By Ari B. Pollack*
for New Hampshire Business Review
Since what seems like the beginning of time, homeowners and contractors have been locked in an eternal battle over construction quality, delays, craftsmanship and pricing. Ask any lawyer about residential construction litigation, and you will undoubtedly hear stories about expensive and emotional battles with too many losers and rarely a winner. Perhaps because this pot has finally boiled over, and perhaps because the timing was right for a change, the Legislature decided to step in.
Effective Jan. 1, 2006, homeowners and contractors will be required to follow a mandatory dispute resolution procedure before resorting to conventional litigation. This mandatory procedure requires that contractors and consumers of construction services educate themselves about the mechanics of the process and the parties’ respective obligations. This article highlights the key components, but is in no way intended as a full education.
The cornerstone of House Bill 469 (or RSA Chapter 359-G) is service of a “notice of claim.” The “notice” is to include the homeowner’s detailed description of the alleged defect, deficiency or condition being experienced. Service of the “notice of claim” requires that the homeowner temporarily forbear from prosecuting litigation against the contractor. If a conventional litigation has already been filed, it is stayed for up to 60 days pending completion of this “notice of claim” process. If suit has not been filed, participation in the “notice of claim” process stays the tolling of any application statute of limitations for up to 60 days.
A contractor’s receipt of the “notice of claim” triggers an obligation to respond. A contractor’s response can include an offer of settlement, a proposal to inspect the residence and/or alleged condition, or an outright rejection of the claim.
An offer of settlement accepted by the homeowner constitutes a legal and enforceable obligation upon the contractor. An offer of settlement rejected by the homeowner allows the homeowner to truncate the “notice” process and immediately proceed with conventional litigation.
Likewise, a failure to respond by the contractor also allows the homeowner to immediately proceed with conventional litigation.
A contractor’s proposal to inspect the residence must be considered by the homeowner. While the Legislature sought to encourage inspections as a further means of information-sharing, homeowners are not required to permit an inspection.
If the homeowner does elect to permit an inspection, and if the contractor believes that invasive testing of the alleged defect or residence would assist the fact gathering process, such testing may only proceed upon written authorization from the homeowner.
In the event of such testing, the contractor is obligated to return the residence to a condition as close as reasonably practicable to its pre-testing condition. If an inspection is denied, the contractor may reject the claim and force the homeowner to pursue traditional litigation.
Following an inspection, the contractor is again expected to respond to the homeowner. In addition, the contractor is required to disclose to the homeowner any substantive information gathered from the inspection. As with pre-inspection obligations, the contractor is also required to extend an offer of settlement or reject the claim.
A settlement offer may include an offer of cash, an offer to make repairs to the residence, or a combination of a cash payment and offer of repair. Either way, an accepted offer of settlement that is fulfilled by the contractor releases the contractor from continuing liability to the homeowner regarding the alleged claims. Similarly, should the contractor reject the claim or otherwise fail to respond to a homeowner, the homeowner may immediately proceed with conventional litigation.
In the event the “notice of claim” process fails to prevent the filing of litigation, HB 469 also includes a penalty for negotiating unreasonably. For example, if a homeowner rejects a settlement offer that is ultimately valued higher than an eventual judgment, the contractor is deemed to be the prevailing party. As the prevailing party, the contractor would be permitted to tax the “costs of litigation” against the homeowner. While the “costs of litigation” do not include attorney’s fees, they can add up to a significant amount.
The risk of reimbursing “costs” provides an obvious incentive for the homeowner to act reasonably and responsibly in considering an offer made by a contractor. Likewise, a contractor will be taxed with the “costs” of the litigation if the homeowner obtains a judgment in excess of a settlement offer and is found to be the prevailing party. For this reason, both homeowners and contractors have the incentive to extend and consider reasonable offers and realistic solutions.
While many disputes will still require resolution through conventional litigation, the Legislature believes that interaction between homeowners and contractors will promote information sharing and lead to reasonable resolutions of civil disputes. Of course, only time will judge the virtue of this “extra step.” In the interim, knowledge of this new process and compliance with its procedures are the responsibility of everyone.
*Ari B. Pollack is admitted in New Hampshire and Massachusetts.