NO MORE CONDOS Utility contractor Larry Fortin says he took a beating on insurance after being named in lawsuit.

But when Fortin renewed his insurance shortly afterward, policies that had been available for $55,000 cost $99,000. The year after, the price shot up to $176,000. And increases came with exemptions making the coverage skimpier.

"Just the fact that we were mentioned in a defect case resulted in our premiums going out-of-sight," says Fortin. Result: Kaccel no longer works on condominium or townhouse developments.

Construction defect litigation has spread rapidly in fast-growing western states, with plaintiffs often failing to distinguish contractors whose work was involved with leaky roofs or cracking walls, and those who had nothing to do with the problems. Even port-a-potty and bottled drinking water suppliers have been named. Insurers are more likely to settle claims than fight them, preferring to pass the risks and costs to contractors.

Las Vegas, Nev., is on the front lines. To be sure, many of the residential units created there are involved in litigation. At the end of 2002, there were 227 construction defect lawsuits pending in Clark County district courts. Last December, owners of the 327-unit West Trop Condominium recovered $5.5 million in damages, the largest defects recovery of its type in Nevada, according to lawyers representing the owners. Because the developers' insurer was insolvent, the contractors' insurers will foot the bill.

Nevada recently joined California and Arizona by trying to encourage homeowners and developers and contractors to settle without suing. In May, Gov. Kenny Guinn (R) signed a bill giving contractors a "right to repair" before unhappy homeowners sue. Under its terms, homeowners can ask the state Contractors' Board to inspect any defect and render a non-binding opinion. The law also provides a clearer definition of defect.

For contractors, the new law helps put more obstacles between plaintiffs and insurance settlements because the "motivation behind these suits" is the subcontractors' insurance, says Steve Hill, chairman of a builders' coalition and president of Silver State Materials Corp., a Las Vegas ready mix supplier. "We wanted an opportunity to repair every problem, every time."

Arizona adopted a right-to-repair bill last August. "The crisis we faced was that insurance carriers were simply unwilling to provide coverage," says Spencer Kamps, deputy director for Home Builders Association of Central Arizona, Phoenix. "We've stopped the bleeding but...it's going to be [a] year or more before we get a solid grasp on the impact."

Under Arizona's law, homeowners must contact the builder to fix a problem and both sides must then engage in a series of offers and counteroffers over the repairs. If still not resolved, the matter goes to court. Complex cases of five homes or more start in court but judges must encourage bargaining.

One thing right-to-repair laws won't do is drive down insurance premiums. Nor will they bring back insurers who have left the residential market, says Michael Markman, executive vice president of Zurich North America's commercial business group. "Insurance companies are going to be forced to take a little bit of wait-and-see view," he says. In most states, the statute of limitations for defect suits runs from eight to 10 years.

The case that sent Larry Fortin's insurance costs through the roof, with homeowners suing in state court in Las Vegas, ended Aug. 12, 2002, with a $12-million verdict against the developer. Homeowners' attorney Scott K. Canepa could not be reached for comment. At the time of the verdict, the claim against Kaccel had been dismissed.