At a hearing before the House Subcommittee on Regulatory Reform and Oversight, Committee on Small Business, Jo Rae Wagner said the increasing number of "frivolous" lawsuits in the construction industry is jeopardizing the future of America's small business. Wagner, president of CTO Inc., a commercial plumbing, heating, and cooling contractor based in Harlingen, Texas, informed the subcommittee that lawsuits are threatening profitability "and my company's ability to compete in the construction sector."
"Many of my fellow contractors are responding to the potential for legal action by reducing their workforce," she testified. "Simply, many contracting firms can't afford triple-digit increases in their general liability premiums - that is, if they're lucky enough to get coverage."
Wagner said the industry is highly supportive of H.R. 2813, legislation sponsored by Reps. Steve Chabot, R-Ohio, and Ken Lucas, D-Ky. Provisions of the bill's Section 104 that would limit non-economic liability to those liable or negligent are of special interest to PHCC and other industry associations.
"I wish to return to a time when our industry focused on what we do best - build America - without the stress of wondering if we're going to get sued on a given project," she told the House panel, noting that over the past two years she has been spending more time preparing for mediations and court appearances than on exploring new business opportunities.
Several ExamplesTo prove her point, Wagner revealed that her company became involved in mold and construction defect claims related to a large school project in Texas. In this case, the school board sought $30 million from 26 contractors for a project that cost $14 million to build.
"Let me repeat that: the cost of the building to construct was $14 million, yet the cost to sue was $30 million," she said. Even though various depositions cleared her company from any negligence and liability, CTO Inc. was still found guilty, she said, and forced, through insurance, to assist in covering costs.
"Mr. Chairman, this story is not the exception; this is a daily experience for those participants in the plumbing-heating-cooling industry and others in the construction community," said Wagner.
"In order for us to go back to doing what we do best, it is critical for us to get some real common sense tort reform legislation passed in this country."
To add insult to injury, she said, CTO Inc. was recently named again in another lawsuit that involves 32 construction companies. Although, again, with no apparent liability, the company's share of this claim is estimated at $1.5 million, which could produce another triple-digit increase in its insurance rates, said the Texas contractor.
"Until we see some return to normalcy, our firm has chosen to remove itself from performing work in the high-risk trades, including air conditioning, as we cannot continue to operate under a veil of potential litigation," Wagner informed members of the subcommittee.
"I've heard that the court system in south Texas will be considering over $2 billion in construction-related lawsuits. In an effort to cover the costs of possible litigation, the bidding for some of these new school projects have exceeded estimates by 40 percent. Why should the taxpayer be expected to fund such an increase?"
Summarizing her thoughts, she added, "We need to secure passage of legislation like H.R. 2813, and assign liabilities in direct proportion to the percentage of responsibility of those negligent."
Publication date: 09/06/2004