S.F. _____ Section 1. NEW SECTION . 686.1 Definitions. 1 As used in this chapter, unless the context otherwise 2 requires: 3 1. “Action” means any civil action or arbitration proceeding 4 for damages or indemnity asserting a claim for injury to 5 property, real or personal, or injury to person or wrongful 6 death arising out of the unsafe or defective condition of an 7 improvement to real property based on tort, breach of contract, 8 or express or implied warranty. 9 2. “Association” means an entity or homeowners association 10 created for the purposes of managing the operations of a 11 community as set forth in a declaration of covenants or 12 declaration of submission of property to horizontal property 13 regime filed of record in the county that the property is 14 located. 15 3. “Claimant” means an owner, a subsequent owner, or an 16 association who asserts a claim for damages against a general 17 contractor or subcontractor concerning a construction defect. 18 4. “Construction defect” means an alleged or actual unsafe 19 or defective condition of an improvement to real property. 20 5. “General contractor” means a person who does work or 21 furnishes materials by contract, express or implied, with an 22 owner. 23 6. “Owner” means the legal or equitable titleholder of 24 record to real property or the holder of a leasehold interest. 25 7. “Serve” , “served” , or “service” means delivery by 26 certified mail with a United States postal service record 27 of evidence of delivery or attempted delivery to the last 28 known address of the addressee, by hand delivery with written 29 evidence of delivery, or by delivery by any courier with 30 written evidence of delivery. 31 8. “Subcontractor” means a person furnishing material 32 or performing labor upon any building, erection, or other 33 improvement to land, except those having contracts directly 34 with the owner. 35 -1- LSB 5703XC (3) 87 asf/jh 1/ 10

S.F. _____ Sec. 2. NEW SECTION . 686.2 Action —— compliance. 1 A claimant shall not file an action without first complying 2 with the requirements of this chapter. If a claimant files an 3 action alleging a construction defect without first complying 4 with the requirements of this chapter, on timely motion by a 5 party to the action, the court shall stay the action, without 6 prejudice, and the action shall not proceed until the claimant 7 has complied with the requirements. 8 Sec. 3. NEW SECTION . 686.3 Notice and opportunity to 9 repair. 10 1. Prior to commencing an action alleging a construction 11 defect, the claimant shall, at least sixty days before 12 filing any action, or at least one hundred twenty days before 13 filing an action involving a class action or an association 14 representing more than twenty owners, serve written notice of 15 claim on the general contractor and subcontractor. The notice 16 of claim shall refer to this chapter and must describe the 17 claim in reasonable detail sufficient to determine the general 18 nature of each alleged construction defect, a description of 19 the damage or loss resulting from the defect, if known, and 20 any work or inspections completed to determine the cause of 21 the damage or loss or correct the construction defect. This 22 subsection does not preclude a claimant from filing an action 23 sooner than sixty or one hundred twenty days, as applicable, 24 after service of written notice as expressly provided in 25 subsection 6, 7, or 8. 26 2. a. Within thirty days after service of the notice of 27 claim, or within sixty days after service of the notice of 28 claim involving a class action or an association representing 29 more than twenty owners, the person served with the notice of 30 claim under subsection 1 is entitled to perform a reasonable 31 inspection of the property or of each unit subject to the claim 32 to assess each alleged construction defect. The claimant 33 shall provide the person served with notice under subsection 34 1 and the person’s general contractors, subcontractors, or 35 -2- LSB 5703XC (3) 87 asf/jh 2/ 10

S.F. _____ agents reasonable access to the property during normal working 1 hours to inspect the property to determine the nature and 2 cause of each alleged construction defect and the nature and 3 extent of any repairs or replacements necessary to remedy each 4 construction defect. The person served with notice under 5 subsection 1 shall reasonably coordinate the timing and manner 6 of any and all inspections with the claimant to minimize the 7 number of inspections. The inspection may include reasonable 8 destructive testing by mutual agreement under the following 9 terms and conditions: 10 (1) If the person served with notice under subsection 1 11 determines that destructive testing is necessary to determine 12 the nature and cause of the alleged construction defects, the 13 person shall notify the claimant in writing. 14 (2) The notice shall describe the destructive testing 15 to be performed, the person selected to do the testing, the 16 estimated anticipated damage and repairs to or restoration of 17 the property resulting from the testing, the estimated amount 18 of time necessary for the testing and to complete the repairs 19 or restoration, and the financial responsibility offered for 20 covering the costs of repairs or restoration. 21 (3) The testing shall be done at a mutually agreeable time. 22 (4) The claimant or a representative of the claimant may be 23 present to observe the destructive testing. 24 b. If the claimant refuses to agree and permit reasonable 25 destructive testing, the claimant shall have no claim for 26 damages which could have been avoided or mitigated had 27 destructive testing been allowed when requested and had a 28 feasible remedy been promptly implemented. 29 3. The general contractor or subcontractor may serve a 30 copy of the notice of claim to each subcontractor or general 31 contractor whom the general contractor or subcontractor 32 reasonably believes is responsible for a construction defect 33 specified in the notice of claim and shall note the specific 34 construction defect for which the subcontractor or general 35 -3- LSB 5703XC (3) 87 asf/jh 3/ 10

S.F. _____ contractor is alleged to be responsible. The notice described 1 in this subsection shall not be construed as an admission of 2 any kind. A general contractor or subcontractor may inspect 3 the property in the manner described in subsection 2. 4 4. Within fifteen days after service of a copy of the notice 5 of claim pursuant to subsection 3, or within thirty days after 6 service of the copy of the notice of claim involving a class 7 action or an association representing more than twenty owners, 8 the general contractor or subcontractor must serve a written 9 response to the general contractor or subcontractor who served 10 a copy of the notice of claim. The written response shall 11 include a report, if any, of the scope of any inspection of 12 the property, the findings and results of the inspection, a 13 statement of whether the subcontractor or general contractor is 14 willing to make repairs to the property or whether the claim 15 is disputed, a description of any repairs the subcontractor or 16 general contractor is willing to make to remedy the alleged 17 construction defect, and a timetable for the completion of 18 the repairs. This response may also be served on the initial 19 claimant by the general contractor or subcontractor. 20 5. Within forty-five days after service of the notice 21 of claim, or within seventy-five days after service of the 22 notice of claim involving a class action or an association 23 representing more than twenty owners, the person who was served 24 the notice under subsection 1 shall serve a written response to 25 the claimant. The response shall be served to the attention 26 of the person who signed the notice of claim, unless otherwise 27 designated in the notice of claim. The written response must 28 provide for one of the following: 29 a. A written offer to remedy the alleged construction defect 30 at no cost to the claimant, a description of the proposed 31 repairs necessary to remedy the construction defect, and a 32 timetable for the completion of such repairs. 33 b. A written offer to compromise and settle the claim by 34 monetary payment, that will not obligate the person’s insurer, 35 -4- LSB 5703XC (3) 87 asf/jh 4/ 10

S.F. _____ and a timetable for making payment. 1 c. A written offer to compromise and settle the claim by 2 a combination of repairs and monetary payment that will not 3 obligate the person’s insurer, and which includes a detailed 4 description of the proposed repairs and a timetable for the 5 completion of such repairs and making payment. 6 d. A written statement that the person disputes the claim 7 and will not remedy the construction defect or compromise and 8 settle the claim. 9 e. A written statement that a monetary payment, including 10 insurance proceeds, if any, will be determined by the person’s 11 insurer after notification to the insurer by means of serving 12 the claim, which service shall occur at the same time the 13 claimant is notified of this settlement option, which the 14 claimant may accept or reject. A written statement under this 15 paragraph may also include an offer under paragraph “c” , but 16 such offer shall be contingent upon the claimant also accepting 17 the determination of the insurer whether to make any additional 18 monetary payment. 19 6. If the person served with a notice of claim pursuant 20 to subsection 1 disputes the claim and will neither remedy 21 the construction defect nor compromise and settle the claim, 22 or does not respond to the claimant’s notice of claim within 23 the time provided in subsection 5, the claimant may, without 24 further notice, proceed with an action against that person for 25 the claim described in the notice of claim. Nothing in this 26 chapter shall be construed to preclude a partial settlement or 27 compromise of the claim as agreed to by the parties and, in 28 that event, the claimant may, without further notice, proceed 29 with an action on the unresolved portions of the claim. 30 7. A claimant who receives a timely settlement offer shall 31 accept or reject the offer by serving written notice of such 32 acceptance or rejection on the person making the offer within 33 forty-five days after receiving the settlement offer. If 34 a claimant initiates an action without first accepting or 35 -5- LSB 5703XC (3) 87 asf/jh 5/ 10

S.F. _____ rejecting the offer, the court shall stay the action upon 1 timely motion until the claimant complies with this subsection. 2 8. If the claimant timely and properly accepts the offer 3 to repair an alleged construction defect, the claimant shall 4 provide the offeror and the offeror’s agents reasonable access 5 to the claimant’s property during normal working hours to 6 perform the repair by the agreed-upon timetable as stated 7 in the offer. If the offeror does not make the payment or 8 repair the construction defect within the agreed time and in 9 the agreed manner, except for reasonable delays beyond the 10 control of the offeror, including but not limited to weather 11 conditions, delivery of materials, claimant’s actions, or 12 issuance of any required permits, the claimant may, without 13 further notice, proceed with an action against the offeror 14 based upon the claim in the notice of claim. If the offeror 15 makes payment or repairs to the defect within the agreed 16 time and in the agreed manner, the claimant is barred from 17 proceeding with an action for the claim described in the notice 18 of claim or as otherwise provided in the accepted settlement 19 offer. 20 9. This section does not prohibit or limit a claimant from 21 making any necessary emergency repairs to the property as are 22 required to protect the health, safety, and welfare of any 23 person. 24 10. Any offer or failure to offer, pursuant to subsection 5, 25 to remedy a construction defect or to compromise and settle the 26 claim by monetary payment does not constitute an admission of 27 liability with respect to the defect and is not admissible in 28 an action that is subject to this chapter. 29 11. This section does not relieve the person who is served 30 a notice of claim under subsection 1 from complying with all 31 contractual provisions of any liability insurance policy as 32 a condition precedent to coverage for any claim under this 33 section. 34 Sec. 4. NEW SECTION . 686.4 Multiple construction defects. 35 -6- LSB 5703XC (3) 87 asf/jh 6/ 10

S.F. _____ The procedures in this chapter apply to each construction 1 defect. However, a claimant may include multiple defects in 2 one notice of claim. A claimant may amend the initial list of 3 construction defects to identify additional or new construction 4 defects as the defects become known to the claimant. The court 5 shall allow the action to proceed to trial only as to alleged 6 construction defects that were noticed and for which the 7 claimant has complied with this chapter and as to construction 8 defects reasonably related to, or caused by, the construction 9 defects previously noticed. Nothing in this section shall 10 preclude subsequent or further actions. 11 Sec. 5. NEW SECTION . 686.5 Limitations of chapter. 12 This chapter does not do any of the following: 13 1. Bar or limit any rights, including the right of specific 14 performance to the extent such right would be available in the 15 absence of this chapter, any causes of action, or any theories 16 on which liability may be based, except as specifically 17 provided in this chapter. 18 2. Bar or limit any defense, or create any new defense, 19 except as specifically provided in this chapter. 20 3. Create any new rights, causes of action, or theories on 21 which liability may be based. 22 Sec. 6. NEW SECTION . 686.6 Effect of arbitration clauses. 23 To the extent that an arbitration clause in a contract for 24 the sale, design, construction, or remodeling of real property 25 conflicts with this chapter, this chapter shall control. 26 Sec. 7. EFFECTIVE DATE. This Act, being deemed of immediate 27 importance, takes effect upon enactment. 28 Sec. 8. APPLICABILITY. This Act applies to defects to 29 all real property or to any improvement to real property, 30 including all real property or improvements in existence prior 31 to the effective date of this Act, for which litigation has not 32 commenced prior to the effective date of this Act. 33 EXPLANATION 34 The inclusion of this explanation does not constitute agreement with 35 -7- LSB 5703XC (3) 87 asf/jh 7/ 10

S.F. _____ the explanation’s substance by the members of the general assembly. 1 This bill relates to notice and opportunity to repair 2 construction defects. The bill proposes a new Code chapter 3 which provides a mandatory dispute resolution process for 4 construction defects to new property or improvements to an 5 existing property. The bill is effective upon enactment and 6 applies to defects to all real property or to any improvement 7 to real property, including all real property or improvements 8 in existence prior to the effective date of the bill, for 9 which litigation has not commenced prior to the effective date 10 of the bill. The bill provides that a claimant must comply 11 with the requirements set forth in the bill before filing an 12 action. The bill provides that if a claimant files an action 13 alleging a construction defect without first complying with 14 the requirements of the bill, the court shall stay the action 15 without prejudice until the requirements have been met. The 16 bill sets forth specific time frames for each part of the 17 dispute resolution. 18 The bill provides that the claimant shall serve written 19 notice of a construction defect claim on the general contractor 20 and subcontractor. In the notice, the claimant shall refer 21 to the new Code chapter and describe the claim in reasonable 22 detail sufficient to determine the general nature of each 23 alleged construction defect, provide a description of the 24 damage or loss resulting from the defect, if known, and 25 describe any work or inspections completed to determine the 26 cause of the damage or loss or correct the construction defect. 27 The bill provides that after being served with the notice 28 of claim, the person is entitled to perform a reasonable 29 inspection of the property or of each unit subject to the 30 claim to assess each alleged construction defect. The bill 31 provides that the claimant shall provide the person served with 32 notice reasonable access to the property during normal working 33 hours to inspect the property to determine the nature and 34 cause of each alleged construction defect and the nature and 35 -8- LSB 5703XC (3) 87 asf/jh 8/ 10

S.F. _____ extent of any repairs or replacements necessary to remedy each 1 construction defect. The bill provides additional details, 2 including providing for destructive testing. 3 The bill provides that the general contractor or 4 subcontractor may serve a copy of the notice of claim to 5 each subcontractor or general subcontractor whom the general 6 contractor or subcontractor reasonably believes is responsible 7 for each construction defect specified in the notice of claim. 8 The bill provides that subcontractors shall be entitled to 9 inspect in the same manner as general contractors. The general 10 contractor or subcontractor must then serve a written response, 11 which shall include a report, if any, of the scope of any 12 inspection of the property, the findings and results of the 13 inspection, a statement of whether the general contractor or 14 subcontractor is willing to make repairs to the property or 15 whether such claim is disputed, a description of any repairs 16 they are willing to make, and a timetable for the completion of 17 the repairs. This response may also be served on the initial 18 claimant by the general contractor. 19 The bill provides that the person who was served the notice 20 must serve a written response to the claimant. The bill 21 provides that the written response must fall into one of five 22 categories, which are laid forth in the bill. 23 If the person served with a notice of claim disputes the 24 claim and will neither remedy the construction defect nor 25 compromise and settle the claim, or does not respond to the 26 claimant’s notice of claim within the time provided in the 27 bill, the claimant may, without further notice, proceed with 28 an action against that person for the claim described in the 29 notice of claim. 30 A claimant who receives a timely settlement offer must 31 accept or reject the offer by serving written notice of such 32 acceptance or rejection on the person or company making the 33 offer within the time period set forth in the bill after 34 receiving the settlement offer. The bill specifies that if 35 -9- LSB 5703XC (3) 87 asf/jh 9/ 10

S.F. _____ a claimant initiates an action without first accepting or 1 rejecting the offer, the court shall stay the action upon 2 timely motion until the claimant complies with the requirement. 3 The bill provides that if the claimant timely and properly 4 accepts the offer to repair an alleged construction defect, 5 the claimant shall provide the offeror and the offeror’s 6 agents reasonable access to the claimant’s property during 7 normal working hours to perform the repair by the agreed-upon 8 timetable as stated in the offer. If the offeror does not make 9 the payment or repair the construction defect within the agreed 10 time and in the agreed manner, except for reasonable delays 11 beyond the control of the offeror, the claimant may, without 12 further notice, proceed with an action against the offeror 13 based upon the claim in the notice of claim. If the offeror 14 makes payment or repairs the defect within the agreed time and 15 in the agreed manner, the claimant is barred from proceeding 16 with an action for the claim described in the notice of claim 17 or as otherwise provided in the accepted settlement offer. 18 The bill does not bar or limit any rights, including the 19 right of specific performance to the extent such right would be 20 available in the absence of the new Code chapter, any causes of 21 action, or any theories on which liability may be based, except 22 as specifically provided in the bill. Additionally, the bill 23 does not bar or limit any defense, or create any new defense, 24 except as specifically provided in the new Code chapter. 25 Finally, the bill does not create any new rights, causes of 26 actions, or theories on which liability may be based. 27 The bill provides that to the extent that an arbitration 28 clause in a contract for the sale, design, construction, or 29 remodeling of real property conflicts with the bill, the bill 30 shall control. 31 -10- LSB 5703XC (3) 87 asf/jh 10/ 10