Contemplating My Risk as a Builder

By Ray Gee for the New Mexico Home Builders Association Housing Journal

Did you know that active soils cause more property damage in the United States each year than the combined property damage of all floods, earthquakes, hurricanes and tornados? The total for this damage is 15 billion dollars a year.

I learned this amazing fact recently when viewing a presentation called Lessons Learned from 10,000 Structural Claims that was put together by 2-10 Home Buyers Warranty (2-10 HBW). The presentation is in two parts and may be found on You Tube at the following links:

Part 1

Part 2

2-10 HBW has the largest database for forensic claims in the country and, as the title indicates, they have learned a lot about structural claims in residential construction. Here are some additional facts taken from the presentation:

– 25% of all homes in the United States experience some structural distress over their lifetime.

– 5% of all homes experience major structural distress.

– 15% of all new homes are seriously defective.

The breakdown of claims for these defects is as follows:

20% of all structural claims are due to the framing:

  • 12.5% roof/floor
  • 3.5% lintels/arches
  • 1.5% walls/partitions
  • 1.5% beams/girders
  • 1.0% columns

80% of all structural claims are due to the foundation movement:

  • 40% settlement
  • 25% heaving
  • 10% lateral
  • 5% other

If you do the math, this means that 52% of all claims are due to movement of soils from either settlement or heaving. The average cost of these claims is $42,000 and can cost over $500,000 on a single house. These claims are typically filed over a 10-year period and over 70% of them are filed after four years. If you’re a builder, I hope I got your attention. I strongly urge you to take a look at these presentations. They deal with a serious issue and offer suggestions on how to mitigate your risk.

One effective tool to mitigate risk is to require geotechnical investigation of the soils on your site. According to 2-10 HBW, builders that use soil testing incur 50% fewer claims than those who do not. I’m sure you’ll note that this means that some builders still do incur claims. There is no guarantee, even with testing, that problems can be totally avoided. However, testing, followed by proper design and installation, shows due diligence and may play a large role in the disposition of any claims.

One issue that often comes up when considering soil testing is the added cost. Many times the client can not afford the added cost of testing and engineered foundations. On some occasions, the project is even put on the shelf. The presentations mentioned above make a case for reducing the cost burden by allowing for a more effective foundation design rather than over design that often results from not having testing available. Here’s another thought on the cost issue. Are you going to provide free insurance for your client’s benefit by not getting testing done? In essence, that’s what you’re doing if you assume the risk for structural defects. Also, if you are getting a little more gray on top, like many of us, will you have time to recover from a major loss if it is incurred? I’d rather lose the project than lose my business because I did not follow good practices.

There is one other issue that comes into play. The current New Mexico Building Code states the following in section R401.4:

Where quantifiable data created by accepted soil science methodologies indicate expansive, compressible, shifting or other questionable soil characteristics are likely to be present at a particular location, a soil test to determine the soil’s characteristics at a particular location shall be performed.

That language is a departure from the national “model” building code, effectively taking the soil test decision away from the code official and putting it on the builder. Also, I think this language is not clear and could easily be interpreted to require soil testing in almost any circumstance. Given the lack of clarity, I’d bet a jury would say that I needed a soil test if a claim went to court. In addition, I believe the language could lead to a code violation determination on almost any project without a soil test and especially when there is a foundation problem. Something to think about!

Here are two other code areas that relate to soils. One is R403.1.8, which deals with expansive soils and plasticity index (PI). Soils with a PI of 15 or greater can expand as much as 18 inches and exert 30,000 pounds per square foot of force when subjected to water infiltration. This amount of movement and force can cause major damage to a foundation. Another code is R801.3, which deals with roof drainage where expansive or collapsible soils exist. It requires that dwellings shall have a controlled method of water disposal from roofs that will collect roof drainage to the ground surface at least 5 feet from foundations. Does this prohibit the use of canales when expansive or collapsible soils exist?

More information on the above points, as well as other useful information, is discussed in the presentations. As I began writing this article, news came in about a huge landslide in Washington State causing multiple deaths, injuries and destruction of numerous homes. This was caused by excessive moisture causing destabilization of the soils, according to geologists. Clearly, actively moving soils are a major problem in our industry. I did not write this article to endorse any insurance company or product, but I do recommend that you watch the presentations and come up with your plan to deal with this serious issue.

This article was written by Ray Gee for the New Mexico Home Builders Association Housing Journal April 2014 edition.