Report Title:

Relating to Construction Industry

Description:

Requires claimant of construction defect to notify contractor and give contractor opportunity to repair the construction defect prior to litigation or arbitration.

THE SENATE

S.B. NO.

2292

TWENTY-SECOND LEGISLATURE, 2004

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO THE CONSTRUCTION INDUSTRY.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The legislature finds, declares, and determines that Hawaii needs an alternative method to resolve legitimate construction disputes that would reduce the need for litigation while adequately protecting the rights of claimants. The legislature declares that an effective alternative dispute resolution mechanism in construction defect matters should involve the claimant filing a notice of claim with the construction professional that the claimant asserts is responsible for the defect and providing the construction professional with the opportunity to resolve the claim without litigation.

SECTION 2. The Hawaii Revised Statutes, is amended by adding a new chapter to be appropriately designated and to read as follows:

"CHAPTER

CONSTRUCTION DEFECT

§   -A Definitions. As used in this chapter, unless the context otherwise requires:

"Action" means any civil lawsuit or action or arbitration proceeding for damages or indemnity asserting a claim, in whole or in part, for damages or other relief caused by an alleged construction defect.

"Association" includes an "association of apartment owners" as defined in section 514A-3 and a "cooperative housing corporation" as defined in section 421I-1.

"Claimant" means anyone who asserts a claim concerning a construction defect.

"Construction defect" means a deficiency in, or a deficiency arising out of, the design, specifications, surveying, planning, supervision, or observation of construction, or construction of improvements.

"Contractor" means any person, firm, partnership, corporation, association, or other organization that is engaged in the business of designing, developing, constructing, or selling a dwelling or commercial, industrial, and hotel facilities.

"Dwelling" means a single-family house, duplex, or multifamily unit designed for residential use, in which title to each individual unit is transferred to the owner under a condominium or cooperative system, and shall include common areas and improvements that are owned or maintained by an association or by members of an association. A dwelling includes the systems, other components, improvements, other structures, or recreational facilities that are appurtenant to the house, duplex, or multifamily unit at the time of its initial sale, but not necessarily a part of the house, duplex, or multifamily unit.

"Service" means personal service or delivery by certified mail, return receipt requested, to the last known address of the addressee.

§   -B Action; dismissal without prejudice. If a claimant files an action in court or a claim in arbitration without first complying with the provisions of this chapter, on application by a party to the action, the court or arbitrator shall dismiss the action, without prejudice, and the action may not be refiled or resumed until the claimant has complied with the requirements of this chapter.

§   -C Notice and opportunity to repair. (a) In every action subject to this chapter, any claimant, no later than ninety days before filing an action against a contractor, shall provide service of written notice of claim on the contractor. The notice of claim shall state that the claimant asserts a construction defect claim or claims and is providing notice of the claim or claims pursuant to the requirements of this chapter. The notice of claim shall describe the claim or claims in reasonable detail sufficient to explain the nature of the alleged construction defects and the results of the defects, if known.

(b) Within thirty days after service of the notice of claim by claimant required in this section, each contractor that has received the notice of claim may serve on the claimant, and on any other contractor that has received the notice of claim, a written response to the claim or claims that either:

(1) Offers to settle the claim by monetary payment, the making of repairs, or a combination of both, without inspection; or

(2) Proposes to inspect the facility that is the subject of the claim.

(c) If the contractor wholly rejects the claim and will neither remedy the alleged construction defect nor settle the claim, or does not respond to the claimant's notice of claim within the time stated in this section, the parties shall attempt to settle the claim by nonbinding mediation. If the parties are unable to resolve the claim by nonbinding mediation, the claimant may bring an action against the contractor for the claims described in the notice of claim without further notice except as otherwise provided under applicable law.

(d) If the claimant rejects the settlement offer made by the contractor, the claimant shall serve written notice of the claimant's rejection to the contractor. The notice shall include the basis for the claimant's rejection of the contractor's proposal or offer. After service of the rejection, the parties shall attempt to settle the dispute or claim by nonbinding mediation. If the parties are unable to resolve the dispute or claim through mediation, the claimant may bring an action against the contractor for the claims described in the notice of claim without further notice except as otherwise provided under applicable law.

(e) If a proposal for inspection is made pursuant to this section, the claimant, within thirty days, shall provide the contractor and its subcontractors, agents, experts, and consultants prompt and complete access to the premises to inspect the premises, document any alleged construction defects, and perform any destructive or nondestructive testing required to fully and completely evaluate the nature, extent, and cause of the claimed defects and the nature and extent of any repairs or replacements that may be necessary to remedy the alleged defects. If destructive testing is required, the contractor shall give the claimant advance notice of such tests and, after completion of the testing, shall return the premises to its pre-testing condition. If any inspection or testing reveals a condition that requires additional testing to allow the contractor to fully and completely evaluate the nature, cause, and extent of the construction defect, the contractor shall provide notice to the claimant of the need for such additional testing, and the claimant shall provide access as set forth herein. If a claim is asserted on behalf of owners of multiple dwellings, or multiple owners of units within a multifamily complex, then the contractor shall be entitled to inspect each of the dwellings or units.

(f) Within fourteen days following completion of the inspection and testing pursuant to subsection (e), the contractor, subcontractor, supplier, or design professional may serve on the claimant:

(1) A written offer to fully or partially remedy the construction defect at no cost to the claimant. Such offer shall include a description of any additional construction necessary to remedy the defect described in the claim and an anticipated timetable for the completion of such construction;

(2) A written offer to settle the claim by monetary payment;

(3) A written offer including a combination of repairs and monetary payment; or

(4) A written statement that the contractor will not proceed further to remedy the defect.

(g) If the claimant accepts the contractor's offer made pursuant to subsection (f)(1) or (f)(2) and the contractor does not proceed to make the monetary payment or remedy the construction defect within the agreed timetable, the parties shall attempt to settle the dispute or claim by nonbinding mediation. If the parties are unable to resolve the dispute or claim through mediation, the claimant may bring an action against the contractor for the claims described in the notice of claim without further notice except as provided by applicable law. In that situation, the claimant may also file the contractor's offer and claimant's acceptance, and such offer and acceptance will create a rebuttable presumption that a binding and valid settlement agreement has been created and is enforcable by the court or arbitrator.

(h) If the claimant receives a written statement that the contractor will not proceed further to remedy the defect, the parties shall attempt to settle the dispute or claim by nonbinding mediation. If the parties are unable to resolve the dispute or claim through mediation, the claimant may bring an action against the contractor for the claims described in the notice of claim without further notice except as otherwise provided by applicable law.

(i) If the claimant rejects the offer made by the contractor to remedy the construction defect or to settle the claim by monetary payment or a combination of each, the claimant shall serve written notice of the claimant's rejection on the contractor. The notice shall include the specific factual and, if known, legal reasons for the claimant's rejection of the contractor's offer. If the claimant believes the contractor's settlement offer is unreasonable, the claimant shall set forth in detail all reasons why claimant believes the settlement offer is unreasonable. After service of the rejection, the parties shall attempt to settle the dispute or claim by nonbinding mediation. If the parties are unable to resolve the dispute or claim through mediation, the claimant may bring an action against the contractor for the claims described in the notice of claim without further notice except as otherwise provided by applicable law.

(j) If the claimant rejects a reasonable offer made as provided by this chapter or does not permit the contractor to repair the construction defect pursuant to an accepted offer of settlement, the claimant may not recover in a subsequent action an amount in excess of:

(1) The reasonable cost of the offered repairs that are necessary to cure the construction defect and that are the responsibility of the contractor; or

(2) The amount of the monetary settlement offered by the contractor, subcontractor, supplier, or design professional.

(k) Any claimant accepting the offer of the contractor to remedy a construction defect shall do so by serving the contractor with a written notice of acceptance within a reasonable period of time after receipt of the offer but no later than thirty days after receipt of the offer. If no response is served upon the contractor within the thirty-day period, then the offer shall be deemed accepted.

(l) If a claimant accepts a contractor's offer to repair a construction defect described in a notice of claim, the claimant shall provide the contractor and its subcontractors, agents, experts, and consultants prompt and unfettered access to the dwelling to perform and complete the construction by the timetable stated in the settlement offer.

(m) If, during the pendency of the notice, inspection, offer, acceptance, or repair process, an applicable statute of limitations period would otherwise expire, the claimant may file an action against the contractor, but such action shall be immediately abated pending completion of the notice of claim process described in this section. This section shall not be construed to:

(1) Revive a statute of limitations period that has expired prior to the date on which a claimant's written notice of claim is served; or

(2) Extend any applicable statute of limitation.

(n) After the sending of the initial notice of claim, a claimant and a contractor, by written mutual agreement, may alter the procedure for the notice of claim process described in this section.

(o) Nothing in this chapter shall be construed to prohibit the parties from engaging in direct communications in an attempt to resolve the claimant's notice of claim. If a claimant or contractor provides written notice to another party that the claimant or contractor is represented by an attorney for purposes of this chapter, all subsequent communications with the claimant or contractor pursuant to this section shall be with the claimant's or contractor's attorney, except that:

(1) The claimant's or contractor's attorney may permit communication directly with the attorney's client; and

(2) The claimant or contractor may be copied with all written communications required or permitted by this part that are sent to the claimant's or the contractor's attorney.

§   -D Additional construction defects; additional notice and opportunity to repair required. A construction defect that is discovered after a claimant has provided a contractor with the initial claim notice may not be alleged in an action until the claimant has given the contractor who performed the original construction:

(1) Written notice of claim regarding the alleged defect as required by section    -C; and

(2) An opportunity to resolve the notice of claim in the manner provided in section    -C.

§   -E Release; insurance. If a claimant accepts an offer made in compliance with this chapter and the contractor fulfills the offer in compliance with this chapter:

(1) The claimant thereafter shall be barred from bringing an action for the claim described in the notice of claim; and

(2) The contractor shall be deemed, for insurance purposes, to have been legally obligated to make the repairs or the monetary payment as if the claimant had recovered a judgment against the contractor in the amount of the cost of the repairs or the amount of the monetary payment.

§   -F Contract of sale; provisions. (a) Upon entering into a contract for sale, construction, or substantial remodel of a dwelling, the contractor shall provide notice to the owner of the dwelling of the contractor's right to resolve alleged construction defects before a claimant may commence litigation against the contractor. The notice shall be conspicuous and may be included as part of the contract.

(b) The notice required by section shall be in substantially the following form:

"HAWAII LAW CONTAINS IMPORTANT REQUIREMENTS YOU MUST FOLLOW BEFORE YOU MAY FILE A LAWSUIT OR OTHER ACTION FOR DEFECTIVE CONSTRUCTION AGAINST THE CONTRACTOR WHO CONSTRUCTED YOUR HOME. NINETY DAYS BEFORE YOU FILE YOUR LAWSUIT OR OTHER ACTION, YOU MUST SERVE ON THE CONTRACTOR A WRITTEN NOTICE OF ANY CONSTRUCTION CONDITIONS YOU ALLEGE ARE DEFECTIVE. UNDER THE LAW, A CONTRACTOR HAS THE OPPORTUNITY TO MAKE AN OFFER TO REPAIR AND/OR PAY FOR THE DEFECTS. YOU ARE NOT OBLIGATED TO ACCEPT ANY OFFER MADE BY A CONTRACTOR. THERE ARE STRICT DEADLINES AND PROCEDURES UNDER STATE LAW, AND FAILURE TO FOLLOW THEM MAY AFFECT YOUR ABILITY TO FILE A LAWSUIT OR OTHER ACTION."

§   -G Actions by associations. (a) A person shall not provide or offer to provide anything of value, directly or indirectly, to a property manager of an association or to a board member or officer of an association to induce the property manager, board member, or officer to encourage the association to file or discourage the association from filing a claim for damages arising from a construction defect.

(b) A property manager retained by an association shall not accept anything of value, directly or indirectly, in exchange for encouraging that association to file or discouraging that association from filing a claim for damages arising from a construction defect.

(c) A board member or officer of an association shall not accept anything of value, directly or indirectly, in exchange for encouraging that association to file or discouraging that association from filing a claim for damages arising from a construction defect.

(d) A person who knowingly violates subsection (a), (b), or (c) shall be guilty of a misdemeanor.

(e) An association may bring an action against a contractor to recover damages resulting from construction defects in any of the common elements or limited common elements of the common interest community only. The action may be maintained only after:

(1) The association first obtains the written approval of each unit's owner having an interest in the common elements or limited common elements that will be the subject of the action;

(2) A vote of the units' owners to which at least a majority of the votes of the members of the association are allocated;

(3) The board of directors of the association and the contractor have met in person and conferred in a good faith attempt to resolve the association's claim, or the contractor has definitively declined or ignored the requests to meet with the board of directors of the association; and

(4) The association has otherwise satisfied all of the requirements for a claimant prior to commencing an action as set forth in this chapter.

(f) At least three business days in advance of any vote to commence an action by an association to recover damages resulting from construction defects in any of the common elements or limited common elements of the common interest community, the attorney representing the association shall provide to each unit's owner a written statement that includes, in reasonable detail:

(1) The defects and damages or injuries to the common elements or limited common elements;

(2) The cause of the defects, if the cause is known;

(3) The nature and the extent that is known of the damage or injury resulting from the defects;

(4) The location of each defect within the common elements or limited common elements, if known;

(5) A reasonable estimate of the cost of the action or mediation, including reasonable attorney's fees and costs, expert fees, and the costs of testing; and

(6) All disclosures that a unit owner is required to make upon the sale of a unit.

(g) An association or an attorney for an association shall not employ a person to perform destructive tests to determine any damage or injury to a unit, common element, or limited common element caused by a construction defect unless:

(1) The person is licensed as a contractor pursuant to chapter 444;

(2) The association has obtained the prior written approval of each unit's owner whose unit or interest in the common element or limited common element will be affected by the testing;

(3) The person performing the tests has provided a written schedule for repairs;

(4) The person performing the tests is required to repair all damage resulting from the tests in accordance with applicable state laws and county ordinances;

(5) The association or the person so employed obtains all permits required to conduct the tests and to repair any damage resulting from the tests; and

(6) Reasonable prior notice and opportunity to observe the tests is given to the contractor against whom an action may be brought as a result of the tests.

(h) An association may commence an action only upon a vote or written agreement of the owners of the units to which at least a majority of the votes of the members of the association are allocated. In such a case, the association shall provide written notice to the owner of each unit of the meeting at which the commencement of an action is to be considered or action is to be taken at least twenty-one calendar days before the meeting.

(i) The board of directors of an association, without giving notice to the units' owners, may employ a contractor and other persons as are necessary to make immediate repairs to a unit or common element within the common interest community as are required to protect the health, safety, and welfare of the units' owners.

§   -H Miscellaneous. (a) Nothing contained in this chapter shall create any cause of action on behalf of any claimant or contractor.

(b) This chapter shall not affect a contractor's right to seek contribution, indemnity, or recovery against a subcontractor, supplier, or design professional for any claim made against a contractor by a claimant.

(c) No punitive damages may be awarded for any claim involving construction defects.

(d) This chapter shall not apply to any action for personal injury or wrongful death."

SECTION 3. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun, before its effective date.

SECTION 4. In codifying the new sections added by section 2 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

SECTION 5. This Act shall take effect upon its approval.

INTRODUCED BY:

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