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Builders take concrete steps to reduce construction defect suits

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They may be stylishly designed and loaded with amenities, but like any product, new homes and condominiums have their share of flaws. From leaky roofs to floors that sag, creak or allow water to pool, construction defects happen. And when they do, it's not only the homeowners who suffer -- builders can pay a hefty price too.

Poway-based Quality Built -- a company that helps builders analyze and control risk in new residential construction projects -- recently released the results of a survey of construction defects based on data its inspectors collected while examining 31,995 completed homes and condominiums across the United States in 2005.

According to information on the company's Web site, the survey found single-family homes averaged $5,398 in corrected defects per home in 2005 while condominium and mixed-use projects averaged $4,556 in corrected defects. It also identified key construction problems, which included building paper and housewrap installation flaws, missing fire-rated materials at electrical device boxes and improper framing around windows and doors.

Such problems are not only expensive to fix, they also have helped make new homebuilders and sub-contractors prime targets for lawsuits in recent years. In California, the increased threat of construction defect lawsuits forced insurers to raise their rates to the point that some sub-contractors were either driven out of business or driven out of the state.

"The primary problem with litigation in construction defect cases is the cost of insurance, which has skyrocketed for the last 15 years, particularly for developers, general contractors and sub-contractors involved in large multi-family construction projects," said John Simpson, a partner with Simpson Delmore Green who defends builders in construction defect cases.

Roger Haerr, a partner in the San Diego office of Luce Forward who practices construction law, agrees that the high cost of insurance is a major obstacle for local builders and sub contractors.

"The lack of reasonably priced insurance that provides sufficient coverage and protection from construction defect claims is a significant challenge," he said.

In recent years, new homebuilders and others in California have taken action to slow down the flood of construction defect lawsuits, reduce risk for insurers and improve customer satisfaction. The approval of California's SB 800 law, or "Fix It" law, for example, is considered by many to be an important step in the right direction.

The law has been in effect since the beginning of 2003 and gives builders the right to respond to homeowner complaints and try to repair problems before homeowners can take them to court. While some say it's too soon to tell how successful SB 800 will actually be as owners of new homes often don't file claims until after living in a home for several years, others say it's already having a positive effect.

"It was a big challenge for builders to get SB 800 passed," Simpson said. "It benefits builders and plaintffs because they can fix a home rather than deal with the expense and inconvenience of a lawsuit. I think it's helped a lot -- builders are now a bit better protected and can go to the customer and try to get problems settled."

Another step many builders are taking to reduce lawsuits is to hire independent inspectors such as Quality Built to catch and fix problems during construction before they have a chance to become major defects.

"Builders have really made dramatic improvements in the last few years in their ability to catch mistakes," Simpson said. "It's challenging when you've got 40 or 50 trades working in homes to watch and catch all mistakes. Third party inspectors seem to do a good job of catching things that will result in a better project and help builders avoid being involved in a lawsuit."

According to Haerr, builders can also help protect themselves from lawsuits by getting knowledgeable counsel on risk management as early as possible in the building cycle, from the first stages of the planning a project through the completion of construction and beyond.

Haerr said he thinks some construction defect lawsuits could be avoided if new homeowners did a better job of following the maintenance guidelines provided upon the purchase of their homes.

"Too often a problem resulting from deferred maintenance is disguised as a construction defect claim," Haerr said. "Just like a car, a home needs regular maintenance to stay in good condition."

Another simple but sometimes overlooked step builders can take to prevent lawsuits is to provide good customer service. While many have become better at making customer satisfaction a priority in the last few years, Simpson said it's an area some still tend to neglect.

"They sometimes forget how important it is to provide customer service and don't do enough to help homeowners with problems, which may drive some consumers to lawyers," he explained.

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