2015 Year In Review: Interesting Developments

Nevada: Nevada Overhauls Construction Defect Laws for Residential Construction

Nevada's construction defect laws - primarily NRS 40.600 et seq. -- have long been regarded as one (if not the) most plaintiff-friendly laws when seeking recovery for construction defects in residential construction. Plaintiff attorneys were virtually guaranteed recovery of their attorney fees, costs and expert costs which often far exceeded the actual cost to repair the alleged defect. NRS 40.600 et seq. also liberally defined what constituted a "constructional defect" and NRS 116.3102 granted homeowner associations standing to pursue claims on behalf of its unit owners. Moreover, a claimant could bring an action up to 12 years after substantial completion of an improvement and only had to provide minimal notice of the alleged deficiencies. For over a decade, multiple efforts to revise many of these statutory provisions failed.

For the first time in decades, Republicans swept to victory in the November 2014 election and gained control of the Nevada Legislature. As a result, combined with a Governor who identified construction defect reform as a "top priority", changes to Nevada construction defect laws were inevitable. With lighting speed (e.g. it was the first bill signed by the Governor during the 2015 legislative session) AB 125 made sweeping changes to NRS 40.600 et seq. and other statutes effective February 24, 2015.

Under Nevada's construction defect laws generally, before a homeowner can commence a civil action against a contractor, subcontractor, supplier or design professional for constructional defects, the homeowner must comply with certain pre-litigation requirements including providing notice of the defect to the contractor. Once notice issues to a contractor, it has 30 (after the date on which the contractor receives the notice), to forward the notice to all subcontractors, suppliers or design professionals associated with the construction of the residence or appurtenance. Subcontractors, suppliers and design professionals receiving the notice are required to inspect the alleged constructional defect and may elect to perform repairs. See NRS 40.645, 40.646, 40.647.

While NRS 40.600 et seq. and other statutes continue to provide a framework for actions involving claims for constructional defects, AB 125 significantly changed many provisions which will likely have a far reaching impact on construction defect litigation in Nevada. Some of the most significant changes are highlighted below.

SIGNIFICANT REVISIONS

Definition of "Constructional Defect"

Revisions to the definition of what constitutes a "constructional defect" represent one of the most significant changes. Under the prior law, a "claimant" simply had to establish the design, construction, manufacture, repair or landscaping of a new residence, or an alteration of or addition to an existing residence or appurtenance was: (1) done in violation of law including local codes or ordinances, (2) which proximately causes damage, (3) not completed in a good and workmanlike manner in accordance with industry standards, or (4) which represents an unreasonable risk of injury. Under this definition, a claimant could recover for "technical violations" without a showing of actual damage.

Under the new law, "constructional defect" is now defined as: (1) there is an unreasonable risk of injury to a person or property, or (2) the work or design was not completed in a good and workmanlike manner and proximately causes damage. [Emphasis added]. As a result, establishing that certain work or services was not performed in a good and workmanlike manner is no longer sufficient. A claimant must now establish it caused actual damage or it created an unreasonable risk of injury to a person or property. See NRS 40.615.

Recoverable Damages

Under NRS 40.655 in the prior statute, a claimant could recover a variety of damages including reasonable attorney's fees and costs and expert fees and costs related to the investigation of the allegedly defective conditions. Courts generally awarded all the attorneys fees, costs and expert costs claimed by the claimant. As a result, Plaintiff's attorneys were incentivized to bring questionable claims with little or no risk. It was not uncommon for the attorney fees and expert costs in a case to far exceed the cost of repair damages claimed by a claimant. This often resulted in absurd results when a subcontractor or design professional evaluated their potential damages exposure.

As revised, NRS 40.655 no longer expressly permits the recovery of attorney fees. Moreover, it limits the recovery of expert costs to the costs incurred related to constructional defects proven by the claimant. Also, NRS 40.655 clarifies that compliance with NRS 40.600 et seq. limits a claimant's recovery to the damages enumerated in NRS 40.655. The revisions to NRS 40.655 are significant inasmuch as spurious claims will likely be avoided for fear that attorney fees and expert costs may no longer be automatically recoverable.

Notice Requirements

AB 125 substantially changed what a claimant must include in its notice to the contractor prior to commencing litigation. As revised, NRS 40.645 requires the notice to:

State in specific detail, rather than in reasonable detail, each defect, damage and injury to each residence or appurtenance that is subject to the notice; State the exact location of each defect, damage and injury, rather than describe in reasonable detail the location of the defect; and Include a statement signed by the owner of the residence or appurtenance in the notice that the owner verifies that each defect, damage and injury exists in the residence or appurtenance. Under the prior statute, many attorneys for claimants issued vague, non-descript notices of alleged defects with little or no specificity. As a result, it was difficult, if not impossible, to determine whether repairs were warranted. Revisions to NRS 40.645 represent a clear intent by the legislature to force claimants to provide more detailed and verified notices. Moreover, the issuance of one notice on behalf of similarly situated homeowners of residences or appurtenances within a single development allegedly having common defects is no longer permitted.

Other Significant Changes

NRS 11.202 was revised to provide a statute of repose of six (6) years after substantial completion for all actions for damages caused by a deficiency in construction, planning or design of an improvement. As such, the new statute effectively eliminates the prior distinction of limitation of actions for patent defects (6 years), latent defects (8 years) and known defects (10) years and eliminates prior provisions permitting a claimant to bring a claim within 2 years of the injury if the injury was discovered in the last year. The new statute of repose applies retroactively to actions in which substantial completion of the improvement occurred before February 24, 2015. NRS 116.3102 previously provided that a homeowners' association could initiate or defend litigation in the name of the association and on behalf of two or more homeowners. AB 125 revised NRS 116.3102 whereby an association may not pursue...