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Scott DiBiasio
NAHB
December 22, 2004
HousingZone
Erik Gabrielson, Web editor for HousingZone.com, interviews Scott DiBiasio, director of the NAHB's state and local government affairs department, about the NAHB's model "notice and right to cure" legislation and its possible impact on the building industry. They discuss the "notice and right to cure" legislation that already exists in three Western states and the NAHB's plans to lobby for passage of similar laws in other states.
Gabrielson: When did the NAHB first recognize the negative impact that construction defect litigation was having on the building industry?
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They've started there, but they're moving on to different areas of the country and trying to take advantage of the specific rules in those specific areas to start to sue builders in other parts of the country as well.
DiBiasio: Multifamily is by and large a majority of the lawsuits that have been filed. If one unit has a defect, then they attempt to get every unit within a specific development certified as part of a class-action lawsuit. They can go in and sue the builder or the developer in a class-action lawsuit for defects in all of the units within a specific development.
It's really problematic in California. Multifamily development has pretty much ground to a halt in California, which of course is a state that has a significant affordable housing problem. The fact that builders can't build attached single-family or multifamily properties is just exacerbating the crisis tremendously.
Gabrielson: Who was involved in drafting the NAHB's model legislation?
DiBiasio: Our model legislation is based heavily on the legislation that was passed in Washington and Arizona, and we have also added some pieces to it from the California legislation that was passed in August. Basically, what we did is, we tried to take all those three pieces of legislation, take the best provisions from all three, eliminate the worst provisions and combine it into a comprehensive piece of legislation that, if enacted, we think would be an absolute best-case scenario.
Gabrielson: How would it benefit builders as well as homeowners?
DiBiasio: The model legislation would pass into law a process by which homeowners who allege that they have construction defects in their property have to notify builders and give the builders an opportunity to inspect and at least offer to repair the defects, if there are bona fide defects, before they can initiate litigation against a builder for those construction defects.
Basically, it's an alternative dispute resolution process that attempts to get the defects repaired before the homeowner has to resort to time-consuming and costly litigation. Through this process, defects are repaired within no more than about 120 days. If the homeowner were to go directly to court, you're looking at probably a minimum of a three-year process. Even then, the defect isn't going to get repaired. They're just going to get a sum of money if they're successful, and they're going to have to get the defect repaired themselves. This process is intended to very quickly determine if defects exist and to repair those defects before litigation is commenced. ( 
Listen. )
Gabrielson: Do you know how many states currently have "notice and opportunity to cure" laws?
DiBiasio: There's really three — Washington, Arizona and California. Other states have different alternative dispute resolution mechanisms in place. Just as an example, Michigan does it through their contractor licensing statutes. The specific "notice and right to cure" is only in the three states I mentioned. Other states have addressed the issue in a variety of different ways, and one of the ways is through the contractor licensing process.
Gabrielson: Which state does the NAHB's model bill most resemble?
DiBiasio: Ours most resembles the legislation that was passed in Washington.
Gabrielson: Why?
DiBiasio: We took a look at the legislation in those three states, and we think that the Washington legislation is the most straightforward, the most to the point, codifies the simplest process and does the most for both the builder and the consumer. We like that bill, and we decided to model our legislation primarily after that legislation.
Gabrielson: California's bill seems to be the most lengthy and obscure. What's the difference between California's bill and those of Washington and Arizona, which seem to be more straightforward?
DiBiasio: The primary difference between the California and the Washington and Arizona legislation is that the California legislation includes performance standards. That means a list of criteria by which defects, or flaws in construction, will be either deemed to be construction defects or not deemed to be construction defects.
In other words, if you've got a crack in a wall, the California standards may say, and this is not quoting from the legislation, "If the crack is only 1/8 inch, it's not going to affect the performance of the structure, but if it's ¼ inch, it may affect the performance of the structure." That's the primary difference. The California legislation includes a very specific and a very detailed list of performance standards by which you determine whether you have an actionable defect. When I say actionable defect, that's something that the builder could be sued for.
Gabrielson: Why did the NAHB's model legislation choose to leave these definitions out, because it's pretty open-ended, right?
DiBiasio: Right. In our legislation, we define what an actionable defect is, but we don't include specific performance standards. There are a variety of different opinions on performance standards within the association. Some people like it. Some people feel that it defines what the perfect house is. We just thought it would be better to leave it a little bit more open-ended and leave it so that there is an independent, third-party determination as to whether something does or does not affect the performance of a structure. ( Listen. )
Gabrielson: Now that the NAHB has this model legislation, what's the next step going to be?
DiBiasio: We are working with our builders in a number of states right now to try to encourage them to pursue similar legislation beginning in 2003 and to work through their state legislature to get that legislation enacted. Unfortunately, for obvious reasons, I'm not really at liberty right now to say which of those states we're working in, only because there are some other groups out there that don't particularly like this legislation. The element of surprise always works to our benefit. I can tell you that you'll see similar legislation, once it's introduced in January, in about 12 to 15 states.
Gabrielson: Are you at liberty to say which groups do not like this bill?
DiBiasio: The trial lawyers. The trial lawyers in Washington were initially very skeptical of this process. They feel that it unnecessarily precludes homeowners from going to court, which it obviously does not do. We cannot take away anybody's right to go to court. We can try to solve any of the problems before we have to be hauled into court, and that's exactly what this legislation does. Nothing in this legislation takes away anybody's right to go to court. It simply adds a few steps to the process, through which we are hoping that a majority, if not all, of the construction defect claims will be resolved.
Gabrielson: What do you think the prospects are of actually getting a really good bill that's similar to your model legislation passed in every state that you're going after?
DiBiasio: It depends on the political realities in each of those states. I know some of the draft bills that I have seen pretty closely resemble our model legislation. When it comes to the committee process and negotiation, the give and take, and things like that, the language may change pretty significantly, or it may not change at all. I would say the chances of us getting legislation passed that is fairly similar to our model legislation are pretty good. If you look at the approval of the bills in all three states, but primarily Washington and California, you've got Democratic legislatures and Democratic governors. The legislation passed out of the Washington Legislature with, I believe, only one dissenting vote and was signed by Governor Locke, a pretty strong Democrat with relatively close ties to the trial bar. But he saw the merits of the legislation and signed it, as did Gray Davis in California. ( Listen. )
Gabrielson: If such bills are passed, how will it affect a builder's ability to obtain reasonably priced liability insurance?
DiBiasio: That is something that market factors are really going to have to determine. Our hope is that this legislation will significantly reduce the number of construction defect lawsuits and will result in a significant reduction in the claims that insurance companies are forced to pay out on. Obviously, if their claims payouts are reduced, it's going to affect their premium pricing structure and their willingness to provide product in certain markets. Our feeling is that this will result in more available and definitely more affordable general liability insurance. The insurance companies, while they like the "notice and right to cure" process for a variety of reasons, they can't come out and tell us, "Yes, if you pass this legislation, we will come back into the market, and we will reduce our prices." They can't do that, but we have gotten some relatively favorable feedback from the insurance industry that this legislation may cause them to revisit their offering in a variety of markets.
Gabrielson: Have you gotten any feedback from builders in Arizona and Washington?
DiBiasio: We're in the process right now of doing that. The legislation is relatively new in those three states, and we're trying to get some evidence from builders in those three states that the process is working and that the process is resulting in the favorable resolution of some of these lawsuits. The thing that you have to remember is that this process is only applicable to new residential construction that is closing subsequent to the date of the law's enactment. It's not applied retroactively to all residential housing. All of the new closings now are covered by the process, but you may not see any defects in those residential units for a couple of months, or even a couple of years. So you won't see the effect of the process until those defects, if they exist, become evident.
Gabrielson: I know that the NAHB has formed a task force on general liability insurance. Where does that task force fit into the whole issue of your model legislation?
DiBiasio: One of the recommendations of the task force was that we pursue enactment of "notice and right to cure" legislation in the state legislatures around the country. This was only one of a variety of recommendations that they had. Some of the others were specific contract provisions, better quality control, other risk-management techniques, those kinds of things. [Read Stan Luhr's interview about risk-management techniques.] But one of their recommendations was the NAHB pursue enactment of this legislation in as many states as possible.
Related Links:
Arizona's H.B. 2620 (Microsoft Word document.)
California's S.B. 800 (PDF document.)
Washington's H.B. 6409 (Microsoft Word document.)
To request a copy of the NAHB's model legislation, e-mail Scott DiBiasio at sdibiasio@nahb.com.
© 2009, Reed Business Information, a division of Reed Elsevier Inc. All Rights Reserved.
