HBA-DMD C.S.H.B. 1455 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 1455 By: Goodman Civil Practices 4/23/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE Currently, the Residential Construction Liability Act (Section 27.001, Property Code) requires homeowners to provide notice of specific complaints to the builder, who has 45 days to inspect the alleged defects and make an offer of repair or settlement. If the parties proceed to suit without repairs, the amount of damages which are recoverable depends on the reasonableness of the builder's original offer. There are two damage measures, one which applies if the builder's offer was reasonable, and one which applies if the builder's offer was not reasonable. C.S.H.B. 1455 sets forth the scope of this chapter and establishes reasons for which a contractor is not liable for the cost of repairs. This bill provides penalties for filing a frivolous suit. This bill also requires the claimant to provide evidence of residential construction defects, and establishes a mediation process for resolving disputes. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Sections 27.001(2) and (3), Property Code, to add to the existing definitions of "construction defect" and "contractor." Makes conforming and nonsubstantive changes. SECTION 2. Amends Section 27.002, Property Code, to establish that this chapter applies to any subsequent purchaser of a residence who files a claim against a contractor. Redesignates portions of text from Subsection (a) to Subsection (b) and redesignates Subsection (b) to Subsection (c). Makes conforming changes. SECTION 3. Amends Section 27.003(a), Property Code, as follows: (a) Provides that a contractor is not liable in an action to recover damages resulting from a construction defect, if an assignee of the claimant or a person subrogated to the rights of a claimant fails to provide the written notice to the contractor required by Section 27.004(a) before performing repairs, for the cost of any repairs or any percentage of damages caused by repairs, made at the request of an assignee of the claimant or a person subrogated to the rights of a claimant by a person other than the contractor or an agent, employee, or subcontractor of the contractor. SECTION 4. Amends Chapter 27, Property Code, by adding Section 27.0031, as follows: Sec. 27.0031. FRIVOLOUS SUIT; HARASSMENT. Establishes that a party is liable to the defendant for reasonable and necessary attorney's fees and court costs, if the party files a suit that is groundless under this chapter and brings a suit in bad faith or for the purposes of harassment. SECTION 5. Amends Sections 27.004(a), (b), (d), (f), (h), (i), and (k), Property Code, and by adding Subsection (p), as follows: (a) Requires a claimant, on the request of the contractor, to provide to the contractor any evidence that depicts the nature and cause of the defect and the nature and extent of repairs necessary to remedy the defect, including expert reports, photographs, and videotapes, if that evidence would be discoverable under Rule 192 (Permissible Discovery: Forms and Scope; Work Product; Protective Orders: Definitions), Texas Rules of Civil Procedure. (b) Provides that the offer must be sent to the claimant at the claimant's last known address or to the claimant's attorney by certified mail, return receipt requested. (d) Requires the court to abate a suit governed by this chapter, rather than section, provided that Subsection (c) does not apply and after a hearing, the court finds that the contractor is entitled to an abatement because the claimant failed to provide the notice or to give the contractor a reasonable opportunity to inspect the property, rather than because notice was not provided, as required by Subsection (a). Provides that a suit is automatically abated without the order of the court beginning 11 days after a plea in abatement is filed provided that the plea in abatement is verified and alleges that the person against whom the suit is pending was not given a reasonable opportunity to inspect the property as required by Subsection (a). (f) Prohibits a claimant who unreasonably rejects an offer from recovering an amount greater than the reasonable cost of the offered repairs which are necessary to cure the construction defect and which are the responsibility of the contractor; or the amount of a reasonable monetary settlement offer made under Subsection (n). Makes conforming changes. (h) Authorizes the claimant, in a suit subject to this chapter, to recover only the reasonable costs of repairs necessary to cure any construction defect, including any engineering or consulting fees required to evaluate and cure the construction defect, that the contractor is responsible for repairing under this chapter, except as provided by Subsection (f). Deletes text authorizing the claimant, in a suit subject to this chapter, to recover only the reasonable costs of repairs necessary to cure any construction defect that the contractor failed to cure. (i) Prohibits the total damages awarded in a suit subject to this chapter from exceeding the claimant's purchase price for the residence or the current fair market value of the residence without the construction defect, whichever is greater. (k) Requires the trier of fact to determine the reasonableness of an offer of settlement, rather than the reasonableness of a rejection of an offer, made under this section. (p) Provides that, if the contractor provides written notice of a claim for damages arising from a construction defect to a subcontractor, the contractor retains all rights of contribution from the subcontractor if the contractor settles the claim with the claimant. SECTION 6. Amends Chapter 27, Property Code, by adding Section 27.0041, as follows: Sec. 27.0041. MEDIATION. (a) Authorizes a claimant who is seeking damages from a contractor, arising from a construction defect, in an amount greater than $7,500, or the contractor to file a motion to compel mediation of the dispute no later than 90 days after the suit is filed. (b) Requires the court, no later than 30 days after the motion is filed under Subsection (a), to order the parties to mediate the dispute and if the parties cannot agree on the appointment of a mediator, the court is required to appoint the mediator. (c) Requires the court to order the parties to begin mediation of the dispute no later than 30 days after the court enters its order under Subsection (b), unless the parties agree otherwise or the court determines additional time is required. Authorizes the court, upon determining that additional time is required, to order the parties to begin mediation of the dispute no later than 60 days after the court enters its order under Subsection (b). (d) Requires each party to participate in the mediation and contribute equally to the cost of the mediation, unless each party who has appeared in the suit filed under this chapter agrees otherwise. (e) Sets forth that Section 154.023 (Mediation), Civil Practice and Remedies Code, and Subchapters C (Impartial Third Parties) and D (Miscellaneous Provisions), Chapter 154 (Alternative Dispute Resolution Procedures), Civil Practice and Remedies Code, applies to a mediation under this section to the extent those laws do not conflict with this section. SECTION 7. Amends Section 27.005, Property Code, to provide that this chapter does not create a cause of action or derivative liability, rather than this chapter does not create an implied warranty, or extend a limitations period. SECTION 8. Amends Chapter 27, Property Code, by adding Section 27.007, as follows: Sec. 27.007. DISCLOSURE STATEMENT REQUIRED. (a) Specifies the language that must be provided in a written contract that is subject to this chapter in a location next to the signature lines in the contract that must be printed or typed in 10-point boldface or the computer equivalent. (b) Authorizes the claimant to recover from the contractor a civil penalty of $500 in addition to any other remedy provided by this chapter, if a contract does not contain the notice required by this section. SECTION 9. (a) Effective date: September 1, 1999, except as provided by Subsection (b). (b) Effective date: September 1, 2000, for Section 27.007, Property Code, as added by this Act. (c) Makes application of a contract subject to Chapter 27, Property Code, as amended by this Act, prospective. SECTION 10.Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE This substitute differs form the original bill in SECTION 2 (Section 27.002, Property Code), by removing the specification that this chapter applies to any action to recover damages resulting in whole or in part from a construction defect, thus providing that this chapter applies to any action to recover damages resulting from a construction defect. This substitute differs form the original bill in SECTION 3 (Section 27.003, Property Code), by removing the claimant from a list of persons whose failure to provide the written notice of the construction defects to the contractor before performing repairs makes the contractor not liable for the cost of any repairs made to a construction defect. This substitute makes a conforming change. This substitute differs form the original bill in SECTION 4 (proposed Section 27.0031, Property Code), by providing that a party is liable to the defendant for reasonable and necessary attorney's fees and court costs, if the party files a suit that is groundless under this chapter and brought, rather than or brought, in bad faith or for the purposes of harassment. This substitute differs from the original bill in SECTION 5 (Section 27.004, Property Code), as follows: This substitute includes the specification in Subsection (a) that on request of the contractor, the claimant is required to provide to the contractor, rather than is required to include with the notice, any evidence that depicts the nature and cause of the defect and the nature and extent of repairs necessary to remedy the defect, including expert reports, photographs, and videotapes, if that evidence would be discoverable under Rule 192 (Permissible Discovery: Forms and Scope; Work Product; Protective Orders: Definitions), Texas Rules of Civil Procedure, and by removing the specification that this applies to a suit filed under this chapter. This substitute adds to existing Subsection (b), to provide that the written offer of settlement must be sent to the claimant at the claimant's last known address or to the claimant's attorney by certified mail, return receipt requested. In Subsection (f), the substitute replaces the language in existing law that was amended in the original bill relating to prohibitions against a claimant, if a claimant unreasonably rejects an offer of settlement, rather than if a claimant rejects a reasonable offer of settlement. This substitute also does not amend Subsection (g), which was amended in the original bill, which specified the subsections for limitations on damages and defenses to liability which do not apply, rather than shall not apply, if a contractor fails to make a reasonable offer under this section, or fails to make a reasonable attempt to complete the repairs specified in an accepted offer made under this section, or fails to complete, in a good and workmanlike manner, the repairs specified in an accepted offer made under this section. This substitute also amends existing Subsection (h), by authorizing the claimant, in a suit subject to this chapter, to recover only the reasonable costs of repairs necessary to cure any construction defect, including any engineering or consulting fees required to evaluate and cure the construction defect, that the contractor is responsible for repairing under this chapter, except as provided by Subsection (f). This substitute also deletes text authorizing the claimant, in a suit subject to this chapter, to recover only the reasonable costs of repairs necessary to cure any construction defect that the contractor failed to cure. This substitute also adds proposed Subsection (p), to provide that, if the contractor provides written notice of a claim for damages arising from a construction defect to a subcontractor, the contractor retains all rights of contribution from the subcontractor if the contractor settles the claim with the claimant. This substitute differs from the original bill by adding new SECTION 7 (Section 27.005, Property Code), to set forth that this chapter does not create a cause of action or derivative liability, rather than an implied warranty, or extend a limitations period. This substitute differs from the original bill by adding new SECTION 8 (Section 27.007, Property Code), to specify the language to be provided in a written contract that is subject to this chapter in a location next to the signature lines in the contract that must be printed or typed in 10-point boldface or the computer equivalent. This substitute also authorizes the claimant to recover from the contractor a civil penalty of $500 in addition to any other remedy provided by this chapter, if a contract does not contain the notice required by this section. This substitute differs from the original bill by redesignating the effective date and prospective clause from SECTION 7 of the original bill to SECTION 9 of the substitute. SECTION 9 of this substitute also changes the effective date from September 1, 1999 for the entire Act, to except Section 27.007, Property Code, as added by this Act, for which the effective date is September 1, 2000. This substitute makes application of a contract, rather than a contract for services, subject to Chapter 27, Property Code, as amended by this Act, prospective. This substitute also redesignates the emergency clause from SECTION 8 of the original bill to SECTION 10 of the substitute.