By Stan Johnson
The pressing need for tort reform on both a state and national level is causing the insurance industry to turn away from not only HVAC, but any other industry related to construction or service. It’s easy to blame this entirely on mold, which has become a serious issue. The truth is not quite as simple as that.
An editorial in the Wall Street Journal on December 11, 2002, said, “America’s tort system has become one of the most costly and inefficient methods of dispute resolution in the world, raising the costs of goods and services while reducing the availability of important products in the marketplace.”
As a business owner you can’t even begin to guess what you might be sued for. Attorneys routinely file blanket suits, offer to settle for huge amounts, and wait to see which of the defendants will pay some part of the claim.
Their objective isn’t to punish wrong doers in proportion to the problem, but to collect the most money possible from you and your insurance company.
Then there are the insurance companies. They have always been in the business of insuring the unknown, but always had statistical evidence and past experiences on which to base pricing for their policies.
The mold issue has changed that. They’re being asked to insure something with no statistics or experience to fall back on. There are no facts on which to base price.
Mold is in our lives everyday: at what point does it become a problem? Are the problems just property problems or are there real health problems?
Originally mold-based lawsuits claimed permanent health damage, but that’s no longer the norm as claimants can find little support in the medical profession or from scientific research.
And What About the Insurance Companies?
This year ACCA had a “blue ribbon” committee look at the insurance industry to establish a new partnership for the benefit of member contractors. By the time you read this, an agreement between CNA insurance and ACCA will have been announced.
In our discovery process, one major national insurance company sent a letter to our committee saying they wouldn’t insure any company doing multi-family construction jobs or more than three single-family homes in the same subdivision!
It’s fortunate for us that CNA has a strong construction insurance team led by a vice president with a construction and engineering background.
However, they still won’t insure contractors who do new residential construction in California, Nevada, and Arizona due to a lack of reasonable construction defects legislation. If you live in one of those states the issue needs to be addressed by your legislature.
That’s not so easy. You’ll find when you start visiting legislators, they have virtually no idea about the insurance issue or tort reform as it applies to mold. They won’t see this as also a pending crisis to commercial property and casualty insurance. Most think it’s only a homeowners insurance policy problem. It is both.
All is not lost, however. These are issues that could be resolved by an active air conditioning industry lobbying effort. It only takes an active, dedicated association of contractors on the state level, a group that has identified the issues and the legislators on whom they need to focus their attention.
Almost every state will need local contractors involved in these issues. Beware of issues related to homeowner’s insurance reform. In the rush to pass reforms, there’s a possibility that parties who care nothing about our industry will try to dump even more liability on us.
Why is Tort Reform So Important?
A properly working tort system should do two things. It should compensate real victims. It should stop potentially dangerous behavior or activities. The fact is, the tort system has gotten out of hand — providing huge awards that can’t be justified.
We can choose to leave things as they are — some companies take advantage of the situation by intentionally leaving themselves in a weak position (undercapitalized and under-insured). Is that the path we want to walk? Or would you rather have a financially strong company, properly insured and be a good corporate citizen? If this is your path, then you must commit to being active beyond selling jobs and collecting money.
Is there help? Absolutely. Training offered by ACCA and other venues throughout the HVAC industry are available. So is the lobbying prowess of such organizations.
The key is to get involved. We must work together to introduce good legislation or change bad legislation. We must work together to get the word out. Don’t think tort reform will be handled by others. It’s our business. It’s our industry. So it’s up to us.
Stan Johnson, Jr. is president of Stan's Heating and Air Conditioning in Austin, TX. He is one of the founding members of ServiceNation/Service Roundtable and a past president of The Austin Chapter and the Texas chapter of ACCA. He currently serves as a vice chairman of national ACCA.