Legal/Legislative Update – February 3, 2014

Published on: February 3, 2014

BANNED IN BRITAIN. The Federal Drug Administration is still considering whether and how to control e-cigarettes, but Great Britain has made that decision. Regulators there have banned the sale of e-cigarettes to anyone under the age of 18, citing concerns about potential adverse health impacts and the need for more research on the product.

FLOOD GATES. The Independent Insurance Agents and Brokers of America has joined a long list of real estate industry trade groups (the National Association of Realtors and the National Association of Home Builders among them) in urging Congress to approve legislation delaying increases in flood insurance premiums. The Senate has approved legislation to that effect and the House is expected to follow suit. The White House has objected to the measure, but has not threatened to veto it.

HOME EQUITY FEARS. Regulators and lenders are looking at the potential risks posed by home equity lines of credit, as borrowers, reaching their “end-of-draw” period, will have to refinance or begin making principal and interest payments in a rising-rate environment.

UPWARD MOBILITY. Upward mobility rates for Americans have remained stable for the past 30 years. But that is not good news, according to a recent study, which found opportunities for advancement to be “alarmingly” low. The income and opportunity gaps limiting economic progress were key themes of President Obama’s state-of-the-union address.

LOOKING UP. Home buyers and existing homeowners are both feeling better about the housing market and the economy, partly because home prices have been rising. But equity gains alone aren’t enough to help many struggling homeowners avoid foreclosure, Fitch Ratings reports. “In many cases, troubled borrowers with equity are unable to sell their properties because the proceeds of the sale would not be enough to cover the mortgage amount, the closing costs, and the backlog of missed payments.”

EASING UP. Lenders are loosening their vise-like grip on mortgage credit, helping to produce a housing market that was significantly “stronger at the end of 2013 than it was at the end of 2012, according to the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey.



NO ESCAPE. Community associations have become more aggressive about pursuing construction defect claims against developers and contractors and have won some sizable awards. Insurance companies, not surprisingly, have begun looking for ways to limit their responsibility for paying those claims. The Texas Supreme Court recently slammed the door on one such effort. In this case (Ewing Construction Company v. Amerisure Insurance Co.), when the subcontractor Ewing had hired to construct tennis courts for a school did a poor job, Ewing turned to its insurer (Amerisure) to pay for the necessary repairs. But Amerisure argued that by agreeing in the contract with the school to perform the work in “a good and workmanlike manner,” Ewing had assumed liability for any damages, thereby triggering the “Contractual Liability” exclusion in the insurance policy. As a result, Amerisure contended, it had no duty e to defend the contractor or to indemnify it.

A District Court agreed and an appeals court essentially punted, asking the state Supreme Court to decide. The court sided with Ewing, concluding that the contractual liability exclusion applies only when “the insured has assumed a liability for damages that exceeds the liability it would have under general law.” In this case, the court said, Ewing was seeking coverage that would have applied in the absence of a contract, so the insurer could not evade its obligation to cover the claim.

Although the decision applies only in Texas, the implications are potentially broader, because the “contractual exclusion” clause is standard in most commercial general liability insurance policies. A determination that the exclusion applied could have influenced decisions in other jurisdictions, leaving community associations in construction defect limbo – able to win defect claims against contractors, but (absent insurance coverage for them) unable to collect damages awarded for those claims.



“Send me legislation that protects taxpayers from footing the bill for a housing crisis ever again, and keeps the dream of homeownership alive…The most important investment many families make is their home.” ─ President Barack Obama, in his state-of-the-union address, supporting reform of the home mortgage finance system.