Pennsylvania’s Home Improvement Consumer Protection Act (“HICPA”), which went into effect in 2009, generally requires that home improvement contracts be in writing and contain thirteen specific items (including the contractor’s home improvement contractor registration number, the date of the transaction and the name, address and telephone number of the contractor).  Absent inclusion of all items, the contract is not valid or enforceable against the owner.  This means that the contractor cannot assert a claim for breach of contract if the owner fails to pay for work performed.

Home Renovation

However, in the recent case of Shafer Electric & Construction v. Mantia, the Pennsylvania Supreme Court ruled that even if a contract fails to comply with HICPA, the contractor may still be able to recover the reasonable value for its services under the equitable theory of quantum meruit, or unjust enrichment.  What this means is that a homeowner is not excused from its obligation to pay the contractor simply because the home improvement contract does not comply with HICPA.

In Shafer, the homeowners engaged the contractor to build a garage addition onto their home.  The contract, however, did not comply with most of the requirements of HICPA.  After the contractor had performed work, a dispute arose and the parties agreed that the contractor would 1) invoice the homeowners for the work completed and 2) thereafter, discontinue its efforts.  Nevertheless, the homeowners refused to pay and the contractor filed suit for breach of contract and quantum meruit.  The homeowners moved to dismiss the action pursuant to HICPA.  The trial court granted the motion.  On appeal, the Pennsylvania Superior Court reversed as to the quantum meruit claim.  The homeowners then took a further appeal to the Pennsylvania Supreme Court.

The Supreme Court determined that HICPA does not preclude a non-compliant contractor from pursuing an action in quantum meruit.  Instead, HICPA only speaks to the enforceability and validity of home improvement contracts.  Further, under common law principles, a party is not precluded from bringing a quantum meruit action when one for breach of contract is unavailable.  Significantly, the court noted that the language of HICPA does not make any reference to a claim for quantum meruit being precluded and that it would be improper to insert words into HICPA that would extinguish a claim for quantum meruit.

Shafer is helpful for contractors in the event of noncompliance with HICPA.  However, it remains our strong recommendation to contractors that your home improvement contracts comply with HICPA.  Under quantum meruit, you can only recover the reasonable value of the services rendered and not necessarily the profit under the contract.  Additionally, a violation of any aspect of HICPA is also considered a violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, which could subject you to enhanced damages and attorney’s fees in the event that a homeowner asserts a claim against you.

If you are unsure about whether your home improvement contract complies with HICPA, please do not hesitate to contact us.

Jennifer M. Horn is a Partner at Cohen Seglias and a member of the Construction Group. She concentrates her practice in the areas of construction litigation and real estate. 

Matthew L. Erlanger is an Associate in the Construction Group.

If you are a Contractor performing residential home improvement work in New Jersey, a recent case clarifies that you may be subject to Consumer Fraud Act claims even when your contract is fraud2.jpgwith a homeowner who serves as a “general contractor” on the project. In fact, such a contract is not only subject to the Consumer Fraud Act, but also to the Contractor’s Registration Act, and the Home Improvement Practices regulations adopted by the New Jersey Division of Consumer Affairs.

What Is The Consumer Fraud Act?

In 1960, the New Jersey Legislature enacted the Consumer Fraud Act “CFA”, (N.J.S.A. 52:17B-124; N.J.S.A. 56:8-3 ) to address consumer complaints regarding fraudulent construction practices in the market place. The CFA provides, among other things, that a successful homeowner who proves fraud be allowed to “treble” his damages against unscrupulous contractors and recover attorney’s fees. Since 1960, New Jersey Courts have held that the CFA should be “construed liberally in favor of consumers.”

If You Contract With A Homeowner – Even One Who Acts As The “General Contractor” On A Project – The CFA Applies

This month, the Superior Court of New Jersey rejected a contractor’s argument that a homeowner acting as a “general contractor” could not bring a claim under the CFA. In so doing, the Court pointed to the direct contractual relationship between the parties and concluded that “even if the plaintiff could be viewed as a general contractor with respect to the improvements to his home, he was entitled to the protection of the CFA in his dealings with contractors who performed [home] improvements.” This recent decision means that prudent contractors must assume that the CFA applies whenever a contract is entered into with a homeowner – even sophisticated homeowners who serve as their own general contractors.

Although the recent case focused primarily on the CFA, it addressed other consumer protections and serves as a reminder that New Jersey contractors must comply with all Home Improvement Practices Regulations (Administrative Code at N.J.A.C. 13:45A-16.1 et seq.). Also, as many contractors are aware, compliance with New Jersey’s Contractor’s Registration Act of 2004 is essential. The Contractor’s Registration Act requires every home improvement contractor to register with the Division of Consumer Affairs prior to performing work.

The Court acknowledged “the seriousness with which the legislature approached the perceived problems in [the home improvement] industry” and noted that such seriousness was reflected in the expansive language of the applicable laws as well as in the remedies – such as treble damages – that the consumer protection statutes afford.

The Pennsylvania Home Improvement Consumer Protection Act, HICPA, went into effect on July 1, 2009. HICPA was designed to protect purchasers of home improvement services from contractors engaging in deceitful business practices or doing shoddy work. According to Attorney General Tom Corbett, “[h]ome improvement rip-offs impact every community across our state, taking money out of the pockets of homeowners and also victimizing the honest, hard-working businesses who could have performed the work.” In explaining the purpose of HICPA, Corbett stated that it exists “to protect consumers, contractors and communities, and it is important that everyone comply with the registration and contract requirements.”

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HICPA places significant burdens, costs and restrictions placed on contractors by this law and compliance is critical. HICPA’s requirements include registering with the Pennsylvania Office of the Attorney General (OAG), and complying with strict rules about contract content. As of September 20, 2010, 71,199 contractors had registered home improvement across Pennsylvania.

Since last year, the Bureau of Consumer Protection of the OAG has been cracking down on HICPA violators. According to Corbett, “Complaints about home improvement projects ‘gone bad’ are typically one of the top reasons for consumers to contact the Attorney General’s Office and we work vigorously to investigate these complaints and prosecute violators.” Over the past few months many new cases have been filed. These lawsuits seek restitution against the non-compliant businesses and their owners for all consumers who have been harmed, along with fines and civil penalties of up to $1,000 per violation or up to $3,000 for each violation involving a senior citizen.”

Along with the new cases filed, the OAG has reached voluntary settlements with many other home improvement businesses accused of operating without properly registering with the OAG or using non-compliant contracts. These voluntary settlements are known as AVC’s — an Assurance of Voluntary Compliance — and they require the businesses that have settled in this matter to fully comply with all of the HICPA requirements, and include civil penalties and costs of $1,250.

Corbett has encouraged consumers to check a contractor’s registration before hiring a home improvement contractor. He also advised consumers to take additional steps to protect themselves from possible home improvement scams, including:

  • Getting estimates from several potential contractors
  • Requesting references for recent work, and checking those references
  • Asking other customers if they were happy with the work that was performed by a particular contractor, if there were any problems with the project and if they would hire that person again
  • Avoiding high-pressure sales pitches, “special offers” or deals on “left over” materials
  • Being wary of individuals who approach you with unsolicited offers of stories of “just being in the neighborhood”

Filing a HICPA complaint is as easy as clicking a link to an online form available on the website of the Attorney General.

Given the crackdown by the Attorney General on violators of the law, along with the risk of civil and criminal penalties, it is essential to consult with your attorney if you have any questions about HICPA compliance.

In Maryland, contractors who perform home improvements are required to be licensed with the Maryland Home Improvement Commission. In addition to facing civil and criminal fines and penalties, unlicensed contractors risk losing the ability to enforce their contrahome.jpgcts, meaning that they may lose their right to effectively demand payment for services performed. Furthermore, with limited exceptions, contractors are prohibited from making payments to unlicensed subcontractors under the Maryland Home Improvement Law. The policy behind the Maryland licensing requirement is to protect the public from unscrupulous home improvement contractors.

Alcoa Concrete & Masonry, Inc. v. Stalker Brothers, Inc.

Earlier this year, in interpreting the Maryland Home Improvement Law (Licensing Law) the Maryland Court of Special Appeals ruled that a subcontractor that is unlicensed both at the time it contracted to perform home improvements and when it performed the work, can file suit to demand payment so long as it is licensed at the time of filing.

Alcoa Concrete & Masonry, Inc. (Alcoa), a subcontractor, brought suit against general contractor, Stalker Brothers, Inc. (Stalker), for non-payment for work performed. The trial court determined that the subcontracts between Alcoa and Stalker were illegal and could not be enforced because Alcoa was not licensed when it contracted with Stalker, or when it performed the work. The decision of the trial court relied upon a well-established principle of Maryland law that if the purpose of a licensing statute is to protect the public, then courts will not enforce contracts made by unlicensed parties seeking compensation for business activities that require a license. Since the purpose of the Licensing Law is to protect the public, the trial court would not enforce Alcoa’s subcontract.

On appeal, the Court of Special Appeals reversed the decision of the trial court and granted Alcoa the right to enforce its subcontract with Stalker, reasoning that the policy of protecting the public is not implicated in the arms-length transaction between a general contractor and a subcontractor.

The appellate court also noted that Maryland law allows exceptions for payment to unlicensed contractors where the contractor loses its license through expiration, suspension or revocation. The appellate court further stated that the prohibition in the Licensing Law against paying an unlicensed contractor is limited to the time when payment under the subcontract is to be made. Accordingly, the appellate court concluded that allowing Stalker to withhold payment to Alcoa as a licensed subcontractor, when it had already made payments to Alcoa when it was unlicensed, would not be a reasonable interpretation of the Licensing Law.

Lessons of the Alcoa Case

There are lessons in the Alcoa case for both contractors and subcontractors.

  • Subcontractors that perform home improvements are required to be licensed and should get licensed with the Maryland Home Improvement Commission.
  • If a subcontractor that performs home improvements is not licensed at the time of contracting, all is not lost. However, unlicensed contractors should immediately begin the application process so that they can obtain a license in the event that it becomes necessary to file suit to recover payments.
  • General contractors should obtain evidence that their subcontractors are licensed with the Maryland Home Improvement Commission. In Alcoa, the appellate court emphasized that general contractors are part of the enforcement process, placing the burden on general contractors to withhold payment until a subcontractor is licensed. This will effectively ferret out unlicensed subcontractors and motivate other subcontractors to get licensed, furthering the policy of homeowner protection.

Finally, it is important to note that in Alcoa, there were no allegations of defective work by the subcontractor, and the general contractor had induced the subcontractor to continue working based on assurances of future payment. Accordingly, be aware that different facts may yield a different outcome in another case.

As a result of two recent Pennsylvania decisions, insurance carriers are now aggressively taking the position that there is no insurance coverage under commercial general liability policies (“CGL)” for property damage claims caused by faulty workmanship.

In the recent cases, Kvaerner v. Commercial Union Insurance Co., and Millers Capital Insurance Company v. Gambone Brothers Development Co., Inc., the Courts essentially held that faulty workmanship is not an accident and, therefore, property damage claims arising from faulty workmanship are not an “occurrence” within the meaning of a CGL policy. This means that contractors are now faced with significant uninsured exposure when their allegedly faulty workmanship causes property damage to a part of the building on which they did not work.

By way of illustration, a roofer installs new roofing shingles on a home. As a result of faulty installation, the roof begins to leak, causing damage to the roof decking, which the roofer had not replaced, and interior drywall. Prior to these new cases, if the homeowner submitted a claim to the roofer’s CGL carrier, there would be coverage to pay for the resulting property damage to the decking and interior drywall, but there would not be coverage to fix the improperly installed roof. Now insurance carriers are taking the position that there is no coverage for the resulting property damage.

In response to these decisions and the demands of contractors for coverage for property damage arising from faulty workmanship, many insurance carriers that provide CGL coverage to contractors are now offering a so-called “Resultant Damage” endorsement for CGL policies. This endorsement has the effect of restoring, or partially restoring, insurance coverage for property damage arising from faulty workmanship that has been eliminated by the new rulings.

Accordingly, it is now very important that:

  • All contractors talk to their insurance agents and brokers to ensure that their CGL policies have the Resultant Damage endorsement
  • If necessary, take immediate steps to obtain the endorsement

General contractors should consider adding a requirement in their form subcontract to require that all subcontractors:

  • Obtain the Resultant Endorsement on their CGL and umbrella policies
  • Attach a copy of the endorsement to the required Certificate of Insurance