Avoid HIPA headaches

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By Brendon Reyes
McCoy Leavitt Laskey LLC

Wisconsin’s Home Improvement Practices Act was enacted to shield consumers from unfair home-improvement schemes.

Yet, in reality, HIPA, as it is commonly called, is more used as a sword than a shield by plaintiffs’ attorneys.

In construction cases, plaintiffs use HIPA’s strong provisions to get contractors to pay settlements that are larger than the actual damages would otherwise warrant. HIPA covers several aspects of home-improvement contracts, including lien waivers and formal requirements.

Contractors should be aware of all of these requirements, since failure to abide by the code can prove costly to a contractor.

HIPA prohibits those in the business of making or selling home improvements from engaging in unfair practices (ATCP § 110).

It forbids several specific practices by contractors, including misrepresenting that certain materials will be used in the project, bait selling and making derogatory remarks about competitors (ATCP § 110.02).

The code also contains a catchall provision that forbids the making of false representations to get a consumer to enter into a home-improvement contract (ATCP § 110.02(11)).

As in most construction litigation, it’s usually a breakdown in communication between a contractor and buyer that leads to claims of HIPA violations. The buyer’s attorney will probably inquire about any misrepresentations made by the “seller,” a term that can refer to the contractor, the business and the contractor’s employees (ATCP § 110.01(5)).

Additionally, the attorney will compare the work done with the work called for by the construction contract. If any inconsistencies are found, the buyer may have a basis for a making HIPA claim.

The bar for proving HIPA violations is quite high. A plaintiff must show that the contractor made “a false, deceptive, or misleading representation to induce plaintiff to enter into the home improvement contract.” (Wis JI- Civil 2720)

Proving that this sort of misrepresentation occurred is particularly onerous for the plaintiff. It is not enough simply to prove that there was a misrepresentation. The misrepresentation must have been made with the intent to induce the plaintiff into entering in the contract. Stuart v. Weisflog’s Showroom Gallery Inc., (2008).

Nor is proving that there was “puffery” sufficient to substantiate a claim of misrepresentation. See Stuart v. Weisflog’s Showroom Gallery Inc., (2008).

One relevant conclusion of this case is that a seller’s exaggerations concerning the quality of his product do not rise to the level of misrepresentation if the exaggerations cannot be proved to be true or false.

Additionally, the plaintiff must show that he or she suffered a monetary loss because of the misrepresentation. This element requires the plaintiff to demonstrate that he or she would not have entered into the contract without the misrepresentation, and that the damages were caused by the misrepresentation.

In Masterclean Inc. v. Butler, a contractor was found to have violated the code by failing to put material terms in writing. However, there was no evidence that the contractor’s work was unauthorized; and therefore damages were not awarded.

Although a plaintiff can have a high bar to cross, the rewards can be handsome if he or she successfully proves a HIPA violation has occurred. The plaintiff is statutorily entitled to double damages plus reasonable attorney’s fees (ATCP § 110, Wis. Stat. § 100.20).

For an example of how a HIPA violation can unexpectedly ratchet up the value of a case, consider a hypothetical roofer. The roofer agrees to install a roof for $25,000. The roofer agrees to use a high-quality barrier to fend off ice and water damage.

The roofer instead uses a lesser-quality product, and the roof leaks. The water causes $5,000 worth of damage to the interior of the house. Dissatisfied, the consumer hires a new contractor to re-roof the house. At the end of the ordeal, the buyer incurs a total of $30,000 in damages.

When the buyer learns that the wrong barrier was used, he or she will likely allege breach of contract, as well as violations of HIPA. With the inclusion of the HIPA claim, the risk increases substantially. The exposure for damages alone goes from $30,000 to $60,000. After discovery procedures and a trial, the attorney’s fees could easily reach $20,000. In the end, the $30,000 loss could result in $80,000 being recovered from the contractor.

The increased exposure strengthens the plaintiff’s hand in the settlement negotiations. Even if the plaintiff’s chances of prevailing on the HIPA claims are marginal, the contractor must still account for the possibility of success.

Given the likely exposure, the plaintiff will probably have more success in settling for the full amount of his or her damages. At the very least, the HIPA violations will hang like a cloud over the negotiations.

Claims of HIPA violations can be catastrophic for a contractor. Commercial-general-liability policies, often called CGL policies, will often cover only accidental occurrences. Consequently, the contractor may be forced to draw on its own resources to pay the attorney’s fees and double damages. Depending on the amount of the claim, an unfavorable result could bankrupt a contractor.

Contractors should take great care to avoid exposure to HIPA claims. First, contractors should be crystal clear about the services they will provide, and the products they will use.

If different materials are to be used, then they should notify the buyer and seek approval in writing. Having documentation is essential to combatting HIPA claims during litigation.

Contractors must also take care to prevent misrepresentations by their employees, since the code makes no distinction between the contractor and its employees. Finally, contractors should follow their instincts about a possible customer.

If the customer seems untrustworthy and dishonest, the contractor should decline the project. While the lost sale may be tough to swallow, avoiding a litigious customer could save a contractor’s business.