Insurer Off Hook for Flood
Registration Time for Rogue Rhode
A Peek Inside Today's Luxury Home
Wisconsin Limits Impact Fees
Building Costs Climb
Production Builder's Earnings
Resources: Free Guide to Mudsill
In a precedent-setting case, a federal
judge rules that water damage from Hurricane Katrina wasn't
covered by the homeowners' insurance policy.
Hundreds more Katrina lawsuits pending
Damage from Hurricane Katrina's storm surge wasn't covered by a
couple's insurance policy, a federal judge ruled in
That decision is likely to influence hundreds of upcoming cases
involving disputes over whether storm damage was caused by wind
— covered by most homeowner policies — or flooding,
which is covered only by a separate policy purchased through
the National Flood Insurance Program.
The homeowners in this case, Paul and Julie Leonard of
Pascagoula, Miss., had property insurance but not flood
insurance when Hurricane Katrina hit the Gulf Coast last
Located about 12 feet above sea level and 500 feet from the
Mississippi Sound, the Leonards' house was flooded with 5 feet
of water. The first floor had extensive damage; the second
floor was untouched. The roof remained watertight despite some
broken shingles. According to witnesses, the only break in the
building envelope was a "golf-ball-sized" hole in one
first-floor window. In addition, a combination of wind-driven
and water-borne materials had dirtied the exterior of the house
and attached garage. Experts hired by the Leonards pegged total
damages at $130,253.49.
The insurer, Columbus, Ohio-based Nationwide Mutual Insurance
Co., determined that flooding had caused most of the damage but
that wind had damaged some roof shingles and blown a tree down
onto a fence. Accordingly, the company paid the Leonards
$1,661.17, after a $500 deductible, to settle the claim.
U.S. District Court Judge L.T. Senter Jr. agreed with
Nationwide that flooding caused most of the damage and that the
Leonards' policy didn't cover flooding. He upheld the original
payment, though he awarded the homeowners an additional
$1,228.16 to clean portions of exterior walls that were soiled
by wind-driven debris and to fix a broken window.
Another issue in the case was whether insurance agent Jay
Fletcher should have advised his clients to purchase flood
insurance. The judge found that neither Nationwide nor Fletcher
misrepresented the terms of the policy, and that neither party
was responsible for the homeowners' apparent belief that their
policy covered all hurricane water damage.
However, the judge also ruled that two provisions in the
Leonards' policy weren't clear. These clauses, which are used
by other insurers as well, seem to exclude coverage for losses
from wind damage that occur in combination with flood
Hurricane Katrina left many homes — like this one
near Gulfport, Miss. — in tatters. Billions of dollars
are now at stake in lawsuits over the exact source of the
damage. Most homeowner insurance policies cover damage caused
by wind but not by flooding.
In his opinion, Judge Senter wrote, "The most reasonable
interpretation … is that this policy provides coverage
for windstorm damage … and that coverage is not negated
merely because an excluded peril (in this case storm surge
flooding) occurs at or near the same time." Although Nationwide
didn't deny coverage to the Leonards based on these provisions,
the ruling could set a precedent for other cases.
Thousands of homeowners involved in hundreds of Katrina-related
lawsuits are waiting to go to trial. Judge Senter, who will be
hearing most of the hundreds of federal cases in Mississippi,
has sent a letter to some 180 lawyers asking for suggestions on
how "to secure a just, speedy, and inexpensive resolution of
The faster the cases can be decided, the sooner the homeowners
can start rebuilding. But whereas the Leonards' home was
relatively intact, with physical evidence available, many other
homes were obliterated. That will make determining how much
damage was due to wind and how much to water all the more
difficult. — Laurie Elden
• The number of New Hampshire homeowners buying flood
insurance has increased by more than 26 percent since May 2005.
Spikes were seen after the deadly October 2005 floods in the
southwest part of the state and after new flood-plain maps were
released in June 2005. The only state with a higher increase in
the number of policies was Mississippi, where purchases have
jumped by 41.4 percent. Nationally, three times as many
policies were written between May 2005 and May 2006 as were
written between May 2004 and May 2005.
• Serial remodeling may be the new hobby of the
ultra-rich; some of these home-owners have been known to rip
out and redo a room almost as soon as a remodel is finished. Of
the $238 billion that NAHB predicts will be spent in the U.S.
on remodeling in 2006, a large part will come from the very
affluent: Figures from the U.S. Census show that the wealthiest
households spend about three times as much on home improvement
as members of the second-highest income group.
• Free plasma TVs, hardwood floors, and granite
countertops are among the incentives developers are using to
attract customers in the current slow housing market. Now
California builder Clarum Homes is giving this marketing ploy a
green twist by offering free Toyota Prius hybrids to buyers of
the five remaining energy-efficient homes for sale in its
Pajaro Vista development.
• The moldiest state in the country is Texas, followed by
Florida, Oklahoma, and South Carolina, says American Risk
Management Resources, an insurance brokerage firm headquartered
in Wisconsin. The company based the ranking on an analysis of
insurance claims in the U.S. Coincidentally, Wisconsin has the
lowest "relative hazard mold ranking," followed by West
Virginia and Alabama.
• At your next company party, just say no when the paint
thinner is passed around. Dale Angus, an employee of Spence
Carpentry and Joinery in Melbourne, Australia, was burned at a
holiday party last December when a co-worker sprayed him with
paint thinner, which was ignited by a nearby open flame. Angus
and three fellow partiers were "placed on a 12-month good
behavior bond and ordered to take a one-day health and safety
course," according to a report on the Web site
• A sweep of St. Lucie County, Fla., job sites in July
netted three arrests for working without workers' comp, 15
cease-and-desist orders for using unauthorized workers, and two
$2,500 citations for unlicensed contracting. State, county, and
local regulators jointly conducted the investigation.
• Solar energy got another boost in California this summer
with the passage of SB 1, dubbed the Million Solar Roofs Bill.
The law requires municipal utilities to offer solar rebates
— an expansion of the state's Solar Initiative (In the
News, 04/06), which applied only to publicly traded utilities.
SB 1 also increases the net-metering cap, allowing some 500,000
solar-energy system owners to sell excess electricity back to
the utility, and requires home builders to make solar panels a
standard option on any project of 50 units or more by
• Gypsum Recycling America has opened a facility in
Cambridge, Mass., to recycle gypsum from scraps of new
paper-faced wallboard. The company, a subsidiary of
Denmark-based Gypsum Recycling International, offers covered
containers and haul service for large quantities of scrap;
contractors can drop off smaller volumes at the warehouse for
$10 per cubic yard. USG has contracted to purchase the
reprocessed gypsum powder and use it in the manufacture of new
• Second-home sales have hit a slump, The New York Times
reported in August. Vacation houses, such as those in the
Hamptons and in Florida, are sitting on the market longer, and
some sellers are reducing their asking price by hundreds of
thousands of dollars. Economists and realtors blame the
downturn on the large number of speculators selling investment
homes, along with a combination of higher interest rates,
increased energy costs, and a slowing economy.
• Consumers will spend about $22 billion this year on
luxury bath remodels, reports the Kitchen & Bath Business
2006 Market Forecast. And that's not necessarily flushing money
down the toilet. Adding a half bathroom can increase the value
of a home by 10 percent, according to NAHB, and a full bath can
up the value by 19 percent. An extra bath adds even more value
if a house has fewer bathrooms than bedrooms.
• The New York Electrical Contractors Association
appointed its first woman president in May. Gina Addeo,
president and owner of GMA Electrical Corp., also has the
distinction of being the first woman in New York to earn a
Master Electrician's license.
• Since July, the IRC 2000 has been part of the New
Hampshire statewide building code. The Home Builders and
Remodelers Association of New Hampshire, the state's Building
Officials Association, and various consumer groups supported
• Californians looking for an affordable place to live
might consider moving to Indiana. The NAHB/Wells Fargo Housing
Opportunity Index shows that housing affordability went down
slightly nationwide in the second quarter of 2006 as the median
home price stayed the same and the average mortgage rate went
up. Los Angeles County was the nation's least affordable metro
area: Only 1.9 percent of the homes sold were affordable to the
county's median-income families. This is a sharp contrast to
Indianapolis, the most affordable metro area, where 87.4
percent of the homes sold were affordable to median-income
families. Reacting to the report, the California Building
Industry Association called on state lawmakers to lower
regulatory costs and open more land to development.
• Under a state law effective August 1, West Virginia home
inspectors need to be certified by the State Fire Commission.
To gain certification, all inspectors must pass the National
Home Inspection Exam, carry liability insurance of at least
$250,000, and earn 16 hours of continuing education each year.
The law, which follows guidelines set by the American Society
of Home Inspectors and the National Association of Home
Inspectors, also dictates a minimum list of items that must be
included in each inspection.
• By claiming to sell high-quality wood flooring at
discount prices, Cornelius Coleman Martin III bilked more than
122 people over the Internet. According to Georgia Attorney
General Thurbert Baker, customers paid Martin between 50 and
100 percent of the purchase price up front, and got unusable,
substandard materials in return — when they got anything
at all. The scam, through Web sites such as BeaverFlooring.com,
caught up with Martin, who was sentenced to 20 years and
ordered to pay more than $500,000 in restitution.
Time for Rogue Rhode Island Contractors
Rhode Island's contractor registration law just got tougher,
with stricter requirements for registration and higher
penalties for noncompliance.
The most significant aspect of the legislation is the beefed-up
enforcement power it gives the state Contractors' Registration
Board. In the past, the CRB could levy small fines but do
little else; now it's authorized to withhold or revoke
registration, levy heftier fines, and put liens on property
held by a contractor. Under the new provision, it can fine a
contractor the following amounts:
• up to $5,000 for being unregistered and up to $10,000
for a second offense;
• $500 per occurrence for using the word "licensed"
(unless used in connection with a licensed trade, like
plumbing) instead of "registered" in an ad;
• $10,000 for providing false information on the
registration form or fraudulently claiming to be
• the greater of actual damages or the face value of the
contract, after a hearing, for breaching a contract or failing
to complete a construction project.
Another addition to the law requires contractors to write a
contract for all projects that exceed $1,000 in value (measured
in labor and materials). Violations are punishable by a fine of
As in the past, contractors who are registering must supply
(when applicable) account numbers for workers' comp,
unemployment insurance, and state withholding tax, as well as a
federal employer I.D. number. But now they also must submit a
valid insurance certificate for the type of work being
performed — with a minimum requirement of $500,000 in
public-liability and property-damage coverage.
The Rhode Island Builders Association, which supported the
changes, reports that 12,239 contractors are registered in the
state, but more than 15,000 aren't. Says Edgar Ladouceur,
association president, "We now have legislation that is much,
much better for the homeowner and for our industry. It's
definitely much worse for the outlaw contractors." —
A Peek Inside Today's Luxury
Owners of U.S. homes worth more than $1 million ($2 million
in California) cracked open their doors to the rest of us in
the 2006 Coldwell Banker Previews International Luxury
The most common feature of these manses? A security system.
Eighty-six percent of the 300 homeowners surveyed reported
Sixty-five percent of the respondents said they had a designer
kitchen and 37 percent either had or were considering adding a
wine cellar. Fifty-nine percent said they had an entertainment
room; 89 percent of those rooms were big enough for more than
six people, 57 percent included a wet bar, and 24 percent had
Sixty-seven percent of the respondents reported keeping their
grounds professionally landscaped, perhaps to enhance the
setting for their in-ground swimming pool (owned by 37 percent
of respondents) or hot tub (owned by 35 percent). —
Two new laws signed this year by Wisconsin Governor Jim
Doyle restrict the types of projects that local municipalities
— cities, villages, towns — can finance with impact
fees and effectively ban counties from imposing any fees at
Whereas the old rules, passed in 1993, allowed municipalities
to collect fees for "parks, playgrounds, and other recreational
facilities," the new legislation redefines that category more
narrowly as "parks, playgrounds, and land for athletic
Transportation projects face similar restrictions: New roads
are now the only transportation-related infrastructure that can
be funded by impact fees. And vehicles are no longer considered
an eligible capital expense, so impact fees can't be used to
purchase new fire trucks.
The laws also change impact-fee due dates and tighten up
In the past, the fees were usually collected when a building
project was approved; now they won't be due until the building
permit is issued. The new rules set a time limit of seven years
for spending the fees, although a community may qualify for a
three-year extension if it can show extenuating
Local municipalities will be required to have separate
interest-bearing accounts for each impact fee, and will need to
report collections and spending as part of their annual
Supporters of the new legislation say that the changes will
lower the cost of new homes and decrease impact-fee abuse.
Opponents counter that the restrictions will make planning more
difficult and will ultimately result in higher property taxes.
You may have noticed that your job costs have been going up
much faster than your grocery bill. That's because prices of
construction materials increased at almost twice the rate of
inflation from July 2005 to July 2006.
August figures from the Bureau of Labor Statistics show that
the producer price index (PPI), a measure of wholesale-price
inflation, rose 4.2 percent and the consumer price index (CPI)
rose 4.1 percent in the 12 months ending July 31.
During the same period, prices for construction materials and
components rose 8.3 percent.
The news was even worse for specific construction inputs.
According to Ken Simonson, chief economist for the Associated
General Contractors of America, prices for copper and brass
shapes, used in wire and plumbing materials, shot up 88 percent
from July 2005 to July 2006. Gypsum, found in wallboard, went
up 23 percent in price; plastic, 20 percent; steel, 18 percent;
and aluminum, 15 percent.
The high cost of diesel fuel, up 26 percent in the August PPI
report, continues to inflate prices further by raising delivery
Lumber and panel prices, on the other hand, have come down,
softening some of the effects of the increases. The Random
Lengths framing lumber composite price was $291 per thousand
board feet on August 12; it had been $363 a year earlier. The
structural panel composite price fell from $350 to $288 in the
The upshot? Builders "should not assume inflation is going
away," says Simonson in a statement issued after the PPI report
was released. "For many of these materials, cost increases have
been accelerating, not subsiding." He advises builders to "get
realistic about budgeting for higher construction costs."
One Ugly Deck.
This Kentwood, Mich., deck
may not look like your typical award-winner, but in the 2006
Ugliest Deck in America contest, it was a shoo-in for first
place. Dale and Julie Owsinski, owners of the dilapidated
example of 1970s backyard architecture, won a $10,000 makeover
from Sikkens Decorative Coatings.
Builder's Earnings Fall
Pennsylvania-based Toll Brothers announced in August that
its net income was down 19 percent in the three months ending
July 31 compared with the same quarter last year. The
luxury-home builder cited "an oversupply of inventory and a
decline in confidence" as reasons for the lower earnings.
Despite the drop in revenue, company chairman and chief
executive officer Robert I. Toll expressed confidence in the
overall strength of the housing market, pointing to relatively
low mortgage interest rates, a large pool of potential home
buyers, and a sound economy.
Still, the company appears to be scaling back its plans for
next year: It expects to deliver fewer homes in fiscal year
2007 than it did in fiscal year 2006 — 7,000 to 8,000
compared with 8,600 to 8,900. Moreover, it intends to continue
reducing its inventory of building lots, already down from
91,200 lots at the end of April to 82,900 lots at the end of
August. — L.E.
Guide to Mudsill Anchors
Simpson Strong-Tie Co. has developed a new training kit,
"Introduction to Mudsill Anchors," that covers basic
installation of mudsill anchors and more specific techniques to
use with the company's products.
Like Simpson's two other kits — "Basic Fastener
Installation" and "Introduction to Joist and Beam Hangers" (see
In the News, 11/05) — the mudsill kit is part of the NAHB
National Housing Quality Certified Training Materials Program.
All three sets contain instructor and student guidebooks, plus
a training video in VHS or CD-ROM format. Materials are
presented in both English and Spanish. Builders who are not
interested in participating in the training program can order
just the CD or the video, without the booklets.
For more information, call 800/999-5099, or go to
and click "training."