Big Changes To Nevada’s “Chapter 40” Construction Defect Statutes To Provide Some Relief For Contractors And Developers

Big Changes To Nevada’s “Chapter 40” Construction Defect Statutes To Provide Some Relief For Contractors And Developers

On February 24, 2015, Nevada Governor Brian Sandoval signed into law Assembly Bill No. 125, known as the “Homeowner Protections Act,” which made sweeping changes to Nevada’s construction defect statutes, as well as changes to the statute of repose applicable to construction defect claims. According to Governor Sandoval, the new law “discourages frivolous litigation and strengthens Nevada’s rebounding housing market.” Some of the more important changes include a new definition of a “construction defect.” In this regard, a construction defect will no longer include violations of building codes or ordinances, but will include work that “presents an unreasonable risk of injury to a person or property.”

Moreover, as part of the pre-lawsuit notice requirement, homeowners will be required to identify in “specific detail each defect, damage and injury” to the residence and the “exact location of each such defect, damage and injury.” In addition, homeowners will be required to be present at any pre-litigation inspections requested by the contractors or design professionals. Likewise, if homeowners rely on an expert opinion to support their notice of construction defects, then that expert must also attend the inspection and must identify “the exact location of each alleged construction defect for which the expert provided an opinion.”

Furthermore, a homeowner will not be allowed to pursue construction defect claims against a contractor until the homeowner “has first submitted a claim under the homeowner’s warranty [if one was purchased or provided] and the insurer has denied the claim.”

With respect to recoverable damages, homeowners will no longer be entitled to reasonable attorneys’ fees as a matter of course. Instead, any party may serve an “offer of judgment” on any other party, as outlined in the statute. If a party rejects an offer of judgment and fails to beat the offer, that party may be liable for reasonable attorneys’ fees and experts costs incurred by the offering party.

Additionally, the new law also changes how third-party claims are asserted against subcontractors. For example, a general contractor that is an additional insured under a subcontractor’s insurance policy must first pursue recovery of defense fees and costs under such policy before bringing an action against the subcontractor. This does not, however, prevent the general contractor from filing a third-party complaint against a subcontractor if the homeowner has already brought suit for construction defects arising out of the work performed by the subcontractor.

Finally, the time limitation for bringing a construction defect claim has changed. Previously, Nevada’s statutes of repose provided for varying time limitations within which construction defect claims could be brought, with ten years being the outer limit. Under the new law, no action may be commenced more than six years after substantial completion of an improvement to real property. Importantly, the six year limitation is retroactive to actions in which substantial completion occurred before the effective date of the new law, unless the action was commenced before February 24, 2014. However, the new six year limitation does not apply to claims for indemnity or contribution brought by developers or general contractors against subcontractors.

The amendments to “Chapter 40” will no doubt have a dramatic impact on construction defect litigation in Nevada. The new law appears to limit claims for construction defects to those defects that cause, or may cause, actual property damage, while also reducing the timeframe within which such claims may be brought. It also appears designed to avoid unsupported lawsuits by forcing homeowners and their experts to specifically identify alleged defects with particularity and to account for such allegations by being present for any pre-litigation inspections. Lastly, by eliminating an award of attorneys’ fees as an automatic part of any recovery by homeowners in favor of a fee shifting scheme based on offers of judgment, the amendments provide a more even handed procedure for resolving disputes between homeowners, general contractors and developers.

Blog by: Paul T. Landis