Letter from a Coalition of Homeowners Organizations Urging Opposition to H.R. 2366, the Small Business Liability Reform Act
April 15, 2000
United States Senate
This letter is being written to ask your help to defeat H.R. 2366 and S. 1185. The "Small Business Liability Reform Act" is a disaster in the making for the consumer. Speaking on behalf of millions of home owners with defective and substandard new homes, we encourage you to please help defeat these bills. HomeOwners for Better Building and the undersigned consumer organizations were formed because of the lack of builder regulation and the erosion of consumer protection laws for home buyers in recent years.
Home Building is not a "small business" since a home is the largest purchase most consumers make in a lifetime. Home Builders can have very high earnings but fewer than 25 employees because they rely on subcontractors, which would qualify them as a small business under both bills. Therefore, the definition of "small business" should be changed in these bills. The applicable standard should be a "Dollar Standard," as opposed to a "25 Employee Standard" to define a small business. Even the smallest builder cannot be classified as a "small business" under a "dollar standard" definition.
These bills have an arbitrary liability cap of $250,000 for punitive damages and yet in many areas of the country, such as California and New Jersey, most homes exceed $250,000. The liability of Home Builders should not be reduced and capped while homes continue to increase in price. Soon, the average price of a home will exceed $250,000 while Home Builder liability will remain limited under these bills.
Even worse, these bills raise the standard the homeowner must meet to recover punitive damages to "clear and convincing evidence." And the homeowner must show that their builder's behavior was either willful misconduct or was with a conscious, flagrant indifference to the safety of others. Considering the crucial importance of the safety of homes, please consider that these bills actually protect the home builders whose negligence and even recklessness cause preventable harm. If either of these bills are passed, punitive damages will cease to be a punishment or deterrent to dangerous and egregious behavior and become merely another cost factor in the building of a house.
These bills have more adverse effects on the home buyer than on any other consumer product, since a home has multiple product suppliers and sub-contractors. Our concerns about these bills are intensified by the provision which eliminates joint liability for multiple defendants for non-economic damages, such as disfigurement, continuing severe pain or the loss of a child. Most of these suppliers and sub-contractors that would be considered "small businesses" under these bills frequently go out of business, and become "judgment proof."
An example of how this law would affect a family is when they purchase a new home with a faulty furnace and flammable carpeting -- both a violation of local building codes. The faulty furnace starts a fire that is accelerated by the flammable carpeting and the mother and son suffer extensive burns, excruciating pain and permanent disfigurement. The jury finds that, in addition to damages to compensate for their economic loss, the mother and son should receive $100,000 for pain and suffering. The jury finds that the subcontractor that installed the furnace was 45% responsible, and the subcontractor that installed the flammable carpeting was 55% to blame. However, the carpet subcontractor went bankrupt soon after construction was complete. Under current law both defendants are jointly liable, meaning the mother and son can still recover the $100,000 from the furnace contractor. That is because, for the furnace subcontractor to be found liable at all, the jury found their behavior was a proximate cause of the plaintiffs' injuries and they should not be sheltered from the consequences simply because there was another proximate cause -- in this example, the carpet subcontractor. However, under these bills, the mother and son would only be able to recover $45,000 from the furnace subcontractor even though the jury found that their non-economic harm was $100,000. The elimination of joint liability shifts the cost of dangerous home building from those guilty of dangerous behavior to the innocent home buyer.
We strongly object to Title II because it would also protect the product seller/builder from the consequences of selling a dangerous product. Many features in homes, for example, stoves and gas furnaces, can cause great economic and personal harm, even death, if defective. Therefore, product sellers/Home Builders should be held liable under the strict liability and implied warranty theories, as provided by some state laws, to ensure that they sell only safe appliances or products. If passed these bills will actually provide the Home Builder protection by reducing the level of care for assurance of a safe product and contribute even further to faulty and even dangerous home construction with little or no accountability.
At a time when Home Builders enjoy substantial and increasing profits, nationwide complaints from home buyers are at an all-time high. The situation is so bad that we no longer complain of shoddy building but of "Disposable Housing." This is certainly not the time to reduce accountability and liability of Home Builders to the obvious detriment of the largest consumer group in the country.
On behalf of all home buyers/consumers across the country, we strongly urge you to defeat H.R. 2366 and S. 1185. It is imperative that all builders/contractors and the construction industry at large be excluded as "small businesses."