Report Title:

Resolution of Construction Defect Claims

Description:

Sets forth: (1) the rights and requirements of claimants when bringing claims against contractors and design professional for construction defects; and (2) the contractors' and design professional's rights and requirements in response to claims regarding construction defects in certain residential dwellings.

THE SENATE

S.B. NO.

2885

TWENTY-SECOND LEGISLATURE, 2004

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO THE RESOLUTION OF CONSTRUCTION DEFECT CLAIMS.

 

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

SECTION 1. The prompt and fair resolution of construction defect claims is in the best interest of homeowners, claimants, contractors and design professionals, and is vital to the State's continuing growth and vitality. However, under current procedures and standards, homeowners, claimants, contractors, and design professionals, alike, are not afforded the opportunity for quick and fair resolution of construction defect claims. Both need clear standards and mechanisms for the prompt resolution of construction defect claims.

It is the intent of the legislature that this Act improve the procedures for the administration of civil justice, including standards and procedures for early disposition of construction defect claims.

SECTION 2. The Hawaii Revised Statutes is amended by adding a new chapter to title 36 to be appropriately designated and to read as follows:

"CHAPTER

CLAIMS AGAINST CONTRACTORS AND DESIGN PROFESSIONALS FOR CONSTRUCTION DEFECTS

-A Scope. The purpose of this chapter is to delineate the rights and requirements of a claimant to bring a claim against a contractor for a construction defect and the contractor's and design professional's rights and requirements in response to the claim.

-B Definitions. For purposes of this chapter:

"Action" or "claim" means any civil lawsuit or action or arbitration proceeding for damages or indemnity asserting a claim for injury or loss to a dwelling or personal property caused by an alleged defect arising out of or related to the design, construction, condition, or sale of a dwelling or the remodeling of a dwelling.

"Association" means persons who are homeowners acting as a group in accordance with the group's bylaws and declaration.

"Business registration division" means the State business registration division located in the department of commerce and consumer affairs.

"Claimant" means a person, including a subsequent purchaser or association, who asserts a claim against a contractor or design professional concerning a defect in the design, construction, condition, or sale of a dwelling, or the remodeling of a dwelling.

"Construction defect" means a deficiency in, or a deficiency arising out of, the design, specifications, materials, surveying, planning, supervision, or observation of construction, or remodeling that results from any of the following:

(1) Defective or substandard material, products, or components used in the construction of residential improvements;

(2) Violation of the applicable federal, state, and county codes in effect at the time of construction of residential improvements;

(3) Failure of the design of residential improvements to meet the applicable professional standards of care at the time of governmental approval of the design of residential improvements; or

(4) Failure to construct residential improvements in accordance with accepted trade standards for good and workmanlike construction at the time of construction. Compliance with the applicable federal, state, and county codes in effect at the time of construction shall conclusively establish construction in accordance with accepted trade standards for good and workmanlike construction, with respect to all matters specified in those codes.

"Contractor" has the same meaning as defined in section 444-1, Hawaii Revised Statutes.

"Department of commerce and consumer affairs" means the State department of commerce and consumer affairs.

"Design professional" means a person licensed in the State as a professional engineer, architect, landscape architect, or land surveyor.

"Dwelling" means a single-family house or 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, and improvements that are part of a single-family house or duplex or multifamily unit at the time of construction.

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

"Subcontractor" means a contractor or design professional who performs work on behalf of a contractor or design professional in the construction of a dwelling.

"Supplier" means a person who provides materials, equipment, or other supplies for the construction of a dwelling.

-C Filing of action; dismissal without prejudice. If a claimant files an action without first complying with the provisions of this chapter, on application by a party to the action, the court shall dismiss the action without prejudice and the action may not be refiled until the claimant has complied with the requirements of this chapter.

-D Personal injury and death claims. Nothing in this chapter shall apply to actions arising out of claims for personal injury or death.

-E Notice of construction defect. (a) Prior to filing a claim for a construction defect against a contractor or design professional, the claimant or the claimant's legal representative shall:

(1) Provide written notice via certified mail, overnight mail, or personal delivery to the contractor or design professional, in the manner prescribed in this section, of the claimant's claim that the claimant's dwelling contains a construction defect;

(2) Provide the claimant's name, address, and preferred method of contact to the contractor or design professional; and

(3) Describe the claim in reasonably sufficient detail to determine the nature and location, to the extent known, of the claimed defect.

In the case of a group of claimants or an association, the written notice shall comply with the requirements of paragraphs (1), (2), and (3), but the notice may identify the claimants solely by address or other description sufficient to apprise the contractor or design professional of the locations of the subject residences.

(b) The notice requirements of this section shall not preclude a claimant from seeking redress through any applicable provision provided in any contract, warranty, or other document provided by the contractor or design professional.

-F Contractor's and design professional's duties upon a request for information. (a) Upon a request for information from a homeowner, a contractor or design professional shall:

(1) Within thirty calendar days of a written request by a claimant or the claimant's legal representative, the contractor or design professional shall provide copies of all relevant plans, specifications, mass or rough grading plans, final soils reports, or available engineering calculations, and other relevant reports filed with public agencies that pertain to the claimant's dwelling specifically or as part of a larger development tract. The request shall state that it is being made relative to structural, fire safety, or soil concerns of the dwelling.

(2) Charge to the claimant reasonable copying costs of the documents provided in paragraph (1). A contractor or design professional may require that the documents be copied onsite by the claimant, provided that the claimant may, at the claimant's option, use a copying service, which may include an offsite copy facility that shows proof that it is bonded and insured.

(4) Act with reasonable diligence to assist the claimant in obtaining those documents from any applicable government authority or from the source that generated the document if a contractor or design professional can show that the contractor or design professional maintained the documents, but that they later became unavailable due to loss or destruction that was not the fault of the contractor or design professional or unrecoverable due to the passage of time. Upon showing that the contractor's or design professional's inability to maintain the documents was not the fault of the contractor or the design professional, the contractor or design professional may be excused from the requirements of this section and the time limits specified by this section shall not apply to this paragraph.

(b) At the expense of the claimant, who may opt to use an offsite copy facility that shows proof that it is bonded and insured, the contractor or design professional shall provide to the claimant or the claimant's legal representative copies of:

(1) All maintenance and preventative maintenance recommendations;

(2) All manufactured products maintenance, preventive maintenance, and limited warranty information; or

(3) All of the contractor's or design professional's limited contractual warranties in accordance with this chapter and in effect at the time of the original sale of the dwelling within thirty calendar days of a written request for those documents. Those documents shall also be provided to the claimant in conjunction with the initial sale of the dwelling.

(c) A contractor or design professional shall maintain the name and address of an agent for notice pursuant to this chapter with the department of commerce and consumer affair's business registration division; or, alternatively, elect to use a third party for that notice if the contractor or design professional has notified the claimant in writing of the third party's name and address, to whom claims and requests for information under this section may be mailed. The name and address of the agent or third party for notice shall be included with the original sales documentation and shall be initialed and acknowledged by the purchaser of the dwelling, and the contractor's sales representative or design professional.

This subsection shall apply to instances in which a contractor or design professional contracts with a third party to accept claims and act on the contractor's or design professional's behalf. A contractor or design professional shall give actual notice to the claimant that the contractor or design professional has made such an election and shall provide the claimant with the name and address of the third party.

(d) A contractor or design professional shall record on the title a notice of the existence of these procedures and a notice that these procedures impact the legal rights of the claimant. This information shall also be included with the original sales documentation and shall be initialed and acknowledged by the purchaser, and the contractor's sales representative or design professional.

(e) A contractor or design professional shall provide a purchaser of a dwelling with the original sales documentation, and a copy of this chapter which shall be initialed and acknowledged by the purchaser, and the contractor's sales representative or design professional.

(f) A contractor or design professional shall instruct the purchaser of the dwelling to provide all documents provided in conjunction with the original sale to any subsequent purchaser.

(g) Any contractor or design professional who fails to comply with any of the requirements in this chapter within the time periods specified shall not be entitled to the protection of this chapter, and the claimant shall be released from the requirements of this chapter and may proceed with the filing of an action in court against the contractor or design professional.

-G Contractor's or design professional's acknowledgment of notice. (a) A contractor, design professional, their agent shall acknowledge in writing the receipt of the notice of a construction defect claim within fourteen calendar days after receipt of the notice of the claim.

(b) If the notice of the claim is served by the claimant's legal representative, or if the contractor or design professional receives a written representation letter from the claimant or the claimant's attorney, the contractor or design professional shall include the claimant or the claimant's attorney in all subsequent substantive communications including without limitation all written communications occurring pursuant to this chapter, and all substantive and procedural communications, including all written communications, following the commencement of any subsequent complaint or other legal action; provided that if the contractor or design professional has retained legal counsel to assist the contractor in this process, all communications by the contractor's or design professional's legal counsel shall only be with the claimant's legal representative.

-H Claimant's release from requirements. If a contractor or design professional:

(1) Fails to acknowledge receipt of the notice of a construction defect claim within the time periods specified in this chapter;

(2) Elects not to go through the process set forth in this chapter; or

(3) Fails to request an inspection within the time specified, or at the conclusion or cessation of an alternative nonadversarial proceeding,

this chapter shall not apply, and the claimant shall be released from the requirements of this chapter and may proceed with the filing of an action against the contractor.

-I Contractor's or design professional's inspection of defect. (a) If a contractor or design professional elects to inspect the claimed construction defect, the contractor or design professional shall complete the initial inspection and testing of the defect within fourteen calendar days after acknowledging receipt of the notice of the claim, at a mutually agreeable date and time between the claimant, and the contractor or design professional.

(b) If the claimant has retained legal representation, the inspection shall be scheduled with the claimant's legal representative at a mutually convenient date and time.

(c) All costs of inspection and testing of the defect, including any damage caused by the contractor's or design professional's inspection, shall be borne solely by the contractor. Prior to the beginning of the inspection and testing of the defect, the contractor or design professional shall provide written proof to the claimant or the claimant's legal representative that the contractor or design professional has liability insurance to cover any damages or injuries, which may occur during the inspection and testing.

(d) The contractor or design professional shall restore the property to its pretesting condition within forty-eight hours of the testing. The contractor or design professional shall, upon request, allow the inspections to be observed and electronically recorded, videotaped, or photographed by the claimant or the claimant's legal representative.

(e) Nothing that occurs during a contractor's or design professional's or claimant's inspection or testing of the defect shall be used or introduced as evidence to support a spoliation defense by any potential party in any subsequent litigation.

(f) If a contractor or design professional deems a second inspection or testing is reasonably necessary, and specifies the reasons in writing within three calendar days following the initial inspection, the contractor or design professional may conduct a second inspection or testing at a mutually agreeable date and time. A second inspection or testing shall be completed within twenty calendar days of the initial inspection or testing. All requirements concerning the initial inspection or testing shall also apply to the second inspection or testing.

(g) If the contractor or design professional fails to inspect or test the property within the time periods specified in this section, the claimant shall be released from the requirements of this chapter and may proceed with the filing of an action against the contractor or design professional.

(h) If a contractor or design professional intends to hold another contractor, a subcontractor, design professional, individual product manufacturer, material supplier, insurer, warranty company, or service company responsible for its contribution to the construction defect, the contractor or design professional shall:

(1) Provide notice to that person or entity sufficiently in advance to allow them to attend the initial, or if requested, second inspection of any alleged construction defect standard and to participate in the repair process; and

(2) Notify the claimant and the claimant's legal representative, if any, within ten calendar days in a reasonable time prior to the inspection of the identity of all persons or entities invited to attend;

provided that this subsection shall not apply to the contractor's or design professional's insurer.

Except with respect to any construction defect claims involving a subsequent repair actually conducted under this chapter, nothing in this subsection shall be construed to relieve a contractor, subcontractor, design professional, individual product manufacturer, material supplier, insurer, warranty company, or service company of any liability under an action brought by a claimant.

-J Offer to repair. (a) Within fourteen calendar days of the initial or, if requested, second inspection or testing, the contractor or design professional may offer in writing to repair the alleged construction defect.

(b) The offer to repair shall also compensate the claimant for all applicable damages within the timeframe for the repair set forth in this chapter.

(c) Any such offer shall be accompanied by a detailed, specific, step-by-step statement identifying the particular construction defect that is being repaired, explaining the nature, scope, and location of the repair, and setting a reasonable completion date for the repair.

(d) The offer shall also include, if any, the names, addresses, telephone numbers, and license numbers of the contractors or design professionals whom the contractor or design professional intends to have perform the repair. Those contractors or design professionals shall be fully insured for, and shall be responsible for, all damages or injuries that they may cause during the repair. Evidence of the contractors' or design professionals' insurance shall be provided to the claimant upon request.

(e) Upon written request by the claimant or the claimant's legal representative, and within the timeframes set forth in this chapter, the contractor or design professional shall also provide any available technical documentation, including without limitation plans and specifications, pertaining to the claimed construction defect within the particular dwelling. The offer shall also advise the claimant in writing of the claimant's right to request up to three additional contractors or design professionals from which to select to do the repair pursuant to this chapter.

-K Response to offer to repair. (a) Upon receipt of the offer to repair described in section -J, the claimant shall have thirty calendar days to authorize the contractor or design professional to proceed with the repair.

(b) The claimant may alternatively request, at the claimant's sole option and discretion, that the contractor or design professional provide the names, addresses, telephone numbers, and license numbers for up to three alternative contractors or design professionals who are not owned, related to, or financially controlled by the contractor or design professional and who regularly conduct business in the county where the dwelling is located.

(c) If the claimant so elects, the contractor or design professional shall be entitled to an additional noninvasive inspection, to occur at a mutually agreeable date and time within twenty calendar days of the election, so as to permit the other alternative contractors to review the dwelling and alleged construction defect.

(d) Within fourteen calendar days after the request of the claimant for alternative contractors or design professionals, the contractor or design professional shall present the claimant with a choice of alternative contractors or design professional. Within twenty calendar days after that presentation, the claimant shall authorize the contractor or design professional or one of the alternative contractors or design professionals to perform the repair.

-L Offer to mediate. (a) The offer to repair shall also be accompanied by an offer to mediate the dispute if the claimant so chooses.

(b) The mediation shall be limited to four hours of mediation, except as otherwise mutually agreed to between the claimant, and the contractor or design professional before a nonaffiliated mediator selected and paid for by the contractor or design professional.

(c) At the claimant's sole option, the claimant may agree to split the cost of the mediator, and if the claimant does so, the mediator shall be selected jointly.

(d) The mediator shall have sufficient availability such that the mediation occurs within fifteen calendar days after the request to mediate is received and occurs at a mutually agreeable location within the county where the dwelling is located.

(e) If a contractor or design professional has made an offer to repair an alleged construction defect and the mediation has failed to resolve the dispute, the claimant shall allow the repair to be performed either by the contractor or design professional, the claimant's contractor or design professional, or one of the alternative contractors or design professional.

-M Claimant's release from requirements. (a) If the contractor or design professional fails to make an offer to repair or otherwise strictly comply with this chapter within the times specified, the claimant shall be released from the requirements of this chapter and may proceed with the filing of an action against the contractor or design professional.

(b) If the contractor or design professional performing the repair does not complete the repair in the time or manner specified, the claimant may file an action against the contractor or design professional.

-N Repair. (a) If a resolution under this chapter involves a repair by the contractor or design professional, the contractor or design professional shall make an appointment with the claimant, make all appropriate arrangements to effectuate a repair of the claimed construction defect, compensate the claimant for all damages resulting therefrom, and repair the construction defect free of charge to the claimant. The repair shall be scheduled with the claimant or through the claimant's legal representative, if any, unless the legal representative is unavailable during the relevant time periods. The repair shall be commenced on a mutually agreeable date and time within fourteen calendar days of acceptance; or if an alternative contractor or design professional is selected by the claimant, within fourteen calendar days of the selection; or if a mediation occurs, within seven calendar days of the mediation; or within five calendar days after a permit is obtained if one is required; provided that the contractor or design professional shall act with reasonable diligence in obtaining any such permit.

(b) The contractor or design professional shall ensure that work done on the repairs is done with the utmost diligence and in accordance with appropriate trade standards, and that the repairs are completed as soon as reasonably possible. Every effort shall be made to complete the repair within sixty calendar days of the commencement of the repair.

-O Recordation of contractor's or design professional's activities. The contractor or design professional shall, upon request, allow the repair to be observed and electronically recorded, videotaped, or photographed by the claimant or the claimant's legal representative. Nothing that occurs during the repair process may be used or introduced as evidence to support a spoliation defense by any potential party in any subsequent litigation.

-P Copies of materials regarding repair. The contractor or design professional shall provide to the claimant or the claimant's legal representative within seven calendar days of a written request, copies of all correspondence, photographs, and other materials pertaining or relating in any manner to the repairs.

-Q Election of partial repair. If the contractor or design professional elects to repair some, but not all of, the alleged construction defects, the contractor or design professional shall, at the same time it makes its offer, set forth with particularity in writing the reasons, and the support for those reasons, for not repairing all of the claimed construction defects.

-R Failure to timely repair. If the contractor or design professional fails to complete the repair within the time agreed to by the claimant or specified by this chapter, the claimant shall be released from the requirements of this chapter and may proceed with the filing of an action against the contractor or design professional.

-S Prohibition against obtaining release or waiver from claimant. The contractor or design professional shall not obtain a release or waiver of any kind in exchange for the repair work mandated by this chapter. At the conclusion of the repair, the claimant may proceed with filing an action against the contractor or design professional for violating the provisions of this chapter or for a claim of inadequate repair, or both.

-T Statute of limitations. (a) If the applicable statute of limitations has otherwise run during the process described in this chapter, the time period for filing a complaint or other legal remedies for violation of any provision of this chapter, or for a claim of inadequate repair, shall be extended from the time of the original claim by the claimant to one hundred calendar days after the repair is completed, whether or not the particular alleged construction defect is the one being repaired.

(b) If the contractor or design professional fails to acknowledge the claim within the time specified in this chapter, elects not to go through the process described in this chapter, or fails to request an inspection within the time specified in this chapter, the time period for filing a complaint or other legal remedies for violation of any provision of this chapter shall be extended from the time of the original claim by the claimant to forty-five calendar days after the time for responding to the notice of claim has expired.

-U Cash offer by contractor or design professional. (a) Nothing in this chapter shall prohibit the contractor or design professional from making only a cash offer, and not an offer to repair, to the claimant. In this situation, the claimant is free to accept the offer, or the claimant may reject the offer and proceed with the filing of an action against the contractor.

(b) The contractor or design professional may obtain a reasonable release in exchange for the cash payment. The contractor or design professional may negotiate the terms and conditions of any reasonable release in terms of scope and consideration in conjunction with a cash payment under this chapter.

-V Time requirements; stay. (a) The time periods and all other requirements in this chapter shall be strictly construed, and unless extended by the mutual agreement of the parties in accordance with this chapter, shall govern the rights and obligations under this chapter. If a contractor or design professional fails to act in accordance within the timeframes mandated in this chapter, unless extended by the mutual agreement of the parties as evidenced by a postclaim written confirmation by the affected claimant demonstrating that the claimant has knowingly and voluntarily extended any applicable timeframe, the claimant may proceed with filing an action against the contractor or design professional.

(b) If the claimant does not conform to the requirements of this chapter, the contractor or design professional may bring a motion to stay any subsequent court action or other proceeding brought by the claimant against the contractor or design professional until the requirements of this chapter have been satisfied. The court, in its discretion, may award the prevailing party on such a motion, attorney's fees and costs in bringing or opposing the motion.

-W Subsequently discovered construction defects. (a) Subsequent to the initial discovery of an alleged construction defect, claims arising from newly discovered construction defects shall be administered separately under this chapter unless otherwise agreed to by the parties.

(b) In the case of a single family dwelling, if the subsequently discovered claim is for a defect that's substantially similar to a construction defect claim that is already been initiated by the claimant and the subject of a currently pending action, the claimant need not reinitiate the process as to the subsequent claim.

(c) In the case of a duplex or multi-family unit, if the subsequently discovered claim is for a construction defect that is substantially similar to a construction defect claim for a connected component system in the same building that has already been initiated by another claimant and the subject of a pending action, the new claimant need not reinitiate this process as to the subsequently discovered claim.

-X Application of chapter. (a) This chapter shall apply only to new dwellings originally sold on or after the date of enactment of this Act.

(b) Except as otherwise provided in this chapter, no other cause of action for a construction defect claim covered by this chapter shall be allowed. In addition to the rights under this chapter, this chapter does not apply to any action by a claimant to enforce a contract or express contractual provision, or any action against a contractor for fraud, personal injury, or violation of federal, state, or county laws or rules.

(c) As to claims involving a single-family dwelling, the claimant's right to the reasonable value of repairing any construction defect shall be limited to the repair costs, or the diminution in current value of the dwelling caused by the construction defect, whichever is less.

-Y Limitation on claims for damages. If a claim for damages is made under this chapter, the claimant shall only be entitled to damages for:

(1) The reasonable value of repairing any construction defect;

(2) The reasonable cost of repairing any damages caused by the repair efforts;

(3) The reasonable cost of repairing and rectifying any damages resulting from the failure of the dwelling to meet applicable federal, state, or county requirements;

(4) The reasonable cost of removing and replacing any improper repair by the contractor or design professional;

(5) Reasonable relocation of the complainant because of the construction defect;

(6) Storage expenses incurred by the complainant because of the construction defect;

(7) Lost business income, if the dwelling was used as a principal place of a business;

(8) Reasonable investigative costs for each established construction defect; and

(9) All other costs or fees recoverable by contract or federal, state, or county law or rule.

-Z Affirmative defenses. (a) A contractor or design professional may be excused, in whole or in chapter, from any obligation, damage, loss, or liability under this chapter if the contractor or design professional can demonstrate any of the following affirmative defenses in response to a claimed construction defect:

(1) To the extent it is caused by an unforeseen act of nature which caused the construction defect and prevented the dwelling from meeting construction specifications. For purposes of this paragraph, an "unforeseen act of nature" means a weather condition, earthquake, or manmade event such as war, terrorism, or vandalism, in excess of the design criteria expressed by the applicable building codes, rules, and ordinances in effect at the time of original construction;

(2) To the extent it is caused by a claimant's unreasonable failure to minimize or prevent those damages in a timely manner, including the failure of the claimant to allow reasonable and timely access for inspections and repairs under this chapter. This includes the failure to give timely notice to the contractor or design professional after discovery of an alleged construction defect, but does not include damages due to the untimely or inadequate response of a contractor or design professional to the claimant's claim;

(3) To the extent it is caused by the claimant or the claimant's agent, employee, subcontractor, independent contractor, or consultant by virtue of their failure to follow the contractor's, design professional's, or manufacturer's recommendations, or commonly accepted homeowner maintenance obligations. To rely upon this defense as it relates to a contractor's or design professional's recommended maintenance schedule, the contractor shall show that the claimant had written notice of these schedules and recommendations, and that the recommendations and schedules were reasonable at the time they were issued;

(4) To the extent it is caused by the claimant or the claimant's agent's or an independent third party's alterations, ordinary wear and tear, misuse, abuse, or neglect, or by the dwelling's use for something other than its intended purpose;

(5) To the extent that the time period for filing actions bars the alleged construction defect;

(6) To the extent the contractor or design professional has obtained a valid release from the claimant for the alleged construction defect; or

(7) To the extent that the contractor's or design professional's repair was successful in correcting the particular defect.

(b) As to any causes of action to which this section does not apply, all applicable affirmative defenses shall be preserved."

SECTION 3. This Act shall not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun prior to the effective enactment date of this Act.

SECTION 4. If any provision of this Act, or the application thereof to any person or circumstances is held invalid, the invalidity shall not affect other provisions or applications of the Act which can be given effect without the invalid provision or application, and to this end the provisions of this Act shall be severable.

SECTION 5. 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 6. This Act shall take effect upon its approval.

INTRODUCED BY:

_____________________________

BY REQUEST