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Jesus Gomez unloads roofing materials at the construction site of KB's Pinedale housing development in Summerlin. Local contractors say they've found it ever harder to find companies willing to underwrite insurance policies for residential developments. Photo by Steve Andrascik.

Wednesday, September 25, 2002
Copyright © Las Vegas Review-Journal

Insurance dearth roils contractors

Insurers chased off by litigiousness, companies say

The creation of a clearinghouse and a construction liability task force means nothing to Jim Gair when it comes to finding an insurer for his residential developments in Las Vegas.

"It isn't going to help us at all because all the underwriters that insure this market are pulling out of the market," Gair, president of J.M. Gair and Associates, said Monday. "If you're a residential contractor, they run away from you. I never thought I'd see this."

Gair said he now has insurance with Steadfast. But the company has decided not to renew any policies in Nevada, so he's forced to shop around for next year.

"My insurance broker told me, `Don't hold your breath.' They just will not insure residential, whether you're a subcontractor or a general."

Nevada Insurance Commissioner Alice Molasky-Arman heard testimony in July about the insurance problem facing the construction industry, mostly from residential contractors who said "frivolous" construction defect litigation has dried up their pool of insurers.

Major insurance companies such as Zurich and Steadfast, both headquartered in Schaumburg, Ill., have decided not to underwrite policies in Nevada, and when policies are available, they're at an exorbitant price, the contractors said.

The commissioner formed a clearinghouse earlier this month that gives contractors a central source to obtain insurance information, and she also asked the insurance industry to help form a market assistance program.

More recently, she announced the creation of a construction liability task force.

Steve Hill, elected chairman of the task force, said he's encouraged that the commissioner understands the severity of this issue and is working with Gov. Kenny Guinn to find solutions. Nevertheless, he said much remains to be accomplished at the legislative level.

"I think it's a noble effort, but what we're going to find is subcontractors in the construction industry that really cannot get insurance," Hill said. "What we're going to find out from the clearinghouse is how serious the problem really is."

Some of the construction trades hit hardest by lack of available insurance are roofers, framers and grading contractors, Hill said, because insurance companies are excluding subsidence -- when the ground settles and sinks to a lower level -- from their policy coverage.

"If the earth moves, you get cracks in the wall, roofs that aren't tight. Those type of things draw the most attention, so those contractors get the heat," Hill said.

The idea of a clearinghouse is to get all the information about the availability of insurance in one place, and Hill said it may help a few contractors who didn't know where to look or didn't know about insurers willing to write a policy for them.

"I've not heard of anybody taking advantage of that ruling," said Jim Widner, executive vice president for KB Home in Nevada. "From our side, I haven't heard anything from our subs. What we see is costs going up. Most companies are only doing renewals. They're not going out and writing new business."

Widner said he's heard of insurance costs that have doubled, even tripled and quadrupled, for trade-specific contractors such as roofers, framers, drywall and stucco companies.

"These costs just get passed on to us and to the cost of building a home," he said.

Gair said it hurts the affordability of housing in the valley because the consumer has to pay in the end.

Under the auspices of the insurance commissioner's Property and Casualty Advisory Committee, the liability task force will provide Gov. Kenny Guinn with periodic reports on its progress.

"The commissioner said we have a big problem affecting homeowners and the construction industry," Hill said. "Our job is to figure out the problems, what caused them and find a recommendation to suggest to the governor."

In her conclusion of findings, Molasky-Arman said there is insufficient evidence to say that liability insurance for residential contractors is unavailable in the voluntary market. Much to contractors' dismay, she did not call for a joint underwriting association, also known as an essential insurance association.

Instead, she ordered the establishment of a clearinghouse, which will start operating in October.

"A lot of insurance companies are going to wait and see what happens with the Legislature, but our feeling is they're gone for the next three to four years," said Doreen Coddington, president of the Nevada Subcontractors Association and owner of The Roofing Co. and Cedar Roofing in Las Vegas.

"They've pulled out of some of the higher-profile subs like framers and roofers and stucco. The problem is you can't get a job with a contractor if you don't have insurance."

She said her insurance cost has rocketed from $150,000 in 2000 to $800,000 last year. Her quote for this year is $1.3 million for coverage that excludes building condominiums and multifamily housing.

"This is a major problem for residents of the state," Coddington said.

Hill, president of Silver State Materials, is also chairman of the Coalition for Fairness in Construction, a group of home builders and industry associations lobbying for legislative change to allow them the right to repair construction defects before they go to litigation.

"Our goal is to restore common sense and reason to our wildly litigious environment," he said. "This problem threatens the livelihoods of thousands of Nevadans employed in the construction industry, and pushes the cost of new homes out of reach of working families across the state."