; the models were.  We found out later that the walls were not built to code.  We also had other problems like underground main line breaks that cost a lot to fix.

 

We tried to work with the builder without filing a lawsuit.  We gave the builder a chance to fix everything.  Instead, the builder turned the matter over to its insurance company.  The insurance company hired its own attorney, who ultimately offered us pennies on the dollar.  We had to file suit.

 

During the case, our association also got sued by the federal government because the community wasn’t built according to civil rights laws for disabled people.  Our lawyers told the government that we didn’t have anything to do with the design or construction of the place, but that didn’t matter.  After a long, expensive legal battle, the court ultimately let us go.  The federal government made the builder make repairs for disabled people.

 

When we bought our homes, we expected to get what we paid for.  We also expected to be treated with respect, fairly, and in a timely fashion; it didn’t happen.  We didn’t want to take legal action, but we were forced to.

 

On behalf of the Echo Bay community, please know that there are a lot of people like us who aren’t treated fairly when they have serious problems with their homes.  When that happens, the law needs to be there to protect us.

 

[Vice Chairman Oceguera accepted the following exhibits to be included in the official record.]

 

·        Exhibit T—Prepared statement and color photographs submitted by Frank LaConte, former President of the La Posada Homeowners Association.

 

·        Exhibit U—Prepared statement and color photographs submitted by Sheri Kolbet, homeowner in Reno.

 

Assemblyman Mortenson:

We have a situation in the medical community where insurance is uniform among doctors, whether the doctor has a bad record in terms of malpractice or is a good doctor.  Does the same thing happen in the construction industry?  Are the premiums uniform or do the insurance companies look at the record of a particular builder or developer who has a bad experience and give a higher premium rate?

 

Scott Canepa:

That’s an excellent question and one that I asked at the Task Force hearings.  I couldn’t get an answer, so my answer to you is that I don’t know the answer to your question.  It was our suggestion that the bad apples…  We are the first ones to recognize it, most homebuilders do a pretty good job.  It’s the bad ones that are spoiling it for the rest. 

 

Assemblyman Mortenson:

Who holds the answer?

 

Scott Canepa:

I think there is a missing stakeholder in all this.  My opinion is that insurance companies should be here to explain why things are happening for all of us.  That would be an interesting day.

 

Vice Chairman Oceguera:

We have heard from the proponents of this bill for approximately 30 minutes and if the opponents can come up and do it in 15 minutes, they get extra credit.

 

James L. Wadhams, Attorney, Wadhams & Akridge:

In the interest of time, I have preempted my technical experts, who for the purpose of this bill are litigators, since this is a litigation bill. 

 

Let me start from the back end of the testimony.  The insurance bonds, the requirements that are in here, really are the critical piece and that gives me an opportunity to point out what the Task Force the Governor created was formed in an attempt to find ways to fill the void of insurance.  There are no insurance companies licensed to do business in this state today of the kind you normally expect to see writing liability on residential contractors—none.  The only insurance that is available is offshore insurance, surplus lines and the like; there are no licensed admitted insurance companies actively writing this business.  When the proponents talk about the insurance companies, believe me, they are sincere in that they want insurance companies; we have none.  That’s going to be a problem, and what’s going to end up happening is that this level of housing will not continue to be built because the contractors can’t obtain the insurance. 

 

Let me go through this bill very quickly; we oppose each and every section.  Let me do them in groups, just as they were presented.

 

·        Sections 1, 2, 3, 13, and 15 attempt to eliminate, which I don’t think they can do under the supremacy clause of the United States Constitution, a federally guaranteed right to dispute resolution.

 

·        Section 4—Interferes with the private right to contract.

 

·        Section 5—In simple cases, not the complex cases…  I want to back this Committee up to 1999, quite frankly, we made a mistake and we were part of the mistake.  The Coalition did not exist, I did, and I participated in that mistake, and that was recommending the adoption of NRS 40.682, which simply says the beginning of any dispute is a lawsuit.  That just, in retrospect, staggers common sense.  You ought to have a notice and an opportunity to fix before a lawsuit has begun.  Nevada Revised Statutes 40.682 says you file first, when you file, guess what happens—you end up with suits.  You don’t have the guy with hammers and nails on his belt anymore that can fix your house.  Now you have litigators who are going to litigate.  A.B. 446 is excellent for litigation.  Section 5 adds additional expense even in those simple cases, such as single houses where you only have one person with a problem.

 

·        Section 6—Guts the intent of the 1995 law, the original law, that has a process that efficiently addresses these issues with a fair approach to damage.

 

·        Sections 7 and 8—You have the Judiciary encroaching on Executive function.  Once again, that raises some serious constitutional questions when you have crossover in the separation of powers.

 

·        Section 9—Similar to Section 4, interferes with right of private contract.

 

·        Sections 10, 11, and 12 radically changes what has been the longstanding law on corporations in this state for more time than I can recall. 

 

·        Section 14—Offered as solution to the vote on homeowner associations, I will leave that to you to read.  If you can discern the meaning of that, I applaud you; I cannot.

 

Vice Chairman Oceguera:

There are no questions.  Are there any others in opposition?  Any questions from members of the Committee?  Are there any others that wish to testify on this bill that feel they absolutely need to be heard?  We will close the hearing on A.B. 446, the room will clear, and we will go to work session.

 

For the Committee’s information, there are four bills on work session; we are going to look at just one of them.  We are distributing the Work Session Document (Exhibit V). 

 

We will take up Assembly Bill 448.

 

Assembly Bill 448:  Clarifies provisions governing arrest involving violation of order for protection against domestic violence. (BDR 3-448)

 

Allison Combs, Committee Policy Analyst:

Assembly Bill 448 is on page 6 of your Work Session Document (Exhibit V).  It is the last bill listed [in the Work Session Document], relating to violation of protection orders against domestic violence, and it clarifies provisions governing arrest.  The testimony indicated that the measure was requested to clarify that a law enforcement officer may make an arrest in situations involving temporary or extended orders for protection for domestic violence with or without a warrant regardless of whether the violation occurs in his presence.  Probable cause was still required.  There were no amendments that were proposed at the time.

 

Vice Chairman Oceguera:

Questions from the Committee?  I recall during the testimony on this bill that there were several questions on “with or without warrant.”  No questions?  Do you remember this bill?

 

Assemblyman Brown:

I struggle with this bill…without the warrant.  I see it as being somewhat problematic.

 

Vice Chairman Oceguera:

I concur, although some of the members have been satisfied.  Mr. Horne, you’re satisfied with how this works now?

 

Assemblyman Horne:

Yes.  Remembering the testimony, probable cause can already be gathered through witness testimony prior to this; police officers already operate in this fashion.  I did have concerns regarding having statements made and then making arrests based on those statements.  From what I understand, these officers are trained in this particular area and they don’t make these decisions arbitrarily.  I am satisfied.

 

Nancy Hart, Deputy Attorney General, Office of the Attorney General:

I would like to point out that it is officer affidavits that form the probable cause when a warrant is obtained, whether it is an officer developing probable cause on the scene or if it’s an officer developing probable cause and then submitting it via an affidavit to a judge for the issuance of a warrant.  The same standard is applied; it is probable cause that most often comes from that officer.  The issue of whether or not there was a warrant is addressed through the same standard.  I wanted to also point out that by taking out “in the presence of the officer” and allowing the statute, as it currently reads, to remain based on probable cause, it is then in the judgment of the officer at the scene.

 

Assemblyman Brown:

I understand the basis.  I understand that both rely upon the affidavit of the officer.  However, in one situation the officer observes the facts, which constitute the probable cause, versus when someone relays that information.  Am I wrong?

 

Nancy Hart:

Probable cause is an assessment that an officer makes from all of the circumstances in front of that officer.  It might be statements…  If the officer actually witnesses the act, then there is no need for a warrant.  There is no need to say there is even probable cause if the act happened in front of the officer.  The whole reference to probable cause implies that you are using other evidence available to you to develop a belief that a crime has occurred.  You either put that belief into action by directly arresting or you put it in the form of an affidavit for judge to issue a warrant.  Even if it were submitted to a judge for a warrant, it would still be information that you had collected at the scene that was based on you not having witnessed it.  If you witnessed it, you don’t need to get a warrant.  That is why reference to probable cause implies the lack of a warrant.

 

Assemblyman Carpenter:

Under what situation would the officer be doing this?  Would the victim tell him that the order was violated?  How would this occur?

 

Nancy Hart:

A typical violation could be phone calls to the residence of the victim that are recorded on a telephone answering machine.  A victim with the protection order would come home, have these on the tape, and call the officer.  The adverse party may not be at the scene at all.  Obviously, the officer would listen to the tape and take the tape as part of the evidence.  If the adverse party was in the vicinity, the officer could arrest him based on the probable cause created from hearing the tapes.  For purposes of evidence preservation, they would take the tape to prove the violation.

 

Assemblyman Carpenter:

Later on, does there have to be a hearing or something so that the person arrested has the opportunity to vindicate himself?  How would that work?

Nancy Hart:

Absolutely.  Under NRS 33.100, which defines a violation of a protection order against domestic violence as a misdemeanor, if you are arrested for violating a protection order, you would be charged with NRS 33.100 and there would be a complaint, the criminal process would ensue, and you would have a trial date.  Because it is a misdemeanor there would be some type of initial appearance.  It depends on what you did with the case; you could plead or you could go to court to contest whether or not that violation occurred.  Separate from the arrest, a violation for a protection order also constitutes a civil contempt of the order, so the victim can also pursue a civil remedy in the court that issued the order—family court in the larger jurisdictions or justice court—for violating that order.  There are two remedies available, but if you are arrested it would go to a criminal matter.

 

Assemblyman Carpenter:

Does this get into situations where they have to spend 12 hours in jail?

 

Nancy Hart:

That does not.  When you commit a domestic battery, a battery that’s defined at NRS 33.018, that’s a crime separate from a protection order violation.  That is a distinct crime defined at NRS 200.485; that is what subjects you to the hold.  Actually, last session the protection order violation, if it is accompanied with a direct or indirect threat of harm, can also result in a 12-hour hold.

 

Assemblyman Claborn:

Would this only have affect for people with TPOs (temporary protection orders)?  It wouldn’t be for regular domestic violence where somebody is going to jail when an officer of the law shows up? 

 

Nancy Hart:

I am not sure I understand the question.

 

Assemblyman Claborn:

It is my understanding that if there is domestic violence occurring and an officer of the law shows up, he is going to arrest somebody; somebody is going to jail.  This doesn’t apply to that?  Or does it only apply to the protection order to keep somebody away on a restraining order from the victim?

 

Nancy Hart:

This particular statute under consideration is for protection order violations only.  If there is domestic violence occurring and there is currently no protection order in effect, an officer comes to the scene to make a determination of whether domestic violence has occurred and who the primary aggressor is.  Then, under NRS 171.137, which is the mandatory arrest law for domestic battery, there is probable cause for arrest that can be done within 24 hours.  That is not being amended in this bill, but that also does not need to have occurred in an officer’s presence.

 

Assemblyman Brown:

I think there was some testimony discussing the probable cause issue.  Can testimony alone with no physical evidence be sufficient to establish probable cause?  If somebody just called and said that this has happened but there is no verifiable external evidence of that, would that typically rise to the level of probable cause?

 

Nancy Hart:

Typically, no.  I would say that it could, but it would be a fairly unusual circumstance where the demeanor of the victim, even if there was absolutely no physical evidence like a phone pulled out of the wall or the house messed up, if it were just the testimony alone, if the demeanor and the testimony was such that it seemed credible to the officer, but my understanding is that it is not normally the case.  There would be some other kind of corroborating witness or physical evidence at the scene that would allow the officer to develop probable cause.

 

Vice Chairman Oceguera:

You have actually convinced me now, maybe that will help.  I think it’s permissive language and that’s probably OK.  I think our concerns centered around abuse of this, that someone might say, “He’s been calling me all day and the guy was there.”  That’s not a very good example, but that was our concern.  [Assemblyman Brown concurred.]  Is there a motion?

 

ASSEMBLYMAN HORNE MOVED TO DO PASS A.B. 448.

 

ASSEMBLYMAN GEDDES SECONDED THE MOTION.

 

THE MOTION CARRIED WITH ASSEMBLYMAN BROWN AND ASSEMBLYMAN GUSTAVSON VOTING NO.  (Chairman Anderson was absent for the vote.)

 

If the Committee doesn’t mind, with Assemblywoman Buckley here, we can explain some of the bills where she was involved in negotiation of then.  All but A.B. 156 we can talk about. 

 

Ms. Combs, if you will go over A.B. 166 for us.

 

Assembly Bill 166:  Makes various changes concerning transfer of right to receive payment pursuant to structured settlements. (BDR 3-231)

 

Allison Combs:

Assembly Bill 166 is a bill dealing with the ability to transfer a right to receive payment pursuant to a structured settlement.  There was testimony that indicated the measure was requested as a consumer protection measure.  During the hearing there was a reference to a Model State Structured Settlement Protection Act and some suggestions that perhaps provisions of that might be incorporated into A.B. 166.  Several amendments were proposed following the hearing and Assemblyman Brown was involved in those. 

 

The first suggestion was to—these all related to the Model State Structured Settlement Protection Act—delete some of the provisions under A.B. 166 and replace those with similar provisions from the Model State Structured Settlement Protection Act.  The first of these would deal with the approval of transfers of the structured settlement payment rights.  The language is on the top of page 4 of the Work Session Document (Exhibit V) as suggested by the Model State Structured Settlement Protection Act:

 

No direct or indirect transfer of structured settlement payment rights shall be effective and no structured settlement obligor or annuity issuer shall be required to make any payment directly to or indirectly to any transferee of structured settlement payment rights unless the transfer has been approved in advance in a final court order or order of a responsible administrative authority based on express findings by such court or responsible administrative authority.

 

The findings would have to be based upon:

 

The transfer is in the best interest of the payee, taking into account the welfare and support of the payee’s dependents, that the payee has been advised in writing by the transferee to seek independent professional advice, and that the transfer does not contravene any applicable statute or the order of any court or other government authority.

 

Assemblyman Brown also suggested further specifying that the purchaser must be the party that commences the action under this section.  The bill included some language regarding the role of the court and this would replace that.

 

[Allison Combs continued.]  The second provision would add procedures for the approval of transfers from Section 6 of the Model State Structured Settlement Protection Act, with the addition that the attorney involved from the original action would have to be notified as well.  The language from the Model State Structured Settlement Protection Act is set forth on the bottom of page 4.  The first part specifies in subsection (a) that:

 

An application under this Act for approval of the structured settlement payment rights may be brought in the county in which the payee resides or in the county in which the structured settlement obligor or the annuity issuer maintains its principal place of business or in any court or before any responsible administrative authority which approved the structured settlement agreement.

 

Regarding the notices:

 

Not less than seven days prior to the scheduled hearing on any application for approval of a transfer of structured settlement payment rights, the transferee shall file with the court or responsible administrative authority and serve on all interested parties and the attorneys a notice of the proposed transfer and the application for its authorization.

 

[Ms. Combs continued] On the top of page 5 are all the items that would be included in that notice:

 

·        A copy of the transferee’s application

·        A copy of the transfer agreement

·        A copy of the disclosure statement

·        The listing of each payee’s dependents.

·        Notification that any interested party is entitled to support, oppose, or otherwise respond to the application

·        Notification of the time and place of the hearing

·        Notification of the manner in which and the time by which written responses to the application would have to filed

 

There is also another provision from the Model State Structured Settlement Protection Act, suggested by Mr. Brown, to be brought into A.B. 166.  Section 3 of the Model Act and subsection 4 of A.B. 166 both address required disclosures, some of which overlap, but the suggestion would be to ensure that all the disclosures required under the Model Act are included in A.B. 166.

 

[Allison Combs continued.]  Finally, there was a suggestion from Mr. Alonso with regard to the Model State Structured Settlement Protection Act that the definitions be incorporated into A.B. 166.  Of course, that would be contingent upon the ones that were relevant depending on how the bill was actually drafted.  There is a copy of the Model State Structured Settlement Protection Act included on the pink paper attached to the Work Session Document (Exhibit V).

 

Assemblyman Brown:

If we integrate some of the changes regarding the procedures, which is indicated in number 2 of the proposed amendment section, this is Mr. Sharp’s proposals, the one change we need to make, and that was agreed upon by all the parties, was that while we would give notice to insurance companies, they would not be parties that could otherwise respond to the application, oppose, et cetera.  I can tell you that all the parties sat down to discuss this and were in agreement for the most part. 

 

Then we discussed the overlapping provisions, those we want to pull in from the Model State Structured Settlement Protection Act any provisions, for instance, the disclosures that give greater protection to the particular consumer.  That’s why we are looking to some of those provisions to just make sure that we include all those disclosures, but the parties were in agreement on the changes.

 

Assemblywoman Buckley:

I have a question on the “best interests” standard for the court approval.  I think the proposal is that the transfer is in the “best interests of the payee, taking into account the welfare and support of the payee’s dependents.”  I am wondering if that is the right language.  Maybe it is.  You should be considering the best interests of the payee and it might be medical; you might have to balance medical versus kids and family.  We want the court to consider the totality of the circumstances, I think, which is good.  I am wondering if that clause is necessary and whether a judge might say, “The Legislature meant us to give extra consideration to dependents.” 

 

Assemblyman Brown:

I do believe that the totality of the circumstances should be included and I would be happy to include that.  The inclusion of the dependent language is an absolute required finding of the federal law that works in conjunction with the state statutes.  Part of this is intended to make sure that we capture the abusive factoring companies that are trying to buy these and they walk away with non-taxable income for a while.  That language is specified in that particular provision.  What I think I would be amenable to is stating something like, “the best interests of the payee considering the totality of circumstances, including but not necessarily limited to…” so that the court considers that as one of the issues.  I would be content with that.

 

Assemblywoman Buckley:

What federal law?

 

Assemblyman Brown:

I will get that for you if you wish.

 

Assemblywoman Buckley:

What does that cover?  It is a state court settlement; it’s a state’s rights issue.  What do the feds…?

 

Assemblyman Brown:

The federal law is geared to taxation issues, at least, that is what I was informed.  I know that in particular.  The language relative to the “dependents,” I have been informed, is required under that to be considered as well. 

 

Assemblywoman Buckley:

I am curious and would like to learn more about that.

 

Risa Lang, Committee Counsel:

I do understand the proposals and would be happy to look it up if you want.  I understand the proposals in terms of the language for the amendment.

 

Assemblyman Brown:

I appreciate Ms. Lang bringing this to my attention.  Under the number 2, sub (a), it talks about where the application can be filed.  It states “in the county wherein the payee resides or the county where the purchaser maintains its principal place of business or the county wherein the court lies which approved the settlement.”  I did not necessarily like having as a possible venue “the county where the purchaser” is.  I think it should either be where the payee is or where the court that made that determination.  The parties I discussed that with are not opposed to deleting subsection (a) of paragraph 2, which is the one that sets that forth.  Currently in A.B. 166, the two locations that it can be brought in are where the payee resides and the court that made the determination. 

 

Vice Chairman Oceguera:

I guess a motion would be in order to Amend and Do Pass with all the amendments minus number 2(a) and adding the additional language that Mr. Brown and Ms. Buckley agreed upon and that Ms. Lang is aware of; that’s ambiguous.

 

Assemblyman Brown:

Ms. Combs mentioned, I think perhaps I touched on it, that it would include notice to the insurer.  The insurer is not necessarily a party, but would be given notice.  There are cases out there where the insurer has been tagged twice because they were paying in the court, and they had to go ahead and pay the payee.

 

Vice Chairman Oceguera:

…and in addition, what Mr. Brown just said.

 

ASSEMBLYMAN CARPENTER MOVED TO AMEND AND DO PASS A.B. 166 WITH THE PROPOSED AMENDMENTS LISTED IN THE WORK SESSION DOCUMENT AND DELETING NUMBER 2(a).

 

ASSEMBLYWOMAN OHRENSCHALL SECONDED THE MOTION.

 

THE MOTION CARRIED.  (Chairman Anderson was absent for the vote.)

 

That is all we will do; that was a little harder than I expected. 

 

The meeting is adjourned [at 12:02 p.m.].

 

RESPECTFULLY SUBMITTED:

 

 

                                                           

Deborah Rengler

Committee Secretary

 

APPROVED BY:

 

 

                                                                                         

Assemblyman Bernie Anderson, Chairman

 

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