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.