SB179

SECTION 1. The legislature finds that Hawaii is in a major housing crisis, which continues to worsen, and has been further exacerbated by the impacts of the August 2023 Maui wildfires. Residents of Hawaii face the highest housing costs in the nation and the median single-family home and condominium prices have more than tripled since the 1990s. A substantial contributing factor to the high cost of housing is the cost of anticipated litigation and insurance requirements necessary to protect against future claims, which disincentivizes the construction of homes. Developers or improvers of real property are required to insure against deficiencies of improvements. The proliferation of construction defect litigation results in increased housing prices directly, through passed-on insurance costs, and indirectly, through lower levels of housing supply. This has been exacerbated in recent years with the practice of filing unrestricted constructed defect complaints, which can be filed with no identified defect, and complaints that do not allow a developer or improver of real property to inspect or remedy potential defects. This results in settlements that often do not benefit the homeowner, higher insurance costs, and lower housing production.

The legislature finds that the current language contained in the Contractor Repair Act, codified in chapter 672E, Hawaii Revised Statutes, and the statute of repose, section 657-8, Hawaii Revised Statutes, have failed in their purpose to assist the parties in the early resolution of claims and provide a clear framework for resolution of construction defect claims. The lack of clarity has also reduced the effectiveness of these statutes by making it more difficult for all parties to resolve construction defect disputes fairly, resulting in inconsistent rulings and prolonging the dispute-resolution process.

Therefore, the purpose of this Act is to:

(1) Clarify the statute of repose to make it clear that it applies to contract, tort, and statutory claims, fraudulent concealment is not a defense with respect to the repose period, and require a violation of a building code to be material to be actionable;

(2) Clarify the required contents of a notice of claim of construction defect served on a contractor;

(3) Amend the process and time frame for a claimant to accept a contractor's offer to settle or inspect and authorize the contractor to proceed with repairs;

(4) Limit the amount a claimant can recover if the claimant rejects a contractor's reasonable proposal for inspection or a reasonable offer to remedy; and

(5) Clarify the consequences of rejecting an offer of settlement.

SECTION 2. Section 657-8, Hawaii Revised Statutes, is amended to read as follows:

"§657-8 Limitation of action for damages based on construction to improve real property. (a) No action, whether in contract, tort, statute, or otherwise, to recover damages for any injury to property, real or personal, or for bodily injury or wrongful death, arising out of any deficiency or neglect in the planning, design, construction, supervision and administering of construction, and observation of construction relating to an improvement to real property shall be commenced more than two years after the cause of action has accrued, but in any event [~~not~~] no more than ten years after the date of completion of the improvement.

(b) This section shall not apply to actions for damages against owners or other persons having an interest in the real property or improvement based on their negligent conduct in the repair or maintenance of the improvement or to actions for damages against surveyors for their own errors in boundary surveys. [The term "improvement" as used in this section shall have the same meaning as in section 507-41 and the phrase "date of completion" as used in this section shall mean the time when there has been substantial completion of the improvement or the improvement has been abandoned. The filing of an affidavit of publication and notice of completion with the circuit court where the property is situated in compliance with section 507-43(f) shall be prima facie evidence of the date of completion.] An improvement shall be deemed substantially complete upon the earliest of the following:

(1) The issuance of a temporary certificate of occupancy;

(2) The issuance of a certificate of occupancy; or

(3) The filing of an affidavit of publication and notice of completion within the circuit court where the property is situated in compliance with section 507‑43(f).

If the improvement consists of multiple buildings or improvements, each building or improvement shall be considered as a separate improvement for purposes of determining the limitations period set forth in this section.

(c) This section shall not be construed to prevent, limit, or extend any shorter period of limitation applicable to sureties provided for in any contract or bond or any other statute, nor to extend or add to the liability of any surety beyond that for which the surety agreed to be liable by contract or bond.

[~~(c)~~] (d) Nothing in this section shall exclude or limit the liability provisions as set forth in the products liability laws.

(e) The doctrine of fraudulent concealment, as used for a defense to statute of limitations, shall not apply to the ten-year limitations period set forth in subsection (a).

(f) No action, whether in contract, tort, statute, or otherwise, based on a violation of the applicable building code shall be commenced unless the violation is a material violation of the applicable building code.

(g) For purposes of this section:

"Date of completion" means the time when there has been substantial completion of the improvement or the improvement has been abandoned.

"Improvement" has the same meaning as in section 507-41.

"Material violation" means a building code violation that exists within a completed building, structure, or facility that has resulted in physical harm to a person or significant damage to the performance of a building or its systems; provided that, without limiting the foregoing, it shall not be deemed a "material violation" of an applicable building code if the person or party that is alleged to have violated the building code obtained the required building permits, the local government or public agency with authority to enforce the building code approved the plans, the construction project passes all required inspections under the code, and there is no personal injury or damage to property other than the property that is the subject of the permits, plans, and inspections, unless the person or party knew or should have known that the material violation existed during construction."

SECTION 3. Section 672E-3, Hawaii Revised Statutes, is amended to read as follows:

"[[]§672E-3[]] Notice of claim of construction defect. (a) A claimant, no later than ninety days before filing an action against a contractor, shall serve the contractor with a written notice of claim. The notice of claim shall [~~describe~~]:

(1) State that the claimant asserts a claim against the contractor for a construction defect in the design, construction, or remodeling of a dwelling or premises; and

(2) Describe the claim, with particularity, specificity, and in detail [~~and include the results of any testing done.~~] sufficient to determine the circumstances constituting the alleged construction defect and damages resulting from the construction defect. A general statement that a construction defect may exist shall be insufficient.

The notice of claim shall not constitute a claim under any applicable insurance policy and shall not give rise to a duty of any insurer to provide a defense under any applicable insurance policy unless and until the process set forth in section 672E‑5 is completed. Nothing in this chapter shall in any way interfere with or alter the rights and obligations of the parties under any liability policy.

(b) If available to the claimant, the claimant shall provide to the contractor, with the notice of claim, actual evidence that depicts the nature and cause of the construction defect and the nature and extent of the repairs necessary to repair the defect, including the following information if obtained by the claimant: expert reports, photographs, videotapes, and any testing performed.

(c) Each individual claimant or class member shall comply with this chapter, which includes permitting inspection under section 672E-4 of each dwelling or premises that is the subject of the claim.

[~~(b)~~] (d) A contractor served with a written notice of claim shall serve any other appropriate subcontractor with notice of the claim. The contractor's notice shall include the claimant's written notice of claim.

[~~(c)~~] (e) After serving the notice of claim, a claimant shall give to the contractor reasonable prior notice and an opportunity to observe if any testing is done."

SECTION 4. Section 672E-4, Hawaii Revised Statutes, is amended to read as follows:

"§672E-4 Rejection of claim; opportunity to repair construction defect. (a) The contractor rejects a claimant's claim of construction defects by:

(1) Serving the claimant with a written rejection of the claim; or

(2) Failing to respond pursuant to subsection (b)(1) or (b)(2)[,] to the notice of claim within thirty days after service.

(b) The contractor, within thirty days after service of the notice of claim, shall serve the claimant and any other contractor that has received the notice of claim with a written response to the alleged construction defect that:

(1) Offers to settle without inspecting the construction defect by:

(A) Monetary payment;

(B) Making repairs; or

(2) Proposes to inspect the premises of the alleged construction defect that is the subject of the claim.

(c) Within thirty days following any proposal for inspection under subsection (b)(2), [~~the claimant shall provide access to:~~] the claimant shall accept a contractor's proposal. After accepting the contractor's proposal for inspection, the claimant and contractor shall agree on a time and date for the inspection, which shall occur within thirty days of the claimant's acceptance of the contractor's proposal for inspection, unless the claimant and contractor agree to a later date. The claimant shall provide reasonable access to the dwelling or premises during normal working hours to:

(1) Inspect the premises;

(2) Document any alleged construction defects; and

(3) Perform any testing required to evaluate the nature, extent, and cause of the asserted construction defect, and the nature and extent of any repair or replacement that may be necessary to remedy the asserted construction defect;

provided that if the claimant is an association under chapter 514B, the claimant shall have forty-five days to provide [~~such~~] access. If access to an individual condominium unit is necessary, and the association is unable to obtain [~~such~~] access, then the association shall have a reasonable time to provide access. If destructive testing is required, the contractor shall give advance notice of tests and return the premises to its pre-testing condition. If inspection or testing reveals a condition that requires additional testing to fully and completely evaluate the nature, cause, and extent of the construction defect, the contractor shall provide notice to the claimant of the need for additional testing. The claimant shall provide additional access to the dwelling or premises. If a claim is asserted on behalf of owners of multiple dwellings, or multiple owners of units within a multi-family complex, the contractor shall be entitled to inspect each of the dwellings or units.

(d) Within fourteen days following the inspection and testing, the contractor shall serve on the claimant a written:

(1) Offer to fully or partially remedy the construction defect at no cost to the claimant. [~~Such~~] The offer shall include a description of construction necessary to remedy the construction defect and a timetable for the completion of the additional construction;

(2) Offer to settle the claim by monetary payment;

(3) Offer for a combination of repairs and monetary payment; or

(4) Statement that the contractor will not proceed further to remedy the construction defect.

(e) Any offer of settlement under this section shall reference this section, and shall state that a claimant's failure to respond with a written notice of acceptance or rejection within thirty or forty-five days, whichever applies pursuant to section 672E-5(a), shall mean that the offer is rejected. Failure to serve a written offer or statement under this section shall be deemed a statement that the contractor will not proceed further."

SECTION 5. Section 672E-6, Hawaii Revised Statutes, is amended to read as follows:

"[[]§672E-6[]] Offer of settlement. (a) Any time after the service of the notice of claim, any party may serve an offer of settlement.

(b) If the offer is accepted, the parties shall be deemed to have resolved the claim in whole or in part pursuant to the offer.

(c) An offer not accepted within the time period required under section 672E-5, or ten days after service for any subsequent offers, shall be deemed withdrawn and evidence thereof is not admissible except to determine entitlement to recovery of attorneys' fees and costs[.] and reasonableness of the contractor's offer of settlement in subsection (d).

(d) If a claimant rejects a contractor's reasonable offer of settlement, the claimant's cost of repair recovery shall be limited to the reasonable value of the repair determined as of the date of the offer and the amount of the offered monetary payment.

(e) If the judgment or award obtained in a subsequent proceeding is not more favorable than the offer[,] of settlement, the offeree shall pay the costs incurred by the offeror after the making of the offer[.] and the offeree shall not be entitled to recover attorneys' fees and costs incurred after the offer was made. The fact that an offer is made and not accepted does not preclude a subsequent offer."

SECTION 6. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 7. This Act shall take effect on July 1, 2025.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	179
THIRTY-THIRD LEGISLATURE, 2025
STATE OF HAWAII