By:  Harris, West                                      S.B. No. 506
                                A BILL TO BE ENTITLED
                                       AN ACT
 1-1     relating to suits to recover damages resulting from construction
 1-2     defects; providing for recovery of a penalty from certain
 1-3     contractors.
 1-4           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
 1-5           SECTION 1.  Subdivisions (2) and (3), Section 27.001,
 1-6     Property Code, are amended to read as follows:
 1-7                 (2)  "Construction defect" means a matter concerning
 1-8     the design, construction, or repair of a new residence, of an
 1-9     alteration of or repair or addition to an existing residence, or of
1-10     an appurtenance to a residence, on which a person has a complaint
1-11     against a contractor.  The term ["construction defect"] may include
1-12     any physical damage to the residence, any appurtenance, or the real
1-13     property on which the residence and appurtenance are affixed
1-14     proximately caused by a construction defect.
1-15                 (3)  "Contractor" means a person contracting with an
1-16     owner for the construction or sale of a new residence constructed
1-17     by that person or of an alteration of or addition to an existing
1-18     residence, repair of a new or existing residence, or construction,
1-19     sale, alteration, addition, or repair of an appurtenance to a new
1-20     or existing residence.  The term ["contractor" also] includes:
1-21                       (A)  an owner, officer, director, shareholder,
1-22     partner, or employee of the contractor; and
1-23                       (B)  a risk retention group registered under
1-24     Article 21.54, Insurance Code, that insures all or any part of a
 2-1     contractor's liability for the cost to repair a residential
 2-2     construction defect.
 2-3           SECTION 2.  Section 27.002, Property Code, is amended to read
 2-4     as follows:
 2-5           Sec. 27.002.  APPLICATION OF CHAPTER.  (a)  This chapter
 2-6     applies to:
 2-7                 (1)  any action to recover damages resulting from a
 2-8     construction defect, except a claim for personal injury, survival,
 2-9     or wrongful death or for damage to goods; and
2-10                 (2)  any subsequent purchaser of a residence who files
2-11     a claim against a contractor.
2-12           (b)  To the extent of conflict between this chapter and any
2-13     other law, including the Deceptive Trade Practices-Consumer
2-14     Protection Act (Subchapter E, Chapter 17, Business & Commerce
2-15     Code), this chapter prevails.
2-16           (c) [(b)]  In this section:
2-17                 (1)  "Goods" does not include a residence.
2-18                 (2)  "Personal injury" does not include mental anguish.
2-19           SECTION 3.  Subsection (a), Section 27.003, Property Code, is
2-20     amended to read as follows:
2-21           (a)  In an action to recover damages resulting from a
2-22     construction defect:
2-23                 (1)[,]  a contractor is not liable for any percentage
2-24     of damages caused by:
2-25                       (A) [(1)]  negligence of a person other than the
2-26     contractor or an agent, employee, or subcontractor of the
 3-1     contractor;
 3-2                       (B) [(2)]  failure of a person other than the
 3-3     contractor or an agent, employee, or subcontractor of the
 3-4     contractor to:
 3-5                             (i) [(A)]  take reasonable action to
 3-6     mitigate the damages; or
 3-7                             (ii) [(B)]  take reasonable action to
 3-8     maintain the residence;
 3-9                       (C) [(3)]  normal wear, tear, or deterioration;
3-10                       (D) [(4)]  normal shrinkage due to drying or
3-11     settlement of construction components within the tolerance of
3-12     building standards; or
3-13                       (E) [(5)]  the contractor's reliance on written
3-14     information relating to the residence, appurtenance, or real
3-15     property on which the residence and appurtenance are affixed that
3-16     was obtained from official government records, if the written
3-17     information was false or inaccurate and the contractor did not know
3-18     and could not reasonably have known of the falsity or inaccuracy of
3-19     the information; and
3-20                 (2)  if an assignee of the claimant or a person
3-21     subrogated to the rights of a claimant fails to provide the written
3-22     notice to the contractor required by Section 27.004(a) before
3-23     performing repairs, the contractor is not liable for the cost of
3-24     any repairs or any percentage of damages caused by repairs made to
3-25     a construction defect at the request of an assignee of the claimant
3-26     or a person subrogated to the rights of a claimant by a person
 4-1     other than the contractor or an agent, employee, or subcontractor
 4-2     of the contractor.
 4-3           SECTION 4.  Chapter 27, Property Code, is amended by adding
 4-4     Section 27.0031 to read as follows:
 4-5           Sec. 27.0031.  FRIVOLOUS SUIT; HARASSMENT.  A party who files
 4-6     a suit under this chapter that is groundless and brought in bad
 4-7     faith or for purposes of harassment is liable to the defendant for
 4-8     reasonable and necessary attorney's fees and court costs.
 4-9           SECTION 5.  Section 27.004, Property Code, is amended by
4-10     amending Subsections (a), (b), (d), (f), (h), (i), and (k) and
4-11     adding Subsection (p) to read as follows:
4-12           (a)  Before the 60th day preceding the date a claimant
4-13     seeking from a contractor damages arising from a construction
4-14     defect files suit, the claimant shall give written notice by
4-15     certified mail, return receipt requested, to the contractor, at the
4-16     contractor's last known address, specifying in reasonable detail
4-17     the construction defects that are the subject of the complaint.  On
4-18     the request of the contractor, the claimant shall provide to the
4-19     contractor any evidence that depicts the nature and cause of the
4-20     defect and the nature and extent of repairs necessary to remedy the
4-21     defect, including expert reports, photographs, and videotapes, if
4-22     that evidence would be discoverable under Rule 192, Texas Rules of
4-23     Civil Procedure.  During the 35-day period after the date the
4-24     contractor receives the notice, and on the contractor's written
4-25     request, the contractor shall be given a reasonable opportunity to
4-26     inspect and have inspected the property that is the subject of the
 5-1     complaint to determine the nature and cause of the defect and the
 5-2     nature and extent of repairs necessary to remedy the defect.  The
 5-3     contractor may take reasonable steps to document the defect.
 5-4           (b)  Within the 45-day period after the date the contractor
 5-5     receives the notice, the contractor may make a written offer of
 5-6     settlement to the claimant.  The offer must be sent to the claimant
 5-7     at the claimant's last known address or to the claimant's attorney
 5-8     by certified mail, return receipt requested.  The offer may include
 5-9     either an agreement by the contractor to repair or to have repaired
5-10     by an independent contractor at the contractor's expense any
5-11     construction defect described in the notice and shall describe in
5-12     reasonable detail the kind of repairs which will be made.  The
5-13     repairs shall be made within the 45-day period after the date the
5-14     contractor receives written notice of acceptance of the settlement
5-15     offer, unless completion is delayed by the claimant or by other
5-16     events beyond the control of the contractor.  For the purposes of
5-17     this section, "independent contractor" means a person who is
5-18     independent of the contractor and did not perform any of the work
5-19     complained of in the claimant's notice.  The claimant and the
5-20     contractor may agree in writing to extend the periods described by
5-21     this subsection.
5-22           (d)  The court shall abate a suit governed by this chapter
5-23     [section] if Subsection (c) does not apply and the court, after a
5-24     hearing, finds that the contractor is entitled to an abatement
5-25     because the claimant failed to provide the notice or failed to give
5-26     the contractor a reasonable opportunity to inspect the property
 6-1     [was not provided] as required by Subsection (a).  A suit is
 6-2     automatically abated without the order of the court beginning on
 6-3     the 11th day after the date a plea in abatement is filed if the
 6-4     plea in abatement:
 6-5                 (1)  is verified and alleges that the person against
 6-6     whom the suit is pending did not receive the written notice or was
 6-7     not given a reasonable opportunity to inspect the property as
 6-8     required by Subsection (a); and
 6-9                 (2)  is not controverted by an affidavit filed by the
6-10     claimant before the 11th day after the date on which the plea in
6-11     abatement is filed.
6-12           (f)  If a claimant unreasonably rejects an offer made as
6-13     provided by this section or does not permit the contractor or
6-14     independent contractor a reasonable opportunity to repair the
6-15     defect pursuant to an accepted offer of settlement, the claimant:
6-16                 (1)  may not recover an amount in excess of:
6-17                       (A)  the reasonable cost of the offered repairs
6-18     which are necessary to cure the construction defect and which are
6-19     the responsibility of the contractor; or
6-20                       (B)  the amount of a reasonable monetary
6-21     settlement offer made under Subsection (n); and
6-22                 (2)  may recover only the amount of reasonable and
6-23     necessary attorney's fees and costs incurred before the offer was
6-24     rejected or considered rejected.
6-25           (h)  Except as provided by Subsection (f), in a suit subject
6-26     to this chapter the claimant may recover only the following damages
 7-1     proximately caused by a construction defect:
 7-2                 (1)  the reasonable cost of repairs necessary to cure
 7-3     any construction defect, including any reasonable and necessary
 7-4     engineering or consulting fees required to evaluate and cure the
 7-5     construction defect, that the contractor is responsible for
 7-6     repairing under this chapter [failed to cure];
 7-7                 (2)  the reasonable expenses of temporary housing
 7-8     reasonably necessary during the repair period;
 7-9                 (3)  the reduction in market value, if any, to the
7-10     extent the reduction is due to structural failure; and
7-11                 (4)  reasonable and necessary attorney's fees.
7-12           (i)  The total damages awarded in a suit subject to this
7-13     chapter may not exceed the greater of the claimant's purchase price
7-14     for the residence or the current fair market value of the residence
7-15     without the construction defect.
7-16           (k)  An affidavit certifying rejection of a settlement offer
7-17     under this section may be filed with the court.  The trier of fact
7-18     shall determine the reasonableness of [a rejection of] an offer of
7-19     settlement made under this section.
7-20           (p)  If the contractor provides written notice of a claim for
7-21     damages arising from a construction defect to a subcontractor, the
7-22     contractor retains all rights of contribution from the
7-23     subcontractor if the contractor settles the claim with the
7-24     claimant.
7-25           SECTION 6.  Chapter 27, Property Code, is amended by adding
7-26     Section 27.0041 to read as follows:
 8-1           Sec. 27.0041.  MEDIATION.  (a)  If a claimant files suit
 8-2     seeking from a contractor damages arising from a construction
 8-3     defect in an amount greater than $7,500, the claimant or contractor
 8-4     may file a motion to compel mediation of the dispute.  The motion
 8-5     must be filed not later than the 90th day after the date the suit
 8-6     is filed.
 8-7           (b)  Not later than the 30th day after the date a motion is
 8-8     filed under Subsection (a), the court shall order the parties to
 8-9     mediate the dispute.  If the parties cannot agree on the
8-10     appointment of a mediator, the court shall appoint the mediator.
8-11           (c)  The court shall order the parties to begin mediation of
8-12     the dispute not later than the 30th day after the date the court
8-13     enters its order under Subsection (b) unless the parties agree
8-14     otherwise or the court determines additional time is required.  If
8-15     the court determines that additional time is required, the court
8-16     may order the parties to begin mediation of the dispute not later
8-17     than the 60th day after the date the court enters its order under
8-18     Subsection (b).
8-19           (d)  Unless each party who has appeared in a suit filed under
8-20     this chapter agrees otherwise, each party shall participate in the
8-21     mediation and contribute equally to the cost of the mediation.
8-22           (e)  Section 154.023, Civil Practice and Remedies Code, and
8-23     Subchapters C and D, Chapter 154, Civil Practice and Remedies Code,
8-24     apply to a mediation under this section to the extent those laws do
8-25     not conflict with this section.
8-26           SECTION 7.  Section 27.005, Property Code, is amended to read
 9-1     as follows:
 9-2           Sec. 27.005. LIMITATIONS ON EFFECT OF CHAPTER.  This chapter
 9-3     does not create a cause of action or derivative liability [an
 9-4     implied warranty] or extend a limitations period.
 9-5           SECTION 8.  Chapter 27, Property Code, is amended by adding
 9-6     Section 27.007 to read as follows:
 9-7           Sec. 27.007.  DISCLOSURE STATEMENT REQUIRED.  (a)  A written
 9-8     contract subject to this chapter must contain next to the signature
 9-9     lines in the contract a notice printed or typed in 10-point
9-10     boldface type or the computer equivalent that reads substantially
9-11     similar to the following:
9-12           "This contract is subject to Chapter 27, Property Code.  The
9-13     provisions of that chapter may affect your right to recover damages
9-14     arising from the performance of this contract.  If you have a
9-15     complaint concerning a construction defect arising from the
9-16     performance of this contract and that defect has not been corrected
9-17     through normal warranty service, you must provide notice regarding
9-18     the defect to the contractor by certified mail, return receipt
9-19     requested, not later than the 60th day before the date you file
9-20     suit to recover damages in a court of law.  The notice must refer
9-21     to Chapter 27, Property Code, and must describe the construction
9-22     defect.  If requested by the contractor, you must provide the
9-23     contractor an opportunity to inspect and cure the defect as
9-24     provided by Section 27.004, Property Code."
9-25           (b)  If a contract does not contain the notice required by
9-26     this section, the claimant may recover from the contractor a civil
 10-1    penalty of $500 in addition to any other remedy provided by this
 10-2    chapter.
 10-3          SECTION 9.  (a)  Except as provided by Subsection (b) of this
 10-4    section, this Act takes effect September 1, 1999.
 10-5          (b)  Section 27.007, Property Code, as added by this Act,
 10-6    takes effect September 1, 2000.
 10-7          (c)  The changes in law made by this Act apply only to a
 10-8    contract subject to Chapter 27, Property Code, as amended by this
 10-9    Act, that is entered into on or after the effective date of this
10-10    Act.  A contract subject to Chapter 27, Property Code, that was
10-11    entered into before the effective date of this Act is governed by
10-12    the law in effect when the contract was entered into, and the
10-13    former law is continued in effect for that purpose.
10-14          SECTION 10.  The importance of this legislation and the
10-15    crowded condition of the calendars in both houses create an
10-16    emergency and an imperative public necessity that the
10-17    constitutional rule requiring bills to be read on three several
10-18    days in each house be suspended, and this rule is hereby suspended.