The commercial construction industry continues to endure the skyrocketing liability insurance costs that occurred earlier this decade. Contractors also continue to pay more for less, due to an increase in coverage exclusions. Even worse, in some instances - particularly multifamily housing - liability insurance isn't available. That means projects can't be built.

For contractors, owners and the public that benefits from public works projects, this means we are all paying more for less. The Construction Contractors Board published a 2004 report noting that many contractors are paying insurance premiums that increased year-to-year an average of 160 percent, and in some cases 1,000 percent.

The members of Associated General Contractors of America are implementing a two-pronged strategy to address this problem.

First, during the 2007 legislative session, AGC won legislative approval for House Bill 3242, legislation aimed at preventing construction defects before they occur. This important law separated residential and commercial contractors by requiring separate endorsements under Oregon's construction licensing law. For commercial contractors, the legislation increases bonding amounts, provides for continuing education and additional employee experience, raises liability insurance thresholds and provides for building envelope warranties. The purpose for these changes is to reduce claims while raising the standard of practice in the commercial construction industry.

Second, AGC plans again to pursue legislation that would reduce Oregon's statute of ultimate repose for commercial construction defects from 10 years to 6 years. The change would level Oregon with neighboring states such as Washington, which has a six-year liability tail. A six-year statute of repose also would parallel Oregon's statute of limitations for contract claims.

Aligning Oregon law to those adopted by our neighbors will provide additional incentive for carriers to enter Oregon's comparably small insurance market. The more companies that are writing policies in Oregon, the better it will be for Oregon's construction industry. The change has the added benefit of reducing project costs by obviating the need for contractors to carry liability insurance between years six and 10.

It is important to note that AGC's bill would apply only to commercial construction defects, and not to residential defects. Unlike typical residential owners, commercial owners are by and large sophisticated purchasers. Consumer protection issues that may be valid in the residential sector do not apply in the commercial marketplace.

From a public policy perspective, statutes of repose and statues of limitations recognize that over a period of years memories fade and properties change. AGC members believe it is unreasonable to haul a general contractor into court nine years and 11 months after completion of a project when the defect may be the result of an owner's failure to properly maintain the facility or due to subsequent material changes to the property that had nothing to do with the original contractor.

One might say that the claim should be resolved in court. The problem with that notion is that defending such a claim in court is very, very expensive. In many instances, the contractor has little or no say in its defense or the determination whether to settle a claim. Insurance companies are often free to settle cases when they deem it in their best interest, no matter whether the contractor has a strong case on the merits. This practice is in part to blame for rising premiums and dropped coverage.

Reducing Oregon's statute of repose for commercial defects in tandem with the changes already approved per House Bill 3242 strikes an appropriate balance that will significantly improve Oregon's liability insurance market and may lessen skyrocketing costs for residential consumers and commercial owners alike.

Mike Salsgiver is the executive director of the Oregon-Columbia chapter of Associated General Contractors of America. Contact him at 503-682-3363 or mikes@agcoregon.com.

Credit: Mike Salsgiver