Homebuilders Lobby to Limit Construction Defect Lawsuits

Personal Injury

By Jennifer A. Seidman and Ronald M. Sandgrund

As the dust from the Great Recession settles, new home demand and development is increasing, but not as quickly as some would like. Sensing a window of opportunity opened by lawmakers who want to encourage more for-sale home development (especially so-called “affordable” housing) than market forces currently support, builders and developers unsurprisingly claim that the slow pace of new construction is a result of their industry’s exposure to claims for defective construction, rather than these obvious economic factors.

Builders turn a blind eye to the fact that the residential construction slowdown has occurred equally both in states with adequate and those with inadequate construction defect remedies. The residential building industry is taking advantage of and mischaracterizing the causes of the past years’ homebuilding downturn to lobby lawmakers to make it even more difficult for homeowners to sue builders for construction defects.

Some of the proposed changes include:

  • Excusing developers and contractors from complying with building code requirements.
  • Allowing builders to perform short-term and ineffective repairs to homes, even over homeowners’ objections.
  • Allowing builders to create unique, builder-defined construction defect dispute resolution rules, such as arbitration before fellow construction professionals and their lawyers.

Homeowners at a disadvantage

A home is typically a person’s largest investment. Yet homeowners are rarely involved in their homes’ actual construction beyond choosing colors and finishes, and virtually all lack the knowledge necessary to determine whether their homes are properly built. Thus, homeowners have no choice but to rely on their homebuilders’ expertise and representations when buying a new home. Despite this serious disadvantage, many state laws also impose harsh limits on the type and amount of damages that homeowners can recover when their builders make mistakes, as well as tight statutes of limitation and onerous pre-suit conditions.

Now, new legislation is being pushed that would further shift the costly burden of dealing with a builder’s mistakes onto innocent and unsuspecting homeowners. Greater protections for builders, at homeowners’ expense, will inevitably decrease quality control measures and increase the temptation for builders to cut corners. After all, if homeowners are responsible for builders’ mistakes, what real incentive do builders have to avoid costly errors? Builders who sell to ordinary folks what almost always amounts to the largest investment of their lives need to have skin in the game, meaning, a real stake in the home’s condition and future performance.

Those Inconvenient Building Codes

It is hard to imagine a builder or construction lawyer claiming that the minimal construction standards provided for by legislatively-approved, industry-written building codes are just “too darn hard” to meet, but in this age of excuses, lack of accountability, and hunger for maximum profits, that is exactly what some claim. Meeting code with unsupervised and untrained labor, using no quality control, and failing to seek variances when the “as-designed” plans fail to account for code requirements, might be impossible — but is so for good reason.

Building codes prescribe minimum construction standards. Jurisdictions require that builders comply with building codes. These minimum standards provide both a practical and legal threshold for determining construction defect liability for problems. Immunizing builders against liability for meeting these minimum standards would remove the building industry’s single greatest incentive to build safe and reasonably lasting construction that performs well.

A Man’s Home Is His Builder’s Castle

Property rights, and the right to be safe in one’s home, are so important that several states have “Make My Day” laws allowing homeowners to use deadly force to defend their homes from unwelcome persons. Yet builders now seek not only to enter homes over homeowners’ objections, but also seek the unfettered right to make inadequate repairs and alter the home in any way they choose, which work may make an already dangerous condition more dangerous and possibly create other problems. Some laws already give builders this unqualified right.

Because of a lawsuit’s financial and emotional costs, as well as the time required to pursue legal claims, no rational homeowner would refuse a builder’s offer to perform reasonable and lasting repairs. Under these new laws, homebuilders can force “repairs” on a homeowner even if the homeowner reasonably believes — including after consulting with his own construction professionals — that the repairs will be inadequate or even dangerous. We have seen builders propose to “fix” conditions with work that would create imminent dangers by simply covering up structural failures with stucco or caulk. Homeowners should not be forced to allow incompetent builders who created a problem in the first place back into their homes to “try again” — and again and again — any more than a patient should be forced to allow the doctor who botched his surgery to “try again” — and again and again — before the surgeon can be held accountable for his mistake.

If builders elect to make repairs over a homeowner’s reasonable objections, they must remain liable for all their errors. If a defect involves many construction professionals’ work, but fewer than all responsible construction professionals perform repairs, the repairs will not be properly integrated, and are likely to be incomplete and inadequate. Further, the repair process may create statute of limitations or repose problems relating to claims against the construction professionals who do not participate in the repair process, actually precipitating litigation. Finally, requiring homeowners to allow builders into their homes to alter and possibly damage or destroy even more of their property raises serious constitutional due process and spoliation of evidence concerns.

Stacking the Deck for the Win

Even if builders have to comply with “pesky” building codes and can’t prevent homeowners from asserting legal claims by performing a never-ending series of ineffective “repairs,” what if they could define the rules of dispute resolution to make it virtually impossible for homeowners to hold them liable for their errors? That’s exactly what some builders and developers are trying to do by inserting onerous and unfair dispute resolution requirements in home sales contracts, and in common interest communities’ governing documents, like condominium declarations.

Builders’ and developers’ attorneys often include provisions in sales contracts or community covenants that require resolution of a construction defect dispute by a particular class of arbitrator with strong ties to the development industry. These provisions typically include procedures that handcuff homeowners’ ability to investigate and prove their claims by limiting the type of testing and evaluation the homeowner can perform, impose additional homeowner costs that they cannot reasonably absorb, shorten construction defect claim suit time limits, and even allow the developer to erect threatening signs on a homeowner’s property while legal proceedings are pending. While many states’ laws limit or invalidate these unreasonable attempts to stack the deck, recent proposals would condone, encourage and validate such practices, making it impossible for homeowners to hold builders accountable for their mistakes.

In the end, if lawmakers allow builders to take advantage of and mischaracterize the causes of the Great Recession’s lingering effects, homeowners will be left holding the bag for their defective homes. It is not enough to hope that lawmakers will see through builders’ transparent attempt to immunize themselves from liability for their mistakes. It is important to educate our elected representatives to the facts regarding the real causes of the decline in new residential construction, and to support those legislators who work towards preserving adequate rights and meaningful remedies for homeowners.

Jennifer A. Seidman and Ronald M. Sandgrund

Jennifer Seidman’s practice focuses on representing homeowners and homeowner associations in construction defect and defective building products cases. Her work includes cases involving structural failures and foundation movement, water intrusion and building envelope failures, building product defects, and design professional errors.

Ron Sandgrund is a trial lawyer and a prolific author of articles and books on Colorado construction and materials defect law and related insurance coverage issues. He has extensive experience litigating construction defect, construction materials, product liability, multi-family community, class action, and insurance lawsuits, and he has argued many cases before the Colorado Court of Appeals, Colorado Supreme Court, and U.S. Tenth Circuit Court of Appeals.

This article is reprinted from the Summer 2015 issue of The Trial Lawyer, published by The National Trial Lawyers.

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