Reforms to Construction Defect Litigation Signed Into Law in Nevada

By: Robert L. Thompson

On February 25, 2015, Governor Sandoval signed into law Assembly Bill 125 which significantly reforms Nevada's construction defect law statute, also known as "Chapter 40." The reforms to the statute have been an ongoing issue in previous legislative sessions over the past 10 years and will have a significant effect on subsequent construction defect litigation in Nevada.

Originally, the purpose of Chapter 40 was to prevent large scale construction defect litigation and frivolous lawsuits during the construction boom in Southern Nevada during the late 1990's and early 2000's. The law placed a requirement that before a homeowner could pursue litigation against a general contractor or subcontractor, they had to serve the contractor with a notice of alleged defects and allow the general contractor up to 90 days to come out and inspect and repair the defect. The original intent was obvious in that it gave the contractor a chance to fix the alleged defect rather than face a lawsuit and allow a quick remedy for the homeowner.

The problem with the statute became clear early on. First, just because a contractor agreed to repair alleged defects, did not mean the homeowner had to agree to accept the repair. In fact, the homeowner could declare that the repair was incomplete and then pursue litigation against the contractor for the original defect allegation and the defective repair. As such, attorneys for general contractors and subcontractors would often have to caution their clients on performing such repairs as to risk additional exposure in future litigation.

The second problem with Chapter 40 was its provision awarding homeowner attorney fees and expert costs. While this seemed like a generous provision at first, it quickly became abused by homeowner attorneys. Even if a contractor came out and performed repairs, they were still given a bill for the homeowner's attorney fees and any costs associated with hiring an expert to identify potential defects. Additionally, this practice was also abused frequently by attorneys who would sign on clients under the impression that they would pursue action for the original defect they complained about only to find out that the experts hired by the attorneys would make numerous (and often unsupported) allegations of defects on the property. For instance, a homeowner who complained about a roof leak and hired an attorney would learn that the attorney hired an architect, a civil engineer, and electrical contractor, and a geological engineer who would come up with over fifty new defect allegations that the homeowner never complained about in the past. These experts were often the same ones retained by the handful of law firms that based their business practice off of these lawsuits. The expert reports were generally the same for each house with the exception of changing the name and address on the report. This resulted is the homeowner being dragged into lengthy litigation which could take up to five years to resolve over issues they had not intended to pursue in the lawsuit.

Assembly Bill 125 provided major reforms to these practices. First, it revised the statute to require homeowners to first resolve any potential remedies with the contractors through any warranty provisions that were provided. In the past, homeowner attorneys would bypass this measure and just serve a Chapter 40 notice and then proceed to litigation (often within 2 years of the home being built). This will be beneficial to the homeowner because contractors generally have an entire department in their company to handle warranty claims and they can be resolved quickly. Second, the bill abolished the attorney fees and costs provision. Now, the homeowner will have to hire their own attorneys and experts, which will reduce the numerous amount of frivolous allegations that were often added to the original homeowner complaint. Finally, the statute reduced the time to bring a construction defect lawsuit from ten years to six years which is much more in line with Nevada's statute of limitations for other tort and contract actions.

With the elimination of the attorney fees and costs provision, the attorneys for the homeowners will be more inclined to only pursue litigation in clear cut cases where there are actual defect allegations. This is also in line with several other tort statutes in the country which require each side to bear their own attorney fees and costs. Furthermore, with the risk of litigation being reduced, attorneys for the contractors will be more inclined to advise them to go forward with making the repairs to any alleged defects. This end result will be the homeowner having the original defect repaired and the contractor avoiding years of large scale litigation. Essentially, Chapter 40 will be more in line with its original intent which was to ensure a quick and effective remedy for homeowners who have defect claims and reduce the amount of frivolous litigation.

Robert L. Thompson is an Associate with Kring & Chung, LLP's Las Vegas, NV office. He can be reached at (702)260-9500 or rthompson@kringandchung.com.

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