Gary Garczynski, president of Signature Communities Inc., a $25-million house builder in Fairfax County, Va., slowly guides the dark blue Cadillac past one of his condominium construction sites. "I'm building 160 condo units here," he says, pointing out his window at the wood frames, dirt piles, and bulldozers. "I'm also creating 160 potential enemies.Once the tenants move in, they'll band together into some kind of group. I'd bet on it."

Liability insurance is becoming a burden for many house builders because consumerism, as well as the escalating price of houses, has made buyers more likely to sue builders for defective construction work. "I haven't experienced an increase in actual lawsuits," says Garczynski, 39. "But there's been a definite increase in the threat of lawsuits. Nowadays, buyers are a lot quicker to have a lawyer by their side when I'm making a deal with them. That's the cloud I'm under."

When Garczynski founded Signature in 1983, he saw these problems developing, and it prompted him to join Home Owners Warranty Corp. (HOW), based in Washington, D.C. HOW, with 11,500 members and $70 million in assets, is an insurance cooperative that provides warranty insurance (the equivalent of product liability) for house builders. Under a co-op arrangement, member firms contribute fees that serve as the corporation's assets. As in any insurance company, risks are spread out, and assets are more than enough to cover claims against members, with money left over for investing. Investment income helps keep premiums down.

"Builders can't get this kind of cheap, comprehensive liability insurance from any insurance carrier," says Jane Snow, spokeswoman for HOW. "The cooperative provides services to the members and consumers that simply are not available through conventional liability coverage."

Garczynski notes that it is not unusual for many house builders to resort to self-insurance -- in effect, doing without coverage. He himself is loath to go bare, partly because of the superheated real estate climate in which he competes. Garczynski, president of the 1,000-member Northern Virginia Builders Association, says that house and office construction has increased roughly 30% in his area since 1982, compared with 15% nationwide.

HOW allows him to get the coverage he wants at a price he can afford. He pays the organization an average one-time premium of $350 to obtain 10 years of liability insurance for each house his company builds. Next year, even that nominal fee is expected to drop 25%. Garczynski advises small firms that are thinking of joining an insurance cooperative to "evaluate its track record. Is it efficient and prompt in processing claims? Have its premium charges remained steady?"