Nevada's construction defect law was originally designed to help contractors and homeowners resolve their differences without resorting to litigation. Unfortunately, its real-world application has led to a confusing process full of traps for the unwary contractor. If you ignore them, short deadlines and strict notification requirements can leave you unable to defend yourself against a homeowner's claims even if you didn't perform the defective work.
NRS Chapter 40 applies to general contractors and subcontractors, suppliers and design professionals, commercial buildings and residential. I've represented people on every side of the claim process, from general contractors to homeowners, and I have seen contractors make the same mistakes over and over again. This guide won't prevent a baseless claim against you, but it will help ensure your rights are protected if and when a claim arrives.
Before a claim begins
As a contractor, your first defense against the pain of a construction defect claim is the right kind of insurance protection. Look over your insurance policy to verify your coverage for construction defect claims. Insurance companies have paid huge settlement amounts over the past several years in northern Nevada, which has led to them being much more conservative in their policy writing. I have met many contractors who paid insurance premiums for years, only to discover after a claim was filed that they didn't have coverage.
Review what types of claims your policy covers. Construction defect claims are often brought several years after the home was completed; does your current policy cover work that you did before it was in effect? For work that you are doing right now, make sure that your policy will also cover claims brought in the future. Insurance policies can ambush unsuspecting contractors, with your current policy denying coverage for work that you did years ago and your old policy denying claims brought after its coverage expired.
Be aware of the pitfalls that come with high deductibles. Insurance policies with high deductibles may seem more cost-effective right now, but you might be throwing your money away on insurance that doesn't actually protect you from construction defect claims. Insurance companies will often treat each home in a construction defect claim as a separate claim, requiring you to meet the high deductible for each separate home before they will get involved. As construction defect cases frequently include multiple homes, you may be required to spend hundreds of thousands of dollars before your insurance will do anything to help you. Talk to your insurance broker and your attorney now, before there has been a claim filed, to make sure you aren't paying for a policy that won't protect you when you need it.
Maintain complete and accurate records of the work you do. Nevada law requires you, as a contractor, to notify your subcontractors or material suppliers of a construction defect claim very quickly after you receive it. Digging through unorganized and incomplete records, especially several years after a project was finished, can be very time-consuming for you and your employees. Even worse, if you are missing records from a previous job and can't prove who did what on a certain house, you could be stuck paying for defective work performed by one of your subcontractors or suppliers. The best way to combat these problems is to keep your records complete and organized so you are prepared for any claim that might come your way.
Once a claim is filed
In Nevada, a construction defect claim begins when the property owner (or her attorney) mails a defect notice to a contractor; this notice will include a list of the defects claimed to exist at the property. When you receive this notice, there are a few key steps you should take right away.
Contact your insurance company and your attorney immediately. Insurance policies often require you to notify the company as soon as you receive a claim, and they could deny coverage if you wait too long. Your attorney will help you keep on track with deadlines and make sure that you don't miss any important legal requirements.
Put together a list of all contractors, subcontractors, suppliers, or design professionals who may be responsible for the claimed defects. NRS 40.646 requires you to send the defect notice to them within 30 days of you receiving it from the property owner. This is a very strict and unforgiving deadline; if you miss it, you could be liable for defective work performed by someone else. Be sure to send notice to everyone who could have been involved with the claimed defective work, even if you don't agree with the claim or know if the work was actually defective. Nevada law also has specific requirements about what is included in the notice you send to the subcontractors, suppliers, and design professionals and the way that it is mailed, so you will be much better off having your attorney send the notice for you instead of trying to do it on your own.
Inspect the property and think about repairing the claimed defects. After the notice is sent, you have the right to inspect the claimed defects and repair them if you choose to do so. Repairing the defects, if you are able to, is a good way for you to avoid the expense and headache of a lawsuit. However, make sure you talk to your insurance company before doing any work on the property and get written confirmation that they are okay with you performing repairs; insurance companies can be reluctant to approve repairs because they're concerned about creating additional liability for the new work.
The key to dealing with a construction defect claim is to act quickly. Ignoring a claim won't make it go away, but it will make it much harder for you to defend yourself later on.
Courtney Forster is an associate at Gunderson Law Firm in Reno. Contact her at cforster@gundersonlaw.com or 775-829-1222.
