Indiana: New Home Warranties Must Be Insured

by Cozen O'Connor
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When faced with a subrogation loss involving a new or fairly new house, and a potential construction defect that caused the loss, one of the first things to look for is how warranties can help or hurt your case. Did the builder give an express warranty? For how long? Were any warranties disclaimed? Do implied warranties exist? What if your homeowner isn’t the original buyer- do the warranties extend to subsequent purchasers?

Indiana has a unique approach to new home construction warranties. The Indiana New Home Construction Warranty Act (the “Act”) (see Indiana Code §32-27-2-1 et. seq.) allows a builder to provide specific warranties and disclaim all implied warranties if the text of the statute is followed. The express warranties are very specific in terms of what must be warranted, and for how long. For instance, if a builder utilizes the Act, it must provide a four year warranty covering defects in the home’s roof. In addition, in order to comply with the Act, the warranties must all be backed by an insurance policy at least equal to the purchase price of the new home, as well as completed operations products liability insurance covering the builder’s liability for reasonably foreseeable consequential damages arising from a defect covered by the warranties that the builder provides. The Act also provides that the express warranties, as long as they have not expired, will extend to subsequent purchasers.

The statute allows for recovery damages arising from the breach as well as reasonably foreseeable consequential damages arising from the defect and attorney’s fees, if provided for in the written contract.

Why would a builder choose to give a buyer express warranties via the Act? The likely answer is that it allows the builder to have control over its liability if a construction defect occurs. In Indiana, the implied warranty of fitness and habitability and the implied warranty of workmanship are warranties determined by case law and are not based in statute. If a builder provides express warranties in compliance with the Act, it is able to disclaim these implied warranties and the uncertainty of limitless liability. If a builder provides express warranties via the Act, it is assured that any warranty liability will be covered by insurance. This also works to the benefit of a plaintiff in a subrogation case, as there will be guaranteed insurance for the construction defect if the builder complies with the Act.

Based on the foregoing, when presented with a construction defect claim or case in Indiana, it is important to look at the contract to see if the builder has provided an express warranty pursuant to the Act.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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