A Change in the Political Wind
A shift in control after recent elections brings changes to construction defect in Nevada
By Phil Gusman
A change in Nevada’s political winds brought with it changes to the construction-defect litigation landscape. AB421, signed by Gov. Steve Sisolak in June, rolls back some of the homebuilder-supported reforms passed in 2015.
After a “red wave” in the 2014 elections, Republicans found themselves in control of both the Senate and Assembly in Nevada. In addition, Republican Brian Sandoval was governor. In 2015, Republican control of the state government bore fruit for homebuilders when they were able to get AB125 passed.
Speaking on a judges’ panel at the 2019 CLM Construction Conference, Judge Susan Johnson, 8th Judicial District Court of Nevada, noted how quickly the bill wound its way through the legislature: She said it was signed into law less than 20 days after it was read for the first time, and it became effective immediately. She noted that the “contractors came to the legislature and the homeowners’ lawyers stayed home,” as the bill was introduced and passed.
David Simons, vice president and assistant general counsel in the legal department at KB Home, speaking on an earlier panel at the CLM Construction Conference, praised the 2015 bill for delivering much-needed reforms. Most significantly, he said, “We eliminated entitlement to attorneys’ fees.”
Some other changes in AB125 included:
- A requirement that claimants—and any experts who provide opinions about alleged defects—identify in “specific detail” each defect, damage, and injury. They also had to state the exact location of each defect, damage, and injury, rather than describe in “reasonable detail” the location of the defect.
- A requirement that claimants and any experts who provided an opinion on alleged defects be present during an inspection and identify the exact locations of the alleged defects.
- Prohibiting a claimant from filing notice or pursuing a construction-defect claim unless the claim has already been submitted and denied under the homeowner’s warranty.
- A six-year statute of repose for all actions for damages caused by a deficiency in the construction of an improvement to real property. This replaced a more complicated statute of repose in which timeframes varied (10 years for a known deficiency, eight years for a latent deficiency, and six years for a patent deficiency).
- A provision preventing homeowners associations from pursuing construction defect claims on behalf of themselves or unit owners unless the claim “pertains exclusively to the common elements of the association.”
Simons called AB125 a “very significant” bill, noting an improved litigation profile in the state following its passage. He also said customers retained enough avenues of recourse so that they were not harmed by the bill, and he said there was no significant backlash from customers in the years since it became effective.
Change in Power
Elections in 2016 and 2018 transferred control of the governorship and both houses of the legislature to the Democrats. Both Simons and Judge Johnson, in their respective panels at CLM’s Construction Conference, noted the political power shift in Nevada as a factor in the introduction and passage of 2019’s AB421, which rolled back some of the AB125’s reforms. Johnson noted the longer timeline for the bill compared to 2015’s AB125. AB421 was read for the first time March 25 and was signed on June 3.
Some changes made by AB421 include:
- Claimants commencing an action must identify in “reasonable detail” each defect, damage, and injury as opposed to “specific detail.”
- Removal of the requirement that an expert proving an opinion on alleged construction defects must be present at an inspection.
- A claimant no longer must exhaust all avenues through his homeowner’s warranty before filing notice or pursuing a construction-defect claim. AB421 substitutes the term “builder’s warranty” for “homeowner’s warranty,” and clarifies that a builder’s warranty is not “insurance.” The bill requires a claimant to “diligently pursue” a claim under the builder’s warranty.
- The statute of repose is extended from six years to 10 years after substantial completion.
- An easing of some limitations on homeowners associations’ ability to pursue construction-defect claims.
Some key parts of 2015’s AB125 were preserved. As one significant example, Simons said, “Thankfully, we were able to fight off the thing that I care a lot about: attorneys’ fees.”
Judge Johnson had begun discussing AB421 in response to a question at CLM’s Construction Conference regarding any new laws, statutes, or regulations that had an impact on the courtroom in each judge’s jurisdiction. Johnson specifically talked about AB421’s statute-of-repose change. Due to the increase from six to 10 years, Johnson said, “I envision we’re going to be seeing litigation after” the bill becomes effective (Johnson’s comments were delivered on Sept. 27, 2019, and AB421 became effective on Oct. 1, 2019). She added that rumors she heard from the plaintiff’s bar indicated that the defense would start receiving notices after Oct. 1 and that litigation would probably start after the first of the year.
Ultimately, AB421 represented a victory for the trial bar, but the message from Simons was that the revisions were not as bad for homebuilders as they could have been. Indeed, the version of the bill that passed was more limited in its changes than the version that was initially introduced.