2-10 Blog

Eight Lessons Learned from 10,000 Structural Claims – Part 1

By Walt Keaveny, MS, PE, PG

Walt Keaveny is a specialist in risk management for 2-10 HBW, and has more than 25 years of experience in the engineering and home building industries, with a focus on new home warranties, claims and repairs. He has evaluated the data from over 10,000 structural claims and offers the following takeaways.

*Article developed from a presentation by the same name to the National Association of Home Builders (NAHB)

It’s a call that every builder hates to receive. A homeowner calling with sheetrock cracks across walls, doors and windows jammed shut, buckled floors, or siding, trim, and mold separation. Or worse, beams, roof structure or garage door lintels on the verge of collapse. Structural claims represent one of the greatest liabilities to a builder. The good news is that builders can manage this risk, protecting their financial well-being and hard-earned reputation.
First, it’s important to understand the risk. A builder’s chances of experiencing structural claims are much higher than most believe and are about the same as experiencing a major household fire. Twenty-five percent of all U.S. homes will experience some structural distress during their lifetime, and 5% will experience major structural difficulties.
With that risk in mind, the eight critical lessons learned from over 30 years of adjusting residential structural claims are:

Lesson 1: The foundation is the greatest structural claim liability.
Eighty percent of structural claims are caused by movement of the foundation. The remaining 20% are caused by framing-related deficiencies. Thus the foundation should be the builder’s primary area of focus.

Lesson 2: Active soils and fill material are the two main causes of structural claims.
Foundation claims are caused by movement of soils that support the foundation. There are two types of soils that cause this movement: active soils and fill material.
Active soils (or expansive or swelling soils), cause more property damage in the U.S. than floods, earthquakes, hurricanes and tornadoes combined. Active soils contain clay that swells when wet and shrinks when dry causing volume changes. This can force houses to bend and tilt leading to distortion and damage.
Fill material, placed under the foundation, can contain voids like a sponge that close when subjected to the load of a foundation. This causes settlement.

Lesson 3: Most structural claims are reported between four and seven years after the sale of the home.
For a typical 10-year warranty term only 30% of claims are received within the first four years after the sale. The remaining 70% are received after the fourth year, with peak claims activity occurring in years four through seven. Often builders don’t adequately reserve for claims that long after the sale. Although total home value losses are not common, structural claims are expensive and average $42,000 to investigate and repair.

Lesson 4: The International Residential Code (IRC) and International Building Code (IBC) provide essential standards to reduce the risk of structural claims.
Builders may be surprised to learn that from a construction standpoint it is very important to comply with the International Residential Code (IRC) and applicable sections of the International Building Code (IBC), or other equivalent code. Compliance with code is imperative to reduce builder liability and is also critical in construction legal defense.

Stay tuned for part two in this series, in which Walt will share the remaining four lessons learned from 10,000 structural claims.