Update on Builder Friendly Construction Acts. By: Douglas B. Fox, Esq.

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1 November 22, 2004 Update on Builder Friendly Construction Acts By: Douglas B. Fox, Esq. Cozen O Connor, 1900 Market Street, Philadelphia, PA Phone: (215) Fax: (215) dfox@cozen.com Earlier this year, a four-part series of Subrogation and Recovery Alerts described the rapid adoption by sixteen states of laws sometimes dubbed "Builder Friendly Construction Acts." These statutes, which trace their lineage to Texas' Residential Construction Liability Act, Tex. Prop. Code et seq., generally require that homeowners (and, in some cases, owners of commercial property) give written notice to contractors of claimed construction defects before filing a lawsuit seeking damages, and further require that contractors be afforded an opportunity to cure the alleged defects before suit is filed. If the required notice and opportunity to cure is not provided, these statutes authorize dismissal or a stay of a lawsuit. Since publication of this series, the adoption by other states of builder-friendly construction acts has continued unabated. Four more states (Georgia, Mississippi, Tennessee and Hawaii) have enacted similar statutes and three states (Arizona, Alaska and Florida) have made minor amendments to their statutes. In all, twenty states now have builder-friendly construction acts on their books, and bills are pending in several other states. This article surveys the new builder-friendly construction acts in Georgia, Mississippi, Tennessee and Hawaii, and reports on several recent opinions in construction act cases. The complete survey of all twenty states, including all recent amendments, is entitled "When the Dream House Becomes a Nightmare: A Survey of the Recent Spread of 'Builder Friendly Construction Acts' in the U.S." and is available upon request. Principal Office: 1900 Market Street Philadelphia, PA (215) (800) Atlanta (404) (800) Charlotte (704) (800) Cherry Hill (856) (800) Chicago (312) (877) Dallas (214) (800) Denver (303) (877) Houston (832) (800) London Las Vegas* (800) Los Angeles (213) (800) New York (212) (800) Newark (973) (888) San Diego (619) (800) San Francisco (415) (800) Seattle (206) (800) Trenton (609) Washington, D.C. (202) (800) W. Conshohocken (610) (800) Wichita (316) Wilmington (302) (888) *Affiliated with the Law Offices of J. Goldberg & D. Grossman

2 STATE: GEORGIA (effective date: May 13, 2004) Anyone asserting a claim for damage to a dwelling arising from a construction defect. Ga. Code Ann (3), (4) Designers, developers, contractors, sub-contractors, material suppliers, and persons or entities in the business of selling dwellings. Ga. Code Ann (5) Written notice of claim required 90 days prior to filing suit or arbitration. Ga. Code Ann (1), (a) Action shall be stayed until the claimant has complied with the Act's requirements, except that causes of action for death or personal injury shall not be stayed. Ga. Code Ann If respondent fails to comply with terms of agreed-upon settlement, claimant may file offer and acceptance, and such offer and acceptance creates a rebuttable presumption that an agreement was reached and should be enforced. Ga. Code Ann (g) No effect on applicable statutes of limitations or repose. Actions filed to toll statutes of limitations or repose will be stayed pending compliance with Act's requirements. Ga. Code Ann (o) If claimant unreasonably rejects settlement offer or refuses to permit respondent to make agreed-upon repairs, claimant may not recover damages in excess of 1) fair market value of settlement or actual cost of repairs, 2) the amount of a monetary settlement offer, or 3) costs or attorneys fees incurred after date of rejection. Trier of fact will determine whether claimant acted reasonably. Ga. Code Ann (l) Act does not apply to claims for contribution or indemnity. Ga. Code Ann (b) Insurer paying claim under the Act is subrogated to the rights of the claimant against the person who caused the construction defect. Ga. Code Ann (b) November 22, 2004 Page 2

3 STATE: HAWAII (effective date: July 1, 2004) Anyone asserting a claim for damages arising from a construction defect. Act of June 15, 2004, No. 119, 22nd State Legislature (to be codified as 1) Persons or entities engaged in the business of designing, manufacturing, supplying products, developing, constructing or selling dwellings. Act of June 15, 2004, No. 119, 22nd State Legislature (to be codified as 1) Written notice of claim required 90 days prior to filing suit or arbitration. Act of June 15, 2004, No. 119, 22nd State Legislature (to be codified as 3) Action shall be dismissed without prejudice unless the claimant's failure to comply is the result of the wrongful conduct of another party or circumstances beyond the claimant's control, or where an applicable statute of limitations would prevent re-filing (in which case the action shall immediately be stayed for up to six months). Act of June 15, 2004, No. 119, 22nd State Legislature (to be codified as 13) None. If an applicable statute of limitations or statute of repose would expire before a notice of claim has been served, the claimant may file an action, which action shall then be stayed pending compliance with the Act's procedures. Act of June 15, 2004, No. 119, 22nd State Legislature (to be codified as 8) If a subsequent judgment in the claimant's action or an arbitration award is not more favorable than the offer of settlement made by the respondent, then the claimant shall pay the costs incurred by the respondent following the offer. Act of June 15, 2004, No. 119, 22nd State Legislature (to be codified as 6) Act does not apply to claims for personal injury or death. Act of June 15, 2004, No. 119, 22nd State November 22, 2004 Page 3

4 Legislature (to be codified as 2) If the parties are unable to reach an agreement pursuant to the Act's requirements, the parties must attempt to resolve the dispute through mediation. Act of June 15, 2004, No. 119, 22nd State Legislature (to be codified as 7) STATE: MISSISSIPPI (effective date: July 1, 2004) Persons owning or purchasing a home, including subsequent purchasers. Miss. Code Builders. Miss. Code (a) Written notice within 90 days after knowledge of the claimed defect. Miss. Code If repairs are commenced or a civil action is filed without first complying with the provisions of the statute, the court shall dismiss the action without prejudice; action may not be refiled until required notice given. Miss. Code (3) If builder fails at closing to provide owner with written notice of the statute's requirements, homeowners' warranties shall be extended for a period of time equal to time between warranty commencement and date notice was given. Miss. Code None None Notice not required prior to commencing repairs necessary to mitigate damages. Miss. Code Civil action for breach of statutory warranties shall be commenced within 30 days after expiration of statutory warranty period. Miss. Code Statutory warranties are in addition to all common law remedies and contractual warranties. Miss. Code (2), November 22, 2004 Page 4

5 STATE: TENNESSEE (effective date: May 24, 2004) Owners, including subsequent purchasers, and tenants, of commercial property (including multi-unit residential buildings). Tenn. Chapt. 741, Public Acts 2004, Section 2(1), (2) Contractors, subcontractors, suppliers, and design professionals. Tenn. Chapt. 741, Public Acts 2004, Section 2(2) Claimant shall serve written notice prior to filing action, and shall endeavor to provide written notice within 15 days after discovery of the claimed defect. Tenn. Chapt. 741, Public Acts 2004, Section 4 Action shall be abated without prejudice until claimant has complied with Act. Tenn. Chapt. 741, Public Acts 2004, Section 3 Failure to comply is admissible in any action. Tenn. Chapt. 741, Public Acts 2004, Section 4(k) Claimant's written notice of claim tolls statute of limitations until the later of (1) 180 days after the respondent receives the notice, or (2) 90 days after the end of the agreed-upon repair period, unless the statute of limitations has been extended further by agreement. Tenn. Chapt. 741, Public Acts 2004, Section 4(l) None Act does not apply to actions for personal injury. Tenn. Chapt. 741, Public Acts 2004, Section 2(1) Act does not apply to necessary emergency corrections or repairs. Tenn. Chapt. 741, Public Acts 2004, Section 4(k) The original bill included residential property within its scope, and the synopsis to the Act as ultimately enacted still reads "AN ACT relative to procedures and requirements for notification and remedying construction defects in residential and commercial property." (emphasis added). However, residential property (other than multi-unit residential property) was deleted from the bill at some point. November 22, 2004 Page 5

6 Recent Builder Friendly Construction Act cases of note: Dima Homes, Inc. v. Stuart, 873 So. 2d 140 (Ct. App. Miss. 2004)(affirming award of cost of repairs of construction defect under Mississippi Act, since cost did not exceed purchase price of home and did not constitute "economic waste"). Desert Fireplaces Plus, Inc. v. Sunrise Ridge Homeowners Association, Inc., 97 P. 3d 607 (Nev. 2004)(Under Nevada Act, notice of claimed defects served on general contractor tolled statute of limitations for claims against third-party subcontractors even though not served with notice of claimed defects). High Valley Homes, Inc. v. Fudge, 2003 Tex. App. LEXIS 3273 (Ct. App. Tex. April 17, 2003)(RCLA's provisions for non-binding mediation did not preempt the parties' agreement to resolve disputes by binding arbitration or other ADR method). November 22, 2004 Page 6

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