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Builders consider liability plan

John Seelmeyer

Faced with skyrocketing premiums for

general liability insurance, the Builders

Association of Western Nevada last week

asked its members if they want to create

their own insurance program.

Homebuilders in particular have been

hard-hit by premium increases which

sometimes have run as high as 400 percent,

said Rick DeMar, executive officer of

the association. And that’s assuming they

can find coverage at all.

DeMar tells of one long-established

electrical contractor in the region who was

dropped by his insurance carrier after 15

years. The contractor’s insurance broker

was able to find only one carrier willing to

write a policy a policy carrying twice

the premium and half the benefit of the

contractor’s previous coverage.

“This is a crisis,” DeMar said.

One of the brokers who’s scrambling to

find coverage for his clients in the construction

business left no doubt who he

believes is to blame.

“The problem is a bunch of unscrupulous

ambulance-chasing attorneys are driving

the industry crazy,” said Larry Heuer,

owner and president of Heuer Insurance

Agency in Sparks.

New housing developments both

single- and multi-family projects have

been targets of lawsuits alleging construction

defects. General contractors and

subcontractors alike have found themselves

in court facing a laundry list of

claims, DeMar said. Insurance companies,

who ultimately pay those claims or face

the cost of investigating them, responded

with higher premiums and increased wariness

about taking on business in Nevada.

Even contractors with excellent claims

history, Heuer said, face at least 50 percent

premium increases for their general

liability coverage.

DeMar said, too, that subcontractors

increasingly are unwilling to bid residential

jobs for fear that they’ll be dragged

into a construction-defects lawsuit.

The Building Association of Western

Nevada is studying a self-insured liability

program and asked its members if they’re

willing to pay approximately $15,000 to

undertake a study to be completed by Pro

Group Management.

Even if the group decides to take on its

own general liability insurance effort, the

program probably won’t be in place for at

least 10 months, DeMar said.

“How many contractors are we going

to lose between now and then?” he asked.

In the meantime, builders groups and

the insurance industry will be headed to

the state Legislature to seek new legislation

on construction-defect lawsuits.

DeMar said builders want two things

from lawmakers a better definition of

“construction defect” and the right to

repair defects before a dispute goes to

court.

The legislative effort will be led by a

group called Coalition for Fairness in

Construction that includes building

groups as well as insurers.

Rita Nowak, who serves as assistant

vice president of property/casualty for the

Alliance of American Insurers, told a state

hearing in July that alternative methods of

resolving disputes would help reduce costly

litigation.

“Efforts should focus on bringing

insurers back into the contractor liability

marketplace by eliminating frivolous construction

defect litigation while providing

homeowners a tool to resolve such suits in

an expedient manner,” Nowak said at the

hearing called by the Nevada Department

of Insurance.

She said problems associated with construction

defect claims have arisen in

other states as well.

Because there’s little case law on the

subject, Nowak said courts have struggled

with the issue.

State Insurance Commissioner Alice

A. Molasky-Arman, who conducted the

hearing, said in a prepared statement last

Thursday that she believes tighter underwriting

standards by insurance companies

have been a factor in the construction

industry’s recent insurance problems. She

also acknowledged “frivolous consturction

defect legislation” as a cause.

She said that deficiencies in state law

have contributed to the problem, and she

said the construction industry may need

to better police those who don’t meet professional

standards.

Still, Molasky-Arman said the July

hearing presented insufficient evidence

that coverage was unavailable. And she

acknowledged that the situation requires

long-term solutions “which must be

addressed in areas outsidee the commissioner’s

jurisdiction.”

Even so, the insurance commissioner

ordered last week that a “Construction

Liability Clearing House” be established

to provde information about the availability

of insurance for residential builders.

She also asked the insurance industry

for help in forming a market assistance

program.

Molasky-Arman said she doesn’t

believe an essential insurance association

will be necessary to address the issue. She

said that wouldn’t deal with the underlying

causes of the current situation.

“Although there is overwhelming evidence

that the current insurance issues

facing the residential construction industry

are multi-faceted, an integrated apaproach

in finding long-term solutions is

more appropriate,” she said.