News & Updates

In March of 2019, Nevada’s 80th Legislature Session Sees the Introduction of Proposed Sweeping Changes and Roll-Backs for Construction Defect Laws

Author: NATASHA A. LANDRUM, ESQ. with BETH C. SPAUR, ESQ.
April 04, 2019

On March 25, 2019, three (3) Assembly Bills were introduced to the Nevada Assembly Committee on Judiciary as part of Committee Bill Drafts, which could have wide reaching effects on construction defect litigation in Nevada.  A decision is still pending on whether the bills will be moved to the floor and assigned a number which would open it up to further discussion.  AB 421 seeks to amend statutes affecting Nevada’s construction defect legislation (yet again…and rumor has it that discussion will be heard on April 9).  AB 440 seeks to amend the definition of a Home Warranty.  Lastly, AB 418 adds Offer of Judgment protocols back into NRS Chapter 17 on Judgments.  The following summarizes the changes sought:

AB 421 SEEKS TO AMEND NEVADA’S CONSTRUCTION DEFECT LAWS BY ROLLING BACK MOST OF THE AB 125 CHANGES MADE IN 2015
TO NRS CHAPTER 40, AS WELL AS SOME FOUND IN CHAPTERS 116 AND 11 

AB 421 expands the definition of a construction defect found in NRS 40.612 to pre-AB 125 standards. 

The change would allow claimants to allege defects in construction, regardless that construction’s performance, in the absence of damage or potential damage, simply because items were either not built exactly to code or not in accordance with the construction plans.  It also inserts workmanship and industry standards, allowing allegations of unappealing or sloppy work to support a defect claim.  If this becomes a reality, a claimant will no longer have to prove that a defect has caused personal injury or property damage or that there is a risk of the same.  Instead, a claimant would be able to simply rely on technical code violations that could have no risk of harm so they could provide a “laundry list” of purported defects that are minor issues (ex: drywall nail pops), have no effect on building performance (ex: framing that performs within acceptable limits but does not comply with the original structural calculations) or that merely constitute sloppy workmanship (ex: paint overspray). 

AB 421 proposes loosening the notice and inspections requirements found in NRS 40.645.  

AB 421 seeks to return defect notice requirements to pre-AB 125 standards.  Presently, Claimants must identify defects with specific detail; this change would mark a return to merely identifying defects in “reasonable” detail.  Thus, allowing claimants to serve notices which do 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 were impossible to inspect or to effectively respond.  In addition, Claimants will no longer have to provide a signed statement verifying that they have observed each defect personally. 

AB 421 also seeks to abandon NRS 40.645’s mandate for the claimant, expert, or expert’s representative with knowledge of the alleged conditions to be present and able to identify the exact location of each alleged defect during the pre-litigation inspection(s).  In removing this provision and any verification by the homeowner, it means claimants will no longer need any familiarity with the allegations made on their behalves, thus further impeding a contractor’s ability to fully investigate the nature of the allegations made and to formulate a cogent response.  These changes revert Chapter 40’s notice provisions to its prior state when claimants submitted general and vague claims or simply relied upon an expert to find “all the things” regardless of whether the homeowner knew (or cared) that the “defects” existed. The 2015 changes by AB 125 attempted to ensure that homeowners would not be able to simply hire any attorney and step back from the process. 

It eliminates requirements for a homeowner to exhaust warranty remedies, under NRS 40.650(3). 

If the residence is covered by a homeowner’s warranty, the owner would no longer be required to make a warranty claim and then be limited to pursuit of denied claims before service of a Chapter 40 Notice.  Instead, that owner need only “diligently pursue” claims under the homeowner’s warranty.  This allows claimants to completely bypass potential warranty relief.    

AB 421 alters the tolling period for statutes of limitation and repose. 

AB 125 limited the maximum time allowed for tolling the statutes of limitations and repose to one (1) year from the filing of the notice.  This encouraged parties to move through the Chapter 40 process expediently.  AB 421 would reverse that change, reverting any tolling to the date the notice is filed to thirty (30) days after the Chapter 40 mediation is completed or waived in writing.   Currently, NRS 40.650(3) tolls these time limitations until thirty (30) days following the resolution or rejection of a warranty claim and NRS 40.695 tolls those limits from the time a notice is served until either one year out or thirty days after mediation takes place or is waived in writing.  AB 421 would eliminate these provisions, thus removing any incentive to the claimants to move efficiently through the Chapter 40 process, allowing plaintiffs’ counsel to extend the process out indefinitely as they work to sign up new claimants in the neighborhood. 

These proposed legislative changes bring back the spectre of fees and costs to NRS 40.655. 

Of note, AB 421 seeks to restore recovery of any reasonable attorney’s fees incurred while pursuing a residential construction defect claim.  AB 125 removed any rights to attorney fees and limited cost recovery to those defect items that were actually proven by the claimant.  AB 421 seeks to open it back up to any reasonable costs incurred in the pursuit of the claim.  These changes herald the return of the “entitlement” argument, which will substantially increase exposure to contractors, subcontractors, design professionals and their insurers. 

These elements were one of the biggest expenses associated with a residential construction defect claim and perhaps the single biggest motivating factor driving this type of litigation forward.  When AB 125 removed that mechanism, it disincentivized some attorneys from continuing to pursue these claims because they were no longer big revenue generators.  AB 421 seeks to reverse that change, once again making the construction defect process particularly lucrative for plaintiffs’ counsels. 

AB 421 expands the Statute of Repose (NRS 11.202) and carves out an exception.  

AB 125 revised the construction defect statutes of repose from something that could be confusing, open to vast interpretation, and replete with loopholes, to a single statute of repose with an outward limit of six (6) years following substantial completion of construction during which a claimant may commence a construction defect action.  Rather than revert back to multiple types of defect categories with varying limits and any “savings” clauses, the proposed change retains a single limit, but increases the time to ten (10) years.  It also removes any statute of repose for claims stemming from (alleged) fraudulent concealment or willful misconduct.  The immediate effect 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. 

AB 421 Seeks to Re-Expand the Representative Capacity of Homeowner’s Association Currently Limited by NRS 116.3102.   

Common interest associations are prohibited from pursuit of construction defect claims that are not exclusively common elements.  The proposed changes in AB 421 bring the question of association standing back into the mix by removing that limitation to common elements.  Common Interest Associations could once again assert claims that are unrelated to any common areas in the community and include individual homeowner claims in their notices.  We would expect to see a reversion back to plaintiffs’ reliance on the general language allowing a defect claim to be initiated by an association on behalf of two (2) or more members no matter the location or “ownership” of the defect.

Contractors would be mandated to comply with specific insurance requirements. 

Finally, AB 421 proposes an amendment to Chapter 624 requiring licensed contractors, new applicants and those applying for renewals of a contractor’s license to obtain, maintain and provide proof of liability insurance with specified limits for potential property and personal injury damages arising from construction work.   Those proposed limits are based on bid limits as follows:   

  • Bid limit under $1 million = $300,000 Aggregate and $100,000 Occurrence
  • Bid limit $1 million or greater, but less than $10 million = $2,000,000 Aggregate and $1,000,000 Occurrence
  • Bid limit of $10 million plus or Unlimited = $3 million Aggregate and $3 million Occurrence

It would also impose fines up to $10,000 for failure to maintain the above required insurance or for damage arising in connection to work subject to the Chapter 624.

AB 440 WOULD AMEND SUBSTANTIALLY IMPACT NEVADA’S CONSTRUCTION DEFECT LAWS BY ADDING DEFINITIONS
OF A HOME WARRANTY AND REQUIREMENTS AS TO HOW THE WARRANTY OPERATES

AB 440 seeks to add a to Chapter 40 a definition of what constitutes a home warranty under the law.  It requires a home warranty lasting at least one (1) year following the “final completion” of a residence.  That warranty must cover defects in construction, certain systems, materials, appliances, fixtures, equipment as well as structural defects.  Until the “final completion” is deemed to occur, the contractor is liable for all necessary repairs.  AB 440 then defines when “final completion of construction” occurs and this language becomes a significant area of concern.  The “final completion of construction” will only occur once the home buyer notifies the builder in writing that there are no further items to be repaired or corrected, or in an inspection punch list exists, that all of those items have been repaired or corrected to the satisfaction of the purchaser.  Until one of these two written assurances have occurred, the warranty period of any new home will not commence.  This could extend a home warranty indefinitely.  Further, it is unclear whether a definition of “final completion of construction” will affect the interpretation of the construction defect statute of repose. 

AB 418 REINSERTS LANGUAGE GOVERNING OFFERS OF JUDGMENT BACK INTO NRS CHAPTER 17 (JUDGMENTS)

In 2015, the Nevada Legislature repealed NRS 17.115, which dealt with Offers of Judgment.  AB 418 was also introduced on March 25, 2019 to the Assembly Judiciary Committee.  It had little to no effect since NRCP 68 mimicked the language in it its entirety.  AB 418 reinserts the repealed language of NRS 17.115, verbatim.  The proposed provisions spell out the timing of offers of judgment, protocol upon acceptance of an offer of judgment, specific sanctions for parties that reject an offer of judgment and do not secure a more favorable award at trial, how to determine what is a more favorable award, and protocol for apportioned offers.  AB418 also proposed amends language in Chapter 40 and 92A to include reference to the proposed additions to Chapter 17 (Judgments).  


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