1-1     By:  Harris                                            S.B. No. 506
 1-2           (In the Senate - Filed February 12, 1999; February 15, 1999,
 1-3     read first time and referred to Committee on Economic Development;
 1-4     April 29, 1999, reported adversely, with favorable Committee
 1-5     Substitute by the following vote:  Yeas 5, Nays 0; April 29, 1999,
 1-6     sent to printer.)
 1-7     COMMITTEE SUBSTITUTE FOR S.B. No. 506                    By:  Madla
 1-8                            A BILL TO BE ENTITLED
 1-9                                   AN ACT
1-10     relating to suits to recover damages resulting from construction
1-11     defects; providing for recovery of a penalty from certain
1-12     contractors.
1-13           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-14           SECTION 1.  Subdivisions (2) and (3), Section 27.001,
1-15     Property Code, are amended to read as follows:
1-16                 (2)  "Construction defect" means a matter concerning
1-17     the design, construction, or repair of a new residence, of an
1-18     alteration of or repair or addition to an existing residence, or of
1-19     an appurtenance to a residence, on which a person has a complaint
1-20     against a contractor.  The term ["construction defect"] may include
1-21     any physical damage to the residence, any appurtenance, or the real
1-22     property on which the residence and appurtenance are affixed
1-23     proximately caused by a construction defect.
1-24                 (3)  "Contractor" means a person contracting with an
1-25     owner for the construction or sale of a new residence constructed
1-26     by that person or of an alteration of or addition to an existing
1-27     residence, repair of a new or existing residence, or construction,
1-28     sale, alteration, addition, or repair of an appurtenance to a new
1-29     or existing residence.  The term ["contractor" also] includes:
1-30                       (A)  an owner, officer, director, shareholder,
1-31     partner, or employee of the contractor; and
1-32                       (B)  a risk retention group registered under
1-33     Article 21.54, Insurance Code, that insures all or any part of a
1-34     contractor's liability for the cost to repair a residential
1-35     construction defect.
1-36           SECTION 2.  Section 27.002, Property Code, is amended to read
1-37     as follows:
1-38           Sec. 27.002.  APPLICATION OF CHAPTER.  (a)  This chapter
1-39     applies to:
1-40                 (1)  any action to recover damages resulting from a
1-41     construction defect, except a claim for personal injury, survival,
1-42     or wrongful death or for damage to goods; and
1-43                 (2)  any subsequent purchaser of a residence who files
1-44     a claim against a contractor.
1-45           (b)  To the extent of conflict between this chapter and any
1-46     other law, including the Deceptive Trade Practices-Consumer
1-47     Protection Act (Subchapter E, Chapter 17, Business & Commerce
1-48     Code), this chapter prevails.
1-49           (c) [(b)]  In this section:
1-50                 (1)  "Goods" does not include a residence.
1-51                 (2)  "Personal injury" does not include mental anguish.
1-52           SECTION 3.  Subsection (a), Section 27.003, Property Code, is
1-53     amended to read as follows:
1-54           (a)  In an action to recover damages resulting from a
1-55     construction defect:
1-56                 (1)[,]  a contractor is not liable for any percentage
1-57     of damages caused by:
1-58                       (A) [(1)]  negligence of a person other than the
1-59     contractor or an agent, employee, or subcontractor of the
1-60     contractor;
1-61                       (B) [(2)]  failure of a person other than the
1-62     contractor or an agent, employee, or subcontractor of the
1-63     contractor to:
1-64                             (i) [(A)]  take reasonable action to
 2-1     mitigate the damages; or
 2-2                             (ii) [(B)]  take reasonable action to
 2-3     maintain the residence;
 2-4                       (C) [(3)]  normal wear, tear, or deterioration;
 2-5                       (D) [(4)]  normal shrinkage due to drying or
 2-6     settlement of construction components within the tolerance of
 2-7     building standards; or
 2-8                       (E) [(5)]  the contractor's reliance on written
 2-9     information relating to the residence, appurtenance, or real
2-10     property on which the residence and appurtenance are affixed that
2-11     was obtained from official government records, if the written
2-12     information was false or inaccurate and the contractor did not know
2-13     and could not reasonably have known of the falsity or inaccuracy of
2-14     the information; and
2-15                 (2)  if an assignee of the claimant or a person
2-16     subrogated to the rights of a claimant fails to provide the written
2-17     notice to the contractor required by Section 27.004(a) before
2-18     performing repairs, the contractor is not liable for the cost of
2-19     any repairs or any percentage of damages caused by repairs made to
2-20     a construction defect at the request of an assignee of the claimant
2-21     or a person subrogated to the rights of a claimant by a person
2-22     other than the contractor or an agent, employee, or subcontractor
2-23     of the contractor.
2-24           SECTION 4.  Chapter 27, Property Code, is amended by adding
2-25     Section 27.0031 to read as follows:
2-26           Sec. 27.0031.  FRIVOLOUS SUIT; HARASSMENT.  A party who files
2-27     a suit under this chapter that is groundless and brought in bad
2-28     faith or for purposes of harassment is liable to the defendant for
2-29     reasonable and necessary attorney's fees and court costs.
2-30           SECTION 5.  Section 27.004, Property Code, is amended by
2-31     amending Subsections (a), (b), (d), (f), (h), (i), and (k) and
2-32     adding Subsection (p) to read as follows:
2-33           (a)  Before the 60th day preceding the date a claimant
2-34     seeking from a contractor damages arising from a construction
2-35     defect files suit, the claimant shall give written notice by
2-36     certified mail, return receipt requested, to the contractor, at the
2-37     contractor's last known address, specifying in reasonable detail
2-38     the construction defects that are the subject of the complaint.  On
2-39     the request of the contractor, the claimant shall provide to the
2-40     contractor any evidence that depicts the nature and cause of the
2-41     defect and the nature and extent of repairs necessary to remedy the
2-42     defect, including expert reports, photographs, and videotapes, if
2-43     that evidence would be discoverable under Rule 192, Texas Rules of
2-44     Civil Procedure.  During the 35-day period after the date the
2-45     contractor receives the notice, and on the contractor's written
2-46     request, the contractor shall be given a reasonable opportunity to
2-47     inspect and have inspected the property that is the subject of the
2-48     complaint to determine the nature and cause of the defect and the
2-49     nature and extent of repairs necessary to remedy the defect.  The
2-50     contractor may take reasonable steps to document the defect.
2-51           (b)  Within the 45-day period after the date the contractor
2-52     receives the notice, the contractor may make a written offer of
2-53     settlement to the claimant.  The offer must be sent to the claimant
2-54     at the claimant's last known address or to the claimant's attorney
2-55     by certified mail, return receipt requested.  The offer may include
2-56     either an agreement by the contractor to repair or to have repaired
2-57     by an independent contractor at the contractor's expense any
2-58     construction defect described in the notice and shall describe in
2-59     reasonable detail the kind of repairs which will be made.  The
2-60     repairs shall be made within the 45-day period after the date the
2-61     contractor receives written notice of acceptance of the settlement
2-62     offer, unless completion is delayed by the claimant or by other
2-63     events beyond the control of the contractor.  For the purposes of
2-64     this section, "independent contractor" means a person who is
2-65     independent of the contractor and did not perform any of the work
2-66     complained of in the claimant's notice.  The claimant and the
2-67     contractor may agree in writing to extend the periods described by
2-68     this subsection.
2-69           (d)  The court shall abate a suit governed by this chapter
 3-1     [section] if Subsection (c) does not apply and the court, after a
 3-2     hearing, finds that the contractor is entitled to an abatement
 3-3     because the claimant failed to provide the notice or failed to give
 3-4     the contractor a reasonable opportunity to inspect the property
 3-5     [was not provided] as required by Subsection (a).  A suit is
 3-6     automatically abated without the order of the court beginning on
 3-7     the 11th day after the date a plea in abatement is filed if the
 3-8     plea in abatement:
 3-9                 (1)  is verified and alleges that the person against
3-10     whom the suit is pending did not receive the written notice or was
3-11     not given a reasonable opportunity to inspect the property as
3-12     required by Subsection (a); and
3-13                 (2)  is not controverted by an affidavit filed by the
3-14     claimant before the 11th day after the date on which the plea in
3-15     abatement is filed.
3-16           (f)  If a claimant unreasonably rejects an offer made as
3-17     provided by this section or does not permit the contractor or
3-18     independent contractor a reasonable opportunity to repair the
3-19     defect pursuant to an accepted offer of settlement, the claimant:
3-20                 (1)  may not recover an amount in excess of:
3-21                       (A)  the reasonable cost of the offered repairs
3-22     which are necessary to cure the construction defect and which are
3-23     the responsibility of the contractor; or
3-24                       (B)  the amount of a reasonable monetary
3-25     settlement offer made under Subsection (n); and
3-26                 (2)  may recover only the amount of reasonable and
3-27     necessary attorney's fees and costs incurred before the offer was
3-28     rejected or considered rejected.
3-29           (h)  Except as provided by Subsection (f), in a suit subject
3-30     to this chapter the claimant may recover only the following damages
3-31     proximately caused by a construction defect:
3-32                 (1)  the reasonable cost of repairs necessary to cure
3-33     any construction defect, including any reasonable and necessary
3-34     engineering or consulting fees required to evaluate and cure the
3-35     construction defect, that the contractor is responsible for
3-36     repairing under this chapter [failed to cure];
3-37                 (2)  the reasonable expenses of temporary housing
3-38     reasonably necessary during the repair period;
3-39                 (3)  the reduction in market value, if any, to the
3-40     extent the reduction is due to structural failure; and
3-41                 (4)  reasonable and necessary attorney's fees.
3-42           (i)  The total damages awarded in a suit subject to this
3-43     chapter may not exceed the greater of the claimant's purchase price
3-44     for the residence or the current fair market value of the residence
3-45     without the construction defect.
3-46           (k)  An affidavit certifying rejection of a settlement offer
3-47     under this section may be filed with the court.  The trier of fact
3-48     shall determine the reasonableness of [a rejection of] an offer of
3-49     settlement made under this section.
3-50           (p)  If the contractor provides written notice of a claim for
3-51     damages arising from a construction defect to a subcontractor, the
3-52     contractor retains all rights of contribution from the
3-53     subcontractor if the contractor settles the claim with the
3-54     claimant.
3-55           SECTION 6.  Chapter 27, Property Code, is amended by adding
3-56     Section 27.0041 to read as follows:
3-57           Sec. 27.0041.  MEDIATION.  (a)  If a claimant files suit
3-58     seeking from a contractor damages arising from a construction
3-59     defect in an amount greater than $7,500, the claimant or contractor
3-60     may file a motion to compel mediation of the dispute.  The motion
3-61     must be filed not later than the 90th day after the date the suit
3-62     is filed.
3-63           (b)  Not later than the 30th day after the date a motion is
3-64     filed under Subsection (a), the court shall order the parties to
3-65     mediate the dispute.  If the parties cannot agree on the
3-66     appointment of a mediator, the court shall appoint the mediator.
3-67           (c)  The court shall order the parties to begin mediation of
3-68     the dispute not later than the 30th day after the date the court
3-69     enters its order under Subsection (b) unless the parties agree
 4-1     otherwise or the court determines additional time is required.  If
 4-2     the court determines that additional time is required, the court
 4-3     may order the parties to begin mediation of the dispute not later
 4-4     than the 60th day after the date the court enters its order under
 4-5     Subsection (b).
 4-6           (d)  Unless each party who has appeared in a suit filed under
 4-7     this chapter agrees otherwise, each party shall participate in the
 4-8     mediation and contribute equally to the cost of the mediation.
 4-9           (e)  Section 154.023, Civil Practice and Remedies Code, and
4-10     Subchapters C and D, Chapter 154, Civil Practice and Remedies Code,
4-11     apply to a mediation under this section to the extent those laws do
4-12     not conflict with this section.
4-13           SECTION 7.  Section 27.005, Property Code, is amended to read
4-14     as follows:
4-15           Sec. 27.005. LIMITATIONS ON EFFECT OF CHAPTER.  This chapter
4-16     does not create a cause of action or derivative liability [an
4-17     implied warranty] or extend a limitations period.
4-18           SECTION 8.  Chapter 27, Property Code, is amended by adding
4-19     Section 27.007 to read as follows:
4-20           Sec. 27.007.  DISCLOSURE STATEMENT REQUIRED.  (a)  A written
4-21     contract subject to this chapter must contain next to the signature
4-22     lines in the contract a notice printed or typed in 10-point
4-23     boldface type or the computer equivalent that reads substantially
4-24     similar to the following:
4-25           "This contract is subject to Chapter 27, Property Code.  The
4-26     provisions of that chapter may affect your right to recover damages
4-27     arising from the performance of this contract.  If you have a
4-28     complaint concerning a construction defect arising from the
4-29     performance of this contract and that defect has not been corrected
4-30     through normal warranty service, you must provide notice regarding
4-31     the defect to the contractor by certified mail, return receipt
4-32     requested, not later than the 60th day before the date you file
4-33     suit to recover damages in a court of law.  The notice must refer
4-34     to Chapter 27, Property Code, and must describe the construction
4-35     defect.  If requested by the contractor, you must provide the
4-36     contractor an opportunity to inspect and cure the defect as
4-37     provided by Section 27.004, Property Code."
4-38           (b)  If a contract does not contain the notice required by
4-39     this section, the claimant may recover from the contractor a civil
4-40     penalty of $500 in addition to any other remedy provided by this
4-41     chapter.
4-42           SECTION 9.  (a)  Except as provided by Subsection (b) of this
4-43     section, this Act takes effect September 1, 1999.
4-44           (b)  Section 27.007, Property Code, as added by this Act,
4-45     takes effect September 1, 2000.
4-46           (c)  The changes in law made by this Act apply only to a
4-47     contract subject to Chapter 27, Property Code, as amended by this
4-48     Act, that is entered into on or after the effective date of this
4-49     Act.  A contract subject to Chapter 27, Property Code, that was
4-50     entered into before the effective date of this Act is governed by
4-51     the law in effect when the contract was entered into, and the
4-52     former law is continued in effect for that purpose.
4-53           SECTION 10.  The importance of this legislation and the
4-54     crowded condition of the calendars in both houses create an
4-55     emergency and an imperative public necessity that the
4-56     constitutional rule requiring bills to be read on three several
4-57     days in each house be suspended, and this rule is hereby suspended.
4-58                                  * * * * *