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Commitments and Contingencies
9 Months Ended
Sep. 30, 2015
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

15.

Commitments and Contingencies

Legal Matters

Lawsuits, claims and proceedings have been and may be instituted or asserted against us in the normal course of business, including actions brought on behalf of various classes of claimants. We are also subject to local, state and federal laws and regulations related to land development activities, house construction standards, sales practices, employment practices and environmental protection. As a result, we are subject to periodic examinations or inquiry by agencies administering these laws and regulations.

We record a reserve for potential legal claims and regulatory matters when they are probable of occurring and a potential loss is reasonably estimable. We accrue for these matters based on facts and circumstances specific to each matter and revise these estimates when necessary.  In view of the inherent difficulty of predicting outcomes of legal claims and related contingencies, we generally cannot predict their ultimate resolution, related timing or eventual loss. Accordingly, it is possible that the ultimate outcome of any matter, if in excess of a related accrual or if no accrual was made, could be material to our financial statements. For matter as to which the Company believes a loss is probable and reasonably estimable, it had legal reserves of $468,000 and $273,000 at September 30, 2015 and December 31, 2014, respectively.

Warranty

Warranty reserves are accrued as home deliveries occur. Our warranty reserves on homes delivered will vary based on product type and geographic area and also depending on state and local laws. The warranty reserve is included in accrued expenses and other liabilities on our consolidated balance sheets and represents expected future costs based on our historical experience over previous years. Estimated warranty costs are charged to cost of home sales in the period in which the related home sales revenue is recognized.

We maintain general liability insurance designed to protect us against a portion of our risk of loss from construction-related claims. We also generally require our subcontractors and design professionals to indemnify us for liabilities arising from their work, subject to various limitations. However, such indemnity is significantly limited with respect to certain subcontractors that are added to our general liability insurance policy. Included in our warranty reserve accrual are allowances to cover our estimated costs of self-insured retentions and deductible amounts under these policies and estimated costs for claims that may not be covered by applicable insurance or indemnities.  Estimation of these accruals include consideration of our claims history, including current claims and estimates of claims incurred but not yet reported.  In addition, we record expected recoveries from insurance carriers when proceeds are probable and estimable.  Outstanding warranty insurance receivables were $10.5 million and $10.0 million as of September 30, 2015 and December 31, 2014, respectively. Warranty insurance receivables are recorded in receivables on the accompanying consolidated balance sheet.

There can be no assurance that the terms and limitations of the limited warranty will be effective against claims made by homebuyers, that we will be able to renew our insurance coverage or renew it at reasonable rates, that we will not be liable for damages, cost of repairs, and/or the expense of litigation surrounding possible construction defects, soil subsidence or building related claims or that claims will not arise out of uninsurable events or circumstances not covered by insurance and not subject to effective indemnification agreements with certain subcontractors.

Warranty reserves consisted of the following (in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Warranty reserves, beginning of period

 

$

35,375

 

 

$

24,324

 

 

$

33,270

 

 

$

24,449

 

Warranty reserves accrued

 

 

4,201

 

 

 

3,691

 

 

 

10,427

 

 

 

7,455

 

Liabilities assumed in the Merger

 

 

 

 

 

7,481

 

 

 

 

 

 

7,481

 

Adjustments to pre-existing reserves

 

 

(14

)

 

 

(809

)

 

 

1,286

 

 

 

209

 

Warranty expenditures

 

 

(2,819

)

 

 

(2,596

)

 

 

(8,240

)

 

 

(7,503

)

Warranty reserves, end of period

 

$

36,743

 

 

$

32,091

 

 

$

36,743

 

 

$

32,091

 

 

Performance Bonds

We obtain surety bonds in the normal course of business to ensure completion of certain infrastructure improvements of our projects. As of September 30, 2015 and December 31, 2014, the Company had outstanding surety bonds totaling $422.3 million and $355.2 million, respectively. The beneficiaries of the bonds are various municipalities.