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Development
Roundtable: Construction Liability In Las Vegas
By Lennie Smith
Construction
defect lawsuits continue to haunt local builders and contractors, even after
recent efforts to reduce litigation in Nevada.
Recently, the swanky Sterling Club played host to a Development
Roundtable panel discussion on the often-contentious issue of construction
defect litigation. The event featured Steve
Hill, founder and President of Silver State Materials; Russ Swain, CEO of
GLB Insurance Group of Nevada; and Jerry Snyder, an associate with the law
firm of Hale Lane Peek Dennison and Howard.
When
considering construction liability litigation, the issue of extrapolation
continues to be the greatest problem facing local builders and contractors.
Using extrapolation as a method of determining the scope of the problem –
especially in class-action lawsuits – works against the home building
industry. Using this method, if a development has 200 homes and a sample of
six are used, and if a defect is found in three of the six, then under
“extrapolation” 100 out of those 200 homes would be judged to be
defective. This would apply despite the fact the 200 homes could have been
built in different phases – with the work performed by different
subcontractors.
Regarding
extrapolation, Steve Hill noted that, “The issue that needs to be
addressed is how we get a representative sample. Because – in court –
there must be a specific defect for their to be an award,” but with a bad
extrapolation sample, contractors could be hit up for millions of dollars in
“repairs” that aren’t actually justified by actual defects.
Jerry
Snyder agreed. “The more
claimants, the more difficult it is for the builders to remedy the problems
within the time-frame allowed for repairs under the current construction
defect litigation. While the timelines for repair work well with individual
properties, as the number of involved houses increases, the chance to repair
each of them becomes less likely within those timeframes.”
Another,
related issue is the builders right to repair. While this right appears on
the books – passed into law in 2003 – this right still gives no relief
for many contractors, due to the fact that even if the repairs are made,
these contractors are still on the hook for litigation. This due to
indemnification, a contractual process where the contractor requires all the
subcontractors to share in the liability regardless of the work performed.
This approach has implications for the contractors – and the
subcontractors – insurance.
Another
problem is the tendency for insurance carriers to settle, even when their
clients aren’t responsible for the construction problems.
“For insurance companies,” Snyder said, “a bad settlement is
better than good litigation.” The insurance companies tend to agree,
frequently preferring to cut their losses and settle a suit quickly, rather
than wait out the often long litigation cycle.
One
way contractors are approaching new projects – to better protect
themselves from long-term lingering liability risks – is through what are
known as insurance wraps. These wraps allow contractors and subcontractors
to purchase coverage as a single group, rather than as individual companies.
“Wraps tend to eliminate the confusion in litigation,” Swain pointed
out. “Since the project insurance is purchased by the owner, this
eliminates lawsuits against the individual subcontractors.”
“The
state legislature has made major improvements to the situation,” Cindy
Creighton, Executive Director of the Nevada Subcontractors Association,
explained. “There are tweaks that need to be made and the laws in place
need to be followed, but the situation is improving.”
Creighton was not on the panel discussion, but she is an expert in
construction litigation and attended the presentation.
For
builders and contractors, improvements to Nevada’s construction liability
statutes and regulations can’t happen fast enough. They see a cottage
industry of lawyers and lawsuits – individual and class-action suits that
are settled by their insurance companies in an effort to keep costs down.
“It cannot continue,” Swain said. “These cases need to be litigated or
else the situation will continue the way it is.”
According
to the panelists, the roundtable is one positive way to get the message out
to the industry and the public at large that homeowners rarely pocket much
in the way of monetary gain from the litigation. And, that homebuilders
truly want to fix any defect that might occur. They just don’t want to
make lawyers rich along the way.
This
Development Roundtable on
Construction Litigation was presented by Vanguard Media Group, the
Las Vegas Business Press, the Clark County Credit Union and GLB Insurance
Group.
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