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Long-Suffering Homeowners Hoping to Pursue Home Warranty Lawsuit

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Wilmington, DEIt’s been a long wait for prospective plaintiffs with home defect issues dating back to as far back as 1999. With a formal request Wednesday to a Delaware bankruptcy court to lift a litigation stay in a long-running Chapter 7 bankruptcy involving builder WL Homes LLC (WL), the plaintiffs hope to launch a home warranty lawsuit and pursue compensation from the builder’s insurance provider.

According to Law360 (10/04/17), the plaintiffs are homeowners from California who purchased homes from the Delaware-based homebuilder from 1999 through 2002. The 60-odd homes from this period did not fall under a bankruptcy order issued in 2013 that provided funding for direct claims against the builder for homes constructed in the four years from 2005 through 2009.

The plaintiffs asserted to bankruptcy court in Delaware on October 4 that they would make no effort to pursue direct compensation from the builder, but instead pursue relief from WL’s insurer.

Home warranty insurance can run the gamut from insurance carried by the builder to protect itself from liability and costs associated with construction defects, to extended warranties and other products issued by home warranty companies that cover construction defects beyond the normal liability window that rests with the builder. Some home warranty lawsuits have asserted bad faith insurance and other claims – including assertions of insurance claim denied – when home warranty companies attempt to deny legitimate claims, in so doing breaching their contractual obligations to the consumer.

In this case, homebuyers have been unable to pursue claims against the builder due to a filing of Chapter 11 by WL in 2009. Chapter 11 was eventually converted to a Chapter 7 bankruptcy. As part of the original bankruptcy proceedings, homes built from May, 2005 through May 2009 were covered for defects. Homes built before that time, however, were not.

A litigation stay has served to protect WL and its insurer, an AIG affiliate, from litigation. However home warranty lawsuit plaintiffs, led by plaintiff Janine Andor, have formally asked that the stay be lifted so they can proceed with claims. In their plea to the Court, plaintiffs assert they are within the 10-year statute of repose, given that the window had not expired prior to the filing of bankruptcy in 2009 and thus, the clock was frozen.

“The claims to be asserted by plaintiffs are covered by an insurance policy issued to the debtor by, upon information and belief, an AIG-affiliated insurance company,” the plaintiffs indicated.

“Plaintiffs agree to waive their right to recover directly from the debtor, and will only seek recovery from the debtor’s applicable insurance…

“The defense of plaintiffs’ claims will not require the time or attention of the debtor’s bankruptcy counsel or any of the debtor’s employees involved in the debtor’s bankruptcy,” Andor concluded through her lawyer.

The plaintiffs allege design and construction flaws on the part of WL, which was liquidated in Chapter 7. The bankruptcy case is In re: WL Homes LLC, Case No. 1:09-bk-10571, in the US Bankruptcy Court for the District of Delaware.

A hearing for arguments related to the pursuit of claims is scheduled for October 25 in Delaware.

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