On June 4, 2019, the last day of
Nevada’s 80th Legislative Session, Governor Sisolak signed AB 421. Earlier this year, the Nevada Justice
Association proposed AB 421’s amendments to statutes affecting Nevada’s
construction defect legislation, which proposed sweeping repeals to restore defect
law to its pre-AB-125 structure. The
legislature ultimately passed a scaled back version of the original proposal.
The following summarizes the final changes passed by the legislature:
AB
421 CHANGES TO NEVADA’S CONSTRUCTION DEFECT LAWS ARE MORE LIMITED THAN
ORIGINALLY PROPOSED
The legislature did not pass many
of AB 421’s initial proposed changes. Ultimately, we will only see revisions to:
- NRS
Chapter 40 notice and inspection requirements;
- pursuit of
builder’s warranty claims and resultant tolling;
- limitations on
recovery of costs;
- statutes
of repose timing and application; and
- limitations on
HOA standing to pursue claims, and other small housekeeping changes.
AB 421 loosens the notice and inspections
requirements found in NRS 40.645 and 40.647.
Presently, a claimants’ notice
must identify each defect, damage, and injury with specific detail. AB 421 relaxed this requirement (rolling it
back to pre-AB 125 requirements) so that a claimant’s notice need only identify
defects in “reasonable” detail. This allows claimants
to serve notices which may not necessarily provide contractors with any sort of
detailed allegations. In the past, this
language gave rise to claims of “electrical problems” and “plumbing issues”
that the courts allowed to stand, but contractors found impossible to inspect
or to effectively respond.
NRS
40.647’s inspection requirements currently mandate that the claimant, expert,
or expert’s representative with knowledge of the alleged conditions be present
and able to identify the exact location of each alleged defect during the
pre-litigation inspection(s). The
changes passed in AB 421 allow the claimant or the claimants’ representative to
be present for a Chapter 40 inspection. It also removed any requirement for an expert (who provided an opinion
regarding the defects) or expert’s
representative
to be present during the initial Chapter 40 inspection. Further, the claimant’s proxy that is present
during the inspection need only “reasonably identify the proximate locations of
the defects, damages or injuries” from the notice, rather than the exact
location of each defect claimed.
Claimants will no longer need clear
familiarity with their notice allegations, or any familiarity at all. Instead attorneys and/or paralegals will
again be a commonplace stand-in during Chapter 40 inspections. The experts who have the best knowledge - as
those who investigated and detailed the defect allegations - will again be able
to avoid providing any specificity of location, cause or result. This returns us to earlier frustrations
involved with evaluating and crafting a Chapter 40 response. Homeowners will be free to disown the process
after hiring an attorney.
It
eliminates requirements for a homeowner to exhaust warranty remedies.
AB 421 replaces the term
“homeowner’s warranty” with “builder’s warranty” clarifying that it is not a
type of “insurance.” NRS 40.625. It
specifically defines such warranty as a contract issued to insure the liability
of the contractor and excludes homeowner’s insurance (NRS 690B.100) or service
contracts, such as those that might warrant an appliance or fixture (NRS
690C.080).
The change means an owner no
longer must make a claim to any applicable builder warranties, exhaust
that process and then be limited to pursuit of those denied claims before service of a Chapter 40 Notice. NRS
40.650(3). An owner will need only
“diligently pursue” claims under the builder’s warranty, allowing claimants to
potentially bypass available warranty relief.
AB 421 also removed any NRS
40.687 obligation for the claimant’s disclosure of applicable homeowner
warranty information. Now only the
contractor is required to disclose any applicable insurance information
discoverable pursuant to NRS 26(b)(2) no later than 10 days following its
Chapter 40 response. Previously, either
party could petition the court for relief for failure to comply, however; since
the statute only governs contractor’s disclosures, only the claimant may
petition the court to compel such production and recover reasonable attorney’s
fees and costs associated with the same. The practical effect is that the defense may not readily have that
information available early on to initiate potential warranty claims covered by
companies outside the builder itself.
Lastly, the provision tolling
statutes of limitation and repose until 30 days following the rejection of a
warranty claim have been stricken.
The
changes ease requirements involved in the recovery of costs under NRS
40.655.
NRS 40.655 currently restricts
costs recovery to reasonable costs associated with defects proven by the claimant. AB 421 opens it back up
to any reasonable costs incurred in the pursuit of the claim. This re-incentivizes exhaustive expert
investigations. The change restores one of the largest expenses associated with
residential construction defect claims – expert fees and costs. It eliminates one of the deterrents to
undertaking costly testing that was risky to a claimant’s overall recovery if it
could potentially yield unfavorable results. This, along with the easing of notice and inspection requirements, will
likely lead to steady increases in claims for expenses related to expert
investigations.
AB
421 expands the Statute of Repose (NRS 11.202) and carves out an
exception.
The single six (6) statute of
repose in NRS 11.202 (established by AB 125) will expand to ten (10) years
following substantial completion of construction. The ten (10) year statute of repose will
apply unless claims stem from (alleged) fraud. Further, the NRS 11.202 fraud exception exempts lower tiered
subcontractors (per NRS 624.608) if they unknowingly covered up defects
involving fraud. That lower tiered
subcontractor’s absence of knowledge must be “reasonable.”
The need for this revision was
largely contextualized with soils movement claims when it was initially presented
to the Assembly to justify the enlargement of time. The engineering expert presented by the NJA testified that the current Statute of
Repose simply did not allow time for potentially “explosive” soils to manifest
damage so that an owner would be able to timely assert a defect claim.
The immediate effect of the
change allows additional time for a homeowner to initiate a claim. But the “fraud” exception sneaks open a
loophole for pleading when a claim is initiated outside the statute of
repose. While technically a claimant
must prove fraud and willful conduct, often the allegation is simply allowed to
stand while several years of litigation pass with mounting fees and costs.
The
Current Limits on Representative Capacity of Homeowner’s Association Imposed By
NRS 116.3102 Are Relaxed.
Presently, common interest
associations may only pursue construction defect claims involving exclusively
common elements. AB 421 relaxes this restriction
but does not wholesale create the association standing issues that fueled the
HOA controversy which led to the enactment of AB 125. The changes expand common elements
interpretation but keep the restriction alive.
Common Interest Associations will be
able to assert claims pertaining to common elements or any portion of a
common-interest community that the association owns or for which it has a
maintenance, repair, replacement or insurance obligation based on the governing
documents. While NRS 116.310312 allows
associations to legally access units for purposes of repair, maintenance,
abatement of a nuisance (such as a water leak) and the like, AB 421 adds
language conclusively stating that such obligations and permissions do not give
rise to rights or standing for construction defect suits for the association.
Applicability to Ongoing Actions and Enactment
- Amendments to NRS 40.645 – 650 apply to notices given on or after October 1, 2019. (Notice and warranty pursuit).
- Amendments to NRS 40.647 – 650 apply to NRS 40.6462 inspections on or after October 1, 2019. (Inspections).
- Amendments to NRS 40.655 apply to claims where notice is given on or after October 1, 2019. (Costs recovery).
- Most significantly, the amendments to the Statute of Repose (NRS 11.202), apply retroactively to actions where the substantial completion of the improvement to real property occurred before October 1, 2019. (Statute of Repose).We anticipate that this could be the subject of substantial dispute based on pending motions in multiple cases.The constitutionality of the retroactive application mid-litigation could be challenged via the Nevada Supreme Court.