Legislature(2003 - 2004)

04/08/2003 09:02 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                                                            
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."                                                                                               
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                                                            
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                                                            
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                                                            
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                                                            
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                                                            
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                                                            
Senator Olson  asked the number of inspections the  witness conducts                                                            
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                                                            
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                                                            
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                                                            
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                                                             
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                                                             
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.                                                                             

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