Legislature(2003 - 2004)
05/13/2003 08:07 AM Senate JUD
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 151-DWELLING DESIGN/CONSTRUCTION CLAIMS
REPRESENTATIVE KEVIN MEYER, sponsor of HB 151, told members that
the bill provides homeowners and construction professionals with
a process to solve construction issues on new homes or major
remodels. It requires homeowners to provide written notice to
the construction professional at least 90 days prior to
litigation. If a homeowner's complaints have not been resolved
in a timely manner, the homeowner may proceed to litigation. He
pointed out that most complaints are handled verbally, but, for
those situations that are not easily resolved, this formal
process is being created. Both parties will sign a contract that
explains the process before any work begins.
REPRESENTATIVE MEYER said that under HB 151, the homeowner would
have one year from the date of the discovery of a defect to
proceed with a complaint. However, a homeowner cannot exceed the
current 10-year statute of limitations. He said this legislation
is important for several reasons. In Alaska, contractors and
homebuilders are required to carry general liability insurance.
Many insurance companies no longer provide general liability
insurance and the insurance that is available is very expensive.
The rising cost of insurance is often passed on in the price of
new homes. This problem is not unique to Alaska. Six other
states that are experiencing a housing boom have passed similar
legislation. He said this bill creates a win-win situation for
the homeowner and the homebuilder. He has heard no negative
comments about the bill. He said three conforming amendments
were made on the House floor. Because of those amendments, the
Senate Labor and Commerce Committee adopted a committee
substitute to make necessary changes. He recommended the Senate
Labor and Commerce committee substitute be considered as the
working document before the committee. He offered to answer
questions.
CHAIR SEEKINS affirmed that committee members were considering
the Senate Labor and Commerce committee substitute, labeled
Version B.
SENATOR ELLIS asked how a consumer would receive notice of the
one-year time limit in which to take action.
REPRESENTATIVE MEYER provided an example of a contract and an
attached explanation that informs the homeowner of the process.
SENATOR ELLIS asked if the explanation is clear and obvious.
REPRESENTATIVE MEYER said it is and that one of the amendments
made on the House floor required that the explanation of the
process be put on a separate page.
SENATOR OGAN referred to the language on page 6, line 16, of SCS
CSHB 151(L&C) that reads, "Within one year of the discovery of a
design, construction, or remodeling defect,..." and asked if
that essentially provides a one-year warranty on a house.
REPRESENTATIVE MEYER said the ten-year statute of limitation on
a home would still be in effect. The language Senator Ogan
referred to says that once a homeowner detects a problem, the
homeowner has up to one year to notify the builder of the
problem and then the process starts. He said more than likely, a
homeowner will notify the builder right away and will not wait
up to one year.
SENATOR OGAN said that proving a homeowner knew of a problem for
less than a year would be difficult. He asked what this law does
to change the current system.
REPRESENTATIVE MEYER said currently, if a homeowner detects a
problem, the homeowner could go directly to litigation and, to
avoid court costs, the parties often settle out of court.
SENATOR OGAN asked if the objective of this bill is to force the
homeowner to try to remedy the situation before going to court.
REPRESENTATIVE MEYER said, "Exactly." He said he believes the
homebuilder merely wants the opportunity to fix the problem. He
said he would characterize SCS CSHB 151(L&C) as a consumer
protection bill because it contains a formal process so that if
a homeowner is forced to litigate, the homeowner can show what
steps he or she took to address the problem. In addition, the
homebuilder will be highly motivated to correct the problem to
avoid litigation.
SENATOR ELLIS said one of the driving concerns of homebuilders
is the rising cost of insurance. He asked what representations
the insurance carriers in the state have made about their future
plans to reduce rates or maintain rates to justify the changes
that SCS CSHB 151(L&C) will make.
REPRESENTATIVE MEYER said that homebuilders say this bill "will
stop the bleeding." Their insurance rates are out of control.
Insurance companies have indicated that if some process is put
in place to try to control the costs, the rates will not
continue to accelerate as they have. He said he does not know
for sure whether it will stop any increase, but it will stop the
accelerated increase.
SENATOR ELLIS said he plans to support the legislation and hopes
for the best. He asked Representative Meyer to follow insurance
rates over the next few years to see if the increases slow down.
REPRESENTATIVE MEYER said he would do so and that the
homebuilders believe this bill will keep costs down.
VICE-CHAIR OGAN took public testimony.
MS. ROBIN WARD told members that nationwide insurance companies
and not Alaska companies write insurance policies. Those
companies have said that an indication of a stabilized market
will be legislation in the majority of states across the nation.
She just returned from Washington, D.C., where she worked with
representatives of the other 49 states to achieve some
legislation in each state.
VICE-CHAIR OGAN asked Ms. Ward whom she represents.
MS. WARD said she is the co-chair for legislative affairs for
the Alaska State Homebuilders' Association (ASHA). She then told
members that ASHA is trying to make itself more attractive to
nationwide insurers. ASHA is also working on better warranties,
better contracts, and safety programs. She said this legislation
is one very important component and Alaska is one "cog in the
wheel" in the nation. She said this legislation would help;
there are examples in other states where builders and buyers
have gone to court in which the buyer was more interested in
money than having the repairs done. When a homeowner submits an
insurance claim, the insurance company usually pays it without
managing it. She appreciated members' support of this
legislation and offered to answer questions.
VICE-CHAIR OGAN asked Ms. Ward if the problem is due to an
insurance crisis in general or if insurance carriers are pulling
out of Alaska.
MS. WARD said the problem is a combination of both. In addition,
the problem is partially due to timing. Insurance companies
never realized the claims in this business because they were
making a lot of money on investments. Now, they are going back
to their actuarial [tables] to look at their business profit
centers. Homebuilders' insurance policies are not one of those
profit centers because of a lot of construction litigation. She
said that only two carriers would write liability insurance
policies for homebuilders. One of the major carriers, State
Farm, is completely pulling out of homebuilder insurance in
Alaska. She said for homebuilders who can find a carrier, a
policy costs from two to ten times more.
VICE-CHAIR OGAN asked Ms. Ward if she believes this legislation
would help mitigate the decline in the number of insurance
carriers.
8:25 a.m.
MS. WARD said she does. She said ASHA is working with
representatives in Montana, Idaho, Wyoming and Washington State
to attract more carriers to the region. Those states have less
litigation than California, Arizona and other areas.
VICE-CHAIR OGAN asked the average insurance cost for a general
contractor.
MS. WARD said about $500 per house. She said the latest quotes
she received from two carriers in Alaska would increase that
amount to $3,000 per house.
VICE-CHAIR OGAN asked if an owner-builder would be required to
have insurance.
MS. WARD stated, "This will be mandated by a licensed
contractor. We're hoping that everyone will do it, including the
owner-builder." She said the reality is that owner-builders
often turn around and sell their homes to make extra money
because they are allowed to build one per year without a
license.
MR. RICHARD TILLY, representing the Interior Alaska Building
Association, a group of 190 builders, vendors, and suppliers in
Fairbanks, stated support for SCS CSHB 151(L&C). He said
securing liability insurance for homebuilders has become a very
expensive proposition. His company of 22 years requested quotes
from seven nationwide companies and found only one that was
willing to offer a quote. The insurance industry has claimed
that homebuilders are a risk and has been pulling out of the
state. He said this legislation creates a win-win situation for
the consumer, builder and the insurance industry. He pointed out
his insurance rates rose 20 percent last year and 22 percent
this year and he has never filed a single claim in 22 years.
MR. ALAN WILSON, a Juneau builder and the second co-chair of
ASHA's legislative affairs committee, told members that ASHA has
been working on this bill for over one year. ASHA met with
representatives of other states to hear their experiences with
similar legislation. Early reports from builders in Arizona show
the process is working well there. Homeowners are more
comfortable using the process to resolve issues. Builders are
responding to issues that are usually small but that could
become major. He said he believes this approach will be a breath
of fresh air from the consumers' perspective. He said that
insurance companies are in the business to make money so it is
not worthwhile to fight claims for up to $60,000. Homebuilders
have found that fraudulent individuals file claims for high
amounts when the cost of repair might be $5,000. They hope this
legislation will bring those activities to an end.
With no further participants, VICE-CHAIR OGAN closed public
testimony.
SENATOR FRENCH said his concern was addressed at the last
hearing, that being that this legislation effectively places a
roadblock between the consumer and the court. He said it appears
as though the roadblock is minimal and he believes it is a
reasonable compromise and should provide a better method to
resolve disputes.
SENATOR FRENCH then moved SCS CSHB 151(L&C) from committee with
individual recommendations and attached fiscal notes.
VICE-CHAIR OGAN announced without objection, the motion carried.
He then announced a brief at-ease.
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