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  Home-Defect Bill Signed

Home-defect bill signed

Law's backers hope it will spur building of condos.

By Andrew LePage -- Bee Staff Writer
Published 2:15 a.m. PDT Saturday, September 21, 2002

Starting next year, new-home buyers will have less time to sue builders for certain
construction defects, but they will no longer have to wait for a defect to cause damage or

Backers of a bill signed Friday by Gov. Gray Davis also hope it will spur more construction
of affordable housing, especially condominiums.

Scott Levine, an attorney who helped negotiate the bill on behalf of Consumer Attorneys of
California, said the bill ensures homeowners can sue builders for serious defects that
haven't yet caused damage -- a right buyers lost two years ago after a state Supreme
Court ruling.

"There are more serious defects homeowners can go after a builder for without waiting for
their home to fall in on them," Levine said.

However, the new law will only apply to homes sold after Jan. 1, 2003, meaning existing
law will continue to apply to homes purchased before Jan. 1.

The bill, SB 800, was backed by the home-building industry and its traditional foe, the trial
lawyers. Written by Senate President Pro Tem John Burton, SB 800 reflects years of
negotiations and, ultimately, compromise.

Under existing law, an owner has 10 years to sue the builder for hidden defects, such as
structural problems, that cause damage. Current law also says that once owners discover a
defect causing damage they have four years to sue.

Under SB 800, the statute of limitations on bringing suit will vary between one and 10 years
from the date of purchase. Owners still will have 10 years to sue for some of the most
serious defects, such as structural or safety problems.

The bill also provides the first definition in state law of what constitutes a construction
defect and gives builders the right to try to fix problems before an owner can sue. If a
dispute persists, mediation must precede litigation.

By reducing the number of lawsuits, the state Building Industry Association contends, SB
800 will result in the construction of more condos, traditionally the state's most affordable
homes. The number of condos built in the state has dropped dramatically over the past 15
years, while prices of single-family homes have risen steeply.

Builders have long alleged that many construction-defect complaints are frivolous, while the
state's trial lawyers blame shoddy construction. In any case, lawsuits have resulted in
scores of multimillion-dollar settlements that have caused insurers to either stop selling or
raise the price of the policies contractors need to build condos.

The building industry and some politicians involved in getting the new law passed contend it
will spur more companies to offer insurance. If so, more competition could help lower
insurance costs and ignite more condo construction.

But many in the insurance industry counter that SB 800 is just a single step in the right
direction, not the solution to their most serious problems with condos. The fix, they say, is
new legislation that would limit how much subcontractors can be held liable for other
subcontractors' negligence, or for the negligence of the general contractor.

Insurers also stress that SB 800's provisions apply only to homes sold after Jan. 1; it does
nothing to reduce their loss exposure related to policies sold for condos built over the past

Dan Dunmoyer, president of the Personal Insurance Federation of California, said that over
time SB 800 could help his industry if it reduces defect litigation. But he doesn't see instant

"We're not going to jump right back in the market when we've lost so much money," he
said. "We're taking a cautious approach until there's a track record."

While his and another insurance group supported SB 800, another, the Alliance of American
Insurers, was vehemently opposed.

AAI contends the bill includes an "onerous list of actionable defects that go far beyond
existing case law" and creates strict new construction standards the building industry
probably can't meet.

"The bill is a Trojan Horse designed to lure the builders into a voluntary remediation
program that they cannot possibly satisfy," contends Pete Gorman of AIA. "(The bill)
ensnares them in new tort liabilities. ... It is one of the most cynical pieces of legislation I
have seen in the last decade of lobbying insurance law in Sacramento."

But Tim Coyle, a lobbyist with the state Building Industry Association, insists SB 800 is the
first step in eliminating the risk that's driven insurers out of the condo market.

"It will take some time for them to adjust and get to know this thing and experience some
loss history on it before they conclude whether this is what they need," Coyle said, adding
his group will work with the insurance industry on additional legislation next year.

"That's why I'm not calling this (SB 800) a monumental accomplishment -- there's more
work to do," Coyle said.

About the Writer

The Bee's Andrew LePage can be reached at (916) 321-1065 or


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