Legislature(2003 - 2004)
04/08/2003 09:02 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SENATE CS FOR CS FOR HOUSE BILL NO. 9(L&C) "An Act relating to the registration of individuals who perform home inspections; relating to regulation of contractors; relating to registration fees for specialty contractors, home inspectors, and associate home inspectors; relating to home inspection requirements for residential loans purchased or approved by the Alaska Housing Finance Corporation; relating to civil actions by and against home inspectors and to civil actions arising from residential unit inspections; repealing a law that limits liability for damages based on a duty to inspect a residential unit to damages caused by gross negligence or intentional misconduct; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. Co-Chair Wilken explained this bill "creates a mandatory registration of home inspectors. Under this legislation the Division of Occupational Licensing administers the program without a board and incorporates the registration within the construction contractor registration program." th REPRESENTATIVE NORM ROKEBERG, sponsor, noted this could be the 28 public hearing on this issue in the past five years. He informed that this bill provides that home inspectors and associate home inspectors would be regulated by the Division and creates the framework for a regulatory process for a group of professionals that currently do operate under any regulation. He reported that the real estate industry encompasses approximately 25 percent of the State domestic product, commenting, "It's an absolutely huge industry." He remarked that every aspect of a real estate transaction is currently regulated with the exception of home inspections. Representative Rokeberg stated that the home inspection industry is the result of lending institution requirements imposed approximately ten to twenty years ago to ensure that the "housing stock product in this country was properly constructed and built." He noted this applies to political subdivisions not governed by building inspections, which encompasses most of Alaska. Representative Rokeberg told the Committee this legislation provides a "regulatory scheme" and removes some exemptions and immunities from State statutes relating to home inspections conducted for the Alaska Housing Finance Corporation (AHFC). He commented this issue has been the "number one controversial sticking point." Representative Rokeberg added that the bill imposes statutory limitations relating to the time in which a lawsuit could be brought and "limits the length of report to 180 days". Representative Rokeberg expressed satisfaction that this legislation "avoids setting up a board or commission," explaining that with approximately 100 practitioners in the State, biannual license fees would need to be $1,500. Instead, he stated that the inspectors would be included with specialty contractors, at the recommendation of the Alaska Homebuilder's Association, which would lower the biannual license fees to approximately $246. He emphasized the higher license fees could impact the price of home inspections and have an impact "on the commerce of the State of Alaska." He stressed the intent to encourage homebuyers to obtain home inspections for both existing and new homes. Representative Rokeberg spoke to a proposed amendment, which he explains makes a technical correction to reflect the name change of the International Code Council, formally the International Conference of Building Officials [This matter is addressed as Amendment #2 later in the hearing.] Senator Bunde clarified the cost of the business license would pay the expenses to operate the program; therefore this would be a revenue neutral program. Representative Rokeberg affirmed and noted the statutes relating to occupational licensing require that all occupational licensing programs to be self-supporting. Senator Olson asked how this would impact areas with a shortage of home inspectors. Representative Rokeberg responded that use of a home inspector is discretionary for the homebuyer, unless the lending institution requires an inspection. He concluded this legislation would therefore have minimal impact. He told of a mechanical inspector in Kotzebue who has testified in other legislative committees that because he only conducts approximately ten inspections annually, the licensing costs could be prohibitive. Representative Rokeberg disagreed that the proposed $125 annual license expense would cause undue hardship, as inspections typically cost $350 in Anchorage and are likely higher in rural locations. He qualified that the Alaska Housing Finance Corporation (AHFC) requires housing inspections for new construction and that the Corporation supports this legislation. Senator Olson noted the majority of homes located in rural areas are included in a regional housing authority. He asked how this legislation would affect the inspections of those houses. Representative Rokeberg replied that a licensed inspector would be required to conduct any inspections, unless exempted under this legislation. He pointed out that entities advertising as home inspectors would be required to be licensed. He admitted that some "unique circumstances" exist in rural Alaska, and did not oppose flexibility for these communities, provided that those conducting inspections undertake proper training. Senator Olson agreed and noted the bill does not currently exempt regional housing authorities. Amendment #1: This amendment adds regional housing authorities, as defined under AS 18.55.996(b), to the list of exemptions related to home inspectors in AS 08.18.156(a)(1), on page 16 of the committee substitute. Senator Olson moved for adoption. Co-Chair Wilken objected for an explanation. Representative Rokeberg explained this amendment would "raise the regional housing authorities to the same level as a political subdivision that had their own inspections." He gave an example of the Municipality of Anchorage, which employs building inspectors and is exempt from the provisions of this legislation. He noted the Municipality has undertaken the "obligation to undertake whatever inspections they so desire," as would regional housing authorities, if this amendment is adopted. He clarified that a privately operating home inspector would not be exempt from the provisions of this legislation. He did not object to the adoption of this amendment. Co-Chair Wilken removed his objection and the amendment was ADOPTED without objection. Amendment #2: This amendment deletes "Conference of Building Officials" and inserts "Code Council" in the six places this language appears in the committee substitute. Senator B. Stevens moved for adoption. Co-Chair Wilken objected for an explanation. Senator B. Stevens deferred to the bill sponsor. Representative Rokeberg reiterated this is a "conforming" amendment to reflect the name change of the International Code Council. Co-Chair Wilken removed his objection and the amendment was ADOPTED without objection. DAVID OWENS, Owens Inspection Services, testified via teleconference from Mat-Su that he primarily conducts "code inspections" on new homes and commercial facilities. He noted he occasionally conducts inspections on existing homes and he spoke to the "vast" differences between a new code home inspector and a home inspector as described in this legislation. He pointed out that errors and omission insurance is only available to home inspectors of existing or already built homes. He stressed this insurance is not available for new construction home inspectors. Mr. Owens referenced a letter to the Legislature, dated March 7, 2003 that he submitted [copy on file], which proposes three amendments to the version of the bill passed by the House of Representatives, as follows. 1) Remove the language from title page 1, line 6 through 8, that states "repealing a law that limits liability for damages based on a duty to inspect a residential unit to damages caused by gross negligence or intentional misconduct." 2) Remove the word "two" on page 10, line 6 and replace it with the word "one". 3) Remove the language from Section 41, page 22 line 21 that states "AS 18.56.300(C) is repealed." Mr. Owens supported this legislation with the exception of the three areas: repeals law pertaining to limit of liability Mr. Owens indicated results of a survey of home inspectors. Co-Chair Green interjected she had a summary of the report titled, "HB 9, New Home Inspector Survey" [copy on file] and would distribute it for Member's consideration. AT EASE 9:20 AM / 9:22 AM Co-Chair Wilken noted the information was distributed. Co-Chair Green explained the summary was compiled from the 25 responses from home inspectors obtained by her staff. Mr. Owens spoke to the information, surmising that this legislation would regulate 79 of the 182 operating home inspectors in the State. He characterized most of these inspectors as certified, hold a business license, and carry liability insurance. He relayed that none of the inspectors he contacted had been notified of the proposed changes by AHFC or other government agency. Mr. Owens asserted the primary question included in the survey is whether inspectors could remain in business and survey found that 13 respondents indicated they could, seven indicated they could not and six others were unsure. He stressed that if unable to purchase errors and omission insurance, inspectors could no longer stay in business. Mr. Owens listed another survey question relating to the fairness of holding private inspectors to a higher liability limit than government inspectors. He reported that every respondent judged this to be unfair. He furthered that the 79 inspectors who would be impacted by this legislation were asked whether they felt discriminated against under the provisions of this legislation and that the 26 respondents answered in the affirmative. BERNIE SCHUYLER, Arctic Sky Enterprises, International Conference of Building Officials (ICBO) Certified Home Inspector, and Certified Commercial ICBO Inspector, testified via teleconference from Mat-Su about the inability to obtain errors and omissions insurance for inspectors. He warned that he would be out of business if this legislation were passed, since he would be unable to risk losing his assets, which could occur if he was without liability insurance. He added that the exemption of government inspectors is unfair. Senator Olson asked if the witness had another occupation. Mr. Schuyler responded that inspections is his sole means of support Senator Olson asked the number of inspections the witness conducts annually. Mr. Schuyler estimated he performs approximately 200 inspections each year. BOB MILBY, Milby Construction, testified via teleconference from Mat-Su that he is a registered general contractor and ICBO Certified Inspector, and only performs inspections on new construction. He expressed that inspections on new construction is significantly different than on existing dwellings. He was concerned about the liability issue this legislation would present and predicted that AHFC could be required to employ home inspectors and provide the necessary liability insurance itself. He understood the need for consumer protection, but argued that the ICBO systems are in place for new construction and provide adequate protection. Mr. Owens spoke to Amendment #2, which clarifies the name of the professional organization. ROCKWELL SMITH, Mechanical Contractor, testified via teleconference from Kenai about his concerns with the language relating to liability, on page 10, line 6 of the committee substitute. He shared that as a mechanical contractor, inspectors continually inspect his work and that he is held liable for his mistakes without any exemptions. He next addressed the proposed certificate of registration for home inspectors that would be issued upon passage of "the appropriate home inspection" examination, and informed that the open book examination in question requires no prerequisite education or experience. He questioned how an inspector should be held to a lesser standard than a mechanical contractor. STEVE WISDOM, Owner, Wisdom and Associates, Inc., testified via teleconference from Kenai to reference his written testimony [copy on file]. He supported the regulation of home inspectors although was concerned about the repeal of the "gross negligence" clause for new inspections and the insurance requirements proposed in this bill. He stated that for years his firm was only one in Alaska that carried errors and omissions insurance for new code compliance; however if this bill passes and all inspectors are required to carry the insurance, his provider has informed him the company would no longer offer the coverage. Instead, he learned that insurance coverage similar to that carried by municipalities would only be available, at a premium cost of $10,000. Mr. Wisdom furthered that the language providing the inspector would be liable for two years should be reduced to a one-year period, arguing that contractors are only liable for one year. He cautioned that in the event of failure, such as a leak caused by a missing "nail plate" the inspector would be the only liable party. Mr. Wisdom requested the Committee review the requirements to become a "joint" inspector, noting the requirements to become a code inspector are more stringent. Representative Rokeberg commented on the public testimony. He understood Mr. Smith's testimony to indicate the requirements for inspectors should be higher. Representative Rokeberg shared that he has been in contact with Mr. Wisdom and heard the concerns regarding the limited immunity provided for in Section 21 of the committee substitute. However, Representative Rokeberg disagreed that the two categories of home inspectors is troublesome, as both should "be under this umbrella of consumer protection." He surmised that Mr. Wisdom misunderstood the issue of the length of liability. Representative Rokeberg qualified the argument regarding the separate examination requirements for new home inspectors and existing home inspectors "might have some merit", but suggested regulatory authority could address the matter. Representative Rokeberg informed that the AHFC "wants to enjoy their limited immunity now; that's the issue here before us really." Representative Rokeberg was sensitive to the cost and availability of errors and omission insurance issue given the increased premiums imposed as a result of the events of September 11, 2001. Co-Chair Wilken asked if this bill was heard in either the House of Representatives, or Senate Judiciary committees. Representative Rokeberg listed the House of Representatives Judiciary Committee and the Senate Labor and Commerce Committee as holding hearings on this bill. Co-Chair Green commented the insurance issue troubled her. She also asked for clarification of the different types of inspectors. Representative Rokeberg responded that 79 of the 182 inspectors are not employees of a government agency, such as the Municipality of Anchorage. He stated that those who are employed by a government are exempt from the provisions of this bill, although the others "have no immunity under the theory of sovereign immunity." He added that private inspectors have "some limited immunity for Alaska Housing Finance loans only. That's a distinction that's not being made in the testimony." He explained that new home inspections on construction financed through a conventional lender in an area, such as the Mat-Su, that is not under the jurisdiction of local building codes have no limited immunity. He stated that inspections performed on facilities financed by the AHFC "currently enjoy limited immunity on gross negligence and intentional misconduct. That's a very high standard. So it's almost de facto immunity." Representative Rokeberg agreed that at issue is the difficulty in obtaining errors and omissions insurance and the feasibility of inspectors passing the expense to their customers. He suggested that many inspectors could operate without the insurance because "they're good practitioners and they're doing their job." He challenged that inspectors hired by a contractor to verify that subcontractors have completed their jobs should not enjoy "some artificial immunity" if the construction is financed by AHFC rather than Wells Fargo, Countrywide Mortgage, or other conventional lender. Representative Rokeberg disputed that AHFC finance projects should be afforded "some special legal privilege" and informed that AHFC supports this legislation. Representative Rokeberg emphasized, "this bill grants super numerary exclusions for bringing a cause of action by limiting the time in which a cause of action can be filed. So it's even greater protection to an existing home." He furthered that cause of action on the findings of the inspection would be limited to one year for new construction and two years for existing homes. He also indicated a limitation related to a report saying, "The report here in it's validity and how it can be picked up and used by somebody is limited to 180 days." Representative Rokeberg opined that this legislation extends "some pretty extraordinary legal protection here" to inspectors, explaining the balance in "removing this limited immunity with the additional grants of a statutory immunity from additional lawsuits". He stated the testifiers were speaking to "a limited immunity to the standards of gross negligence and intentional misconduct." Co-Chair Green remarked, "I hope the sponsor did not intend to impugn the reputation of builders and inspectors in the Mat-Su Valley the way he did." She requested additional time to review this legislation. Senator Bunde asked if municipal building inspectors inspect new home construction located in a municipality. Representative Rokeberg affirmed. Senator Bunde then asked if inspections are optional for new home construction located in an area not governed by municipal building codes if AFHC is not the lender. Representative Rokeberg again affirmed. Senator Bunde asked if inspection of existing homes is optional at the time of resale. Representative Rokeberg answered yes. Representative Rokeberg expressed it was not his intent, "to make any disparaging comments at all in the Mat Valley. I was just using it as an example." He apologized if he did so and added, "not that they couldn't use a little help out there." Co-Chair Wilken ordered the bill HELD on Committee.