Litigation over a defect in a newly purchased home, between a builder and homeowner, often leads to expensive and large multi-party lawsuits. However, as practitioners know, the trend over the last decade is to mitigate these burdensome lawsuits through state “right to repair” statutes, giving the builder a chance to inspect and remedy the defect before the burden of litigation occurs.

However, time has shown that the statute may have some defects of its own. Builders claim that they do not have a fair opportunity to fix the alleged defect, and insurance carriers claim that the lack of information required to file a right to repair claim does not put them on notice of the dispute. Thus, the question arises: Where is the “Right to Repair” statute headed?

These are some of the themes that emerged during a panel discussion at HB’s recent conference titled Construction Litigation & Risk: Defects, Injuries and Insurance which focused on California’s right to repair statute, SB800.

The panel was moderated by Lisa Unger-Stanton, Senior Claims Examiner, Markel, and comprised Barry Vaughan, Kasdan Simonds Weber & Vaughan, Michael McClellan, Newmeyer & Dillion, Matt Adler, One Beacon Insurance, and Don MacGregor, Bert L. Howe & Associates.

A Genuine Opportunity to Fix?

Two major issues were discussed in relation to whether a builder has a fair opportunity to make repairs to an alleged defect.  The first issue is whether the statute allocates enough time to allow the builder to assess the defect and the second issue is whether the plaintiff’s ability to state the defect in vague terms is unjust.

As to the first issue, MacGregor said a plaintiff is required to provide a preliminary notice that lists all the alleged defects at each home. Once this notice is received the builder has a 14 -day window to evaluate the alleged defect and decide whether it should be repaired or litigated. MacGregor stressed that “it is of paramount importance to get your expert out to that site to go through that checklist on an item-to-item basis… and this becomes the basis of challenging the claim … or the basis of the builder’s scope of repair.”  However, if the builder is unable to assess this allegation within the 14-days, then the builder loses the right to repair, unless the plaintiff has granted additional time.

Contributing to the stressed time frame is the second issue of the plaintiff’s ability to give the builder vague descriptions of the alleged defect.  The statute requires the homeowner plaintiff to provide the location of the defect.  However, McClellan stated that it does not require the homeowner to provide the builder with notice of what the exact defect is.  This leads to a mass-produced notice of claim, which gives the builder a vague description of alleged problems, and allows the homeowner to list problems that may not even exist.  McClellan addressed this issue by saying that this wastes the builder’s time and money because they have to send an inspector on an “Easter Egg hunt” to find the alleged defect.

Vague descriptions coupled with the strict time frame become particularly burdensome when the builder is required to inspect numerous homes in search of the alleged defects.  McClellan gave the estimation that it takes an inspector an hour to inspect each home.  Therefore, he said that if the builder has to get 50 homes inspected it becomes nearly impossible for the builder to be able to complete the inspections within the 14-day time frame required by the statute.

The solution that McClellan urged is to require the homeowner to provide more specific descriptions of the defect; this would reduce the amount of time and money a builder would have to invest into the process of curing the problem. This would also help alleviate the flooding of the courts with repair cases and would give the builder a more realistic opportunity to remedy the problem.

In opposition to McClellan’s specification proposal, Vaughn said that a lot of these cases deal with defects in mass-produced homes, and it leads to mass-produced litigation because these homeowners, individually, cannot afford to hire their own attorneys.  Vaughn said that for these mass-produced litigations there has to be a somewhat mass-produced form, which allows the plaintiff’s counsel to uniformly identify the defects.  Vaughn also said that adopting a system that holds the homeowner responsible for identifying the exact issue would punish and hold the homeowners liable for any claim that turns out to be false.

Lack of Notice

Adler, of One Beacon Insurance, was quick to point out that the “plaintiff Bar has taken advantage of the limited information required under SB800.”  Adler said that the only change insurance carriers were subject to as a result of SB800 is that the notice of claim is not when the SB800 claim is sent out and not when the lawsuit is filed.  However, Adler presented the glaring problem that the statute only requires notice of the claim by address, insurance carrier claim systems are not designed to set up claims by address, they are designed to set up claims by claimant name.  Thus, the carriers have difficulties receiving and tracking the notice of a SB800 claim and are not actually being put on notice of the possible litigation. Adler says this problem has caused “the carrier tracking side [to] become a disaster.”

The problem arises because it is not the carrier’s responsibility to cover the builder’s expenses to make the repairs.  The SB800 notice is sent to the builder who then has the right to repair and if they chose not to repair the claim goes into litigation.  This means that the carrier may not have notice of the lawsuit until after the suit is already filed.  Adler points to the limited information that is required under the statute as the source of this problem.

“The right to repair is only as effective as the people effectuating the repairs,” Markel’s Lisa Unger-Stanton told HB.  “Depending on the parties involved, the right to repair approach can be highly effective, but is often under-utilized.  A carrier’s involvement is often hindered by the process itself. Very often, the carrier is several steps removed from the SB800 process due to various issues, which include, but are not limited to, the applicability of  SIRs, covered vs. non-covered damages, late notice, etc.”

This story was written for HB by our summer associate Tim Prosky.  Prosky obtained his Accounting and Financial Real Estate degree from the University of South Carolina in May 2012 and is a 2015 J.D. Candidate at Elon University School of Law.