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.
