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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