Construction defect portion of loss contingency accrual, percentage

[Table of Contents](#if5e2d1c13bd74a82945554c9f702e646_7) D.R. HORTON, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)June 30, 2022NOTE K – COMMITMENTS AND CONTINGENCIES  
Warranty Claims  
The Company provides its homebuyers with a ten-year limited warranty for major defects in structural elements such as framing components and foundation systems, a two-year limited warranty on major mechanical systems and a one-year limited warranty on other construction components. The Company’s warranty liability is based upon historical warranty cost experience in each market in which it operates and is adjusted to reflect qualitative risks associated with the types of homes built and the geographic areas in which they are built.  
Changes in the Company’s warranty liability during the three and nine months ended June 30, 2022 and 2021 were as follows:  


|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  | Three Months EndedJune 30, |  | Nine Months EndedJune 30, |
|   |  | 2022 |  | 2021 |  | 2022 |  | 2021 |
|   |  | (In millions) |
| Warranty liability, beginning of period |  | $ | 407.8  |  |  | $ | 340.7  |  |  | $ | 376.3  |  |  | $ | 310.2  |  |
| Warranties issued |  | 49.1  |  |  | 41.8  |  |  | 131.6  |  |  | 111.5  |  |
| Changes in liability for pre-existing warranties |  | 5.8  |  |  | 1.7  |  |  | 13.1  |  |  | 5.4  |  |
| Settlements made |  | (30.9) |  |  | (22.7) |  |  | (89.2) |  |  | (65.6) |  |
| Warranty liability, end of period |  | $ | 431.8  |  |  | $ | 361.5  |  |  | $ | 431.8  |  |  | $ | 361.5  |  |

  
Legal Claims and Insurance  
The Company is named as a defendant in various claims, complaints and other legal actions in the ordinary course of business. At any point in time, the Company is managing several hundred individual claims related to construction defect matters, personal injury claims, employment matters, land development issues, contract disputes and other matters. The Company has established reserves for these contingencies based on the estimated costs of pending claims and the estimated costs of anticipated future claims related to previously closed homes. The estimated liabilities for these contingencies were $674.4 million and $577.5 million at June 30, 2022 and September 30, 2021, respectively, and are included in accrued expenses and other liabilities in the consolidated balance sheets. Approximately 99% of these reserves related to construction defect matters at both June 30, 2022 and September 30, 2021. Expenses related to the Company’s legal contingencies were $90.7 million and $46.2 million in the nine months ended June 30, 2022 and 2021, respectively.  
Changes in the Company’s legal claims reserves during the nine months ended June 30, 2022 and 2021 were as follows:  


|  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |
|  | Nine Months EndedJune 30, |
|  | 2022 |  | 2021 |
|  | (In millions) |
| Reserves for legal claims, beginning of period | $ | 577.5  |  |  | $ | 473.8  |  |
| Increase in reserves  | 119.1  |  |  | 88.8  |  |
| Payments | (22.2) |  |  | (19.5) |  |
| Reserves for legal claims, end of period | $ | 674.4  |  |  | $ | 543.1  |  |

  
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