Construction Defects - How To Avoid The 'big Hit' And Costly Litigation

By Author: Michael Solender
Total Articles: 4762
Comment this article

Without the possibility of litigation, there would be no necessity for insurance companies to insure the many diverse types of risks that have recently escalated in the construction industry.

As a builder and developer operating from the late 1950's through the early 1980's, I was always well protected by appropriate insurance policies that gave me maximum protection. Since I'd never had a claim against my insurance company, I always wondered why I was spending so many thousands of dollars every year to protect myself against claims that never occurred.

I am positive that if I was still in the development business, I would be inundated with claims just like everyone else who chooses to build in today's litigious society. Times have changed. Yes, it is indeed a different world we live in where many of our traditional values have changed direction 180 degrees. Are we a part of it? Of course we are. What do we do about it? Well, in order to survive, we must also change with the times.

By that, I don't mean to join up with those who have abrogated ...
... what heretofore we've held as "traditional values" - but rather to change our style so as to be better able to defend our "old fashioned" traditional values.

Insurance claims used to be so simple. A claim was made and the adjuster would visit the job to ascertain the damage. A brief report would be developed and depending on the validity of the claim, a check would be issued to the claimant. How times have changed. Now the claimant hires an attorney who in turn consults with a small army of forensic experts who perform destructive testing to prepare reports that show that the building owner would be best served if he were to tear the building down and rebuild it from "scratch".

The cost to perform this repair transformation is normally about double what the claimant paid for the property, when the property was purchased just a few years ago at the top of the market. Interestingly enough, seldom does the owner of this building - that is so unsafe that it needs to be torn down - say a word about this life-threatening danger to his tenants or fellow condominium owners.

Now is the time for the prudent insurance carrier to take appropriate action to properly protect its own "purse strings" against, what are sometimes, outrageous claims. Far too often the carrier concedes to the claimant in order to avoid a lengthy and costly trial, when, if the case had been handled properly from the start, a more reasonable insurance settlement could have been more cost effectively achieved.

10 Principles

With this in mind I have developed the following strategies which consist of 10 simple principles which are designed to help insurance carriers minimize their risk exposure through more effective management of their claims processes.

1. Don't use in-house counsel for the larger cases. Such counsel seldom have either the required skills to successfully manage the complex development litigation or the necessary construction knowledge needed for construction defects cases where there are sometimes scores of minor sub-contractor defendants involved in the case - many with their own insurance carriers. Incidentally, it is sometimes found that a minor player in the construction conundrum is, in fact, responsible for a major part of the damages assessment.

2. Make sure that your chosen counsel has had successful experience in similar litigation scenarios. As an example, I recently had a multi-million dollar construction case referred to me by a lawyer who had absolutely no construction litigation experience at all. I had to spend about 50 hours attempting to bring him up to speed before the insurance company changed its mind and gave the case to an experienced construction issues attorney. Successful litigation experience is no guarantee of future success. There is, however, a marked pattern of successfully concluded cases among this legal fraternity.

3. Ask to see previous reports prepared by the expert on other cases. In all the years I've been in this business, I can count on the fingers of one hand those few times that I've been asked to show this most important aspect of my work. Many experts can discuss a case intelligently, but the experts ability to write a cohesive report in collaboration with other experts and counsel - a report especially designed to effectively describe various selected elements of the clients case at issue - can often be critical to the outcome of the case.

When both sides have a chance to see certain cards that heretofore had been lying face down (the report), the chances of a settlement - or at least realistic expectations - are more readily present.

4. Get your experts on the case as early as possible. If an insured client's property has to be demolished because of substantial damage, (such as occurred during the Northridge, California earthquake) get your experts in early rather than later to watch the demolition.

There's nothing quite so illuminating to a construction expert as to be able to watch the un-peeling of the onion, as it were. After it's all torn down, there's nothing to see or to learn from. However, during demolition, all things are revealed as the building is "un-built" and its many components and their attachment to each other are uncovered and exposed. Don't be afraid of what might be revealed. Knowledge is paramount, but it's how that knowledge is handled by capable experts and counsel that affects the outcome of the case - and not necessarily the information itself.

5. Ensure that selected counsel have a workable budget sufficient to fund thorough case preparation and forensic investigation. On a recent multi-million dollar case, we were given a budget sufficient to fund only two days of destructive testing, instead of the five days needed for a complete analysis. Also, instead of having the six different specialty experts the task required, we were permitted only two. As a result naturally, our work was incompletely performed.

When deposed by plaintiff's counsel, I was unable to answer certain important questions due to our lack of a thorough forensic investigation. Subsequently we were fortunate enough to be granted permission by the hearing judge to go in and perform additional testing. This time we were permitted by our our employing insurance company to perform a more complete job of investigation and with the additional information we'd gathered, we were able to amend our report. Fortunately a fiscal tragedy was narrowly avoided.

6. Make sure that the selected experts understand their assignment and which side they are representing. Sounds too simple, but I've seen lots of experts make the case for the other side without giving proper consideration to their own client's issues. An expert must never lie, of course, but it is not his job to make a case for the other side.

By all means check out the expert's references with particular emphasis to other previous experience on similar cases. Expert witness firms usually advertise in trade papers, but most of their cases are generally obtained through referral from satisfied lawyers and insurance companies. Still, references must be carefully checked.

7. Make sure that selected experts are given the opportunity to appropriately investigate the issues. Recently when representing a framer who was being sued for not installing certain rough hardware items and for supplying improperly sized lumber, I was given the opportunity to examine his books and records. From this investigation, I was able to find the delivery slips and purchase invoices that fully described all the purchases delivered to the job-site in question.

Made Comparisons

In reviewing the lumber and rough hardware list against the framer's set of the building plans, I was able to determine that sufficient appropriate materials were delivered to the job site (in supplier's trucks) in order to satisfactorily build the project as per plans. Later, through destructive testing, we were able to confirm the actual "as built" conditions which closely approximated the approved plans.

8. Co-ordinate destructive testing with other defendants. I have seen hundreds of thousands of dollars needlessly expended duplicating testing done by other sub-contractors, sometimes several times over. By coordinating the destructive testing procedures with all the subcontractors on a case, it is possible to share the expenses pro rata with many other defendants.

When destructive testing is being performed, make very sure that the testing general contractor has an over sufficiency of labor on the job. It is far less expensive to hire extra labor from the general contractor at $30 to $50 an hour and to have them standing by, than to have a half dozen experts averaging close to $200 each per hour standing around waiting for labor to open up walls.

9. Pay bills promptly. I have been involved in a number of cases where insurance companies have delayed payment to experts and law firms of past due bills for as much as six months. When consideration is given to the many thousands of dollars of out-of-pocket expenses such as payroll, hotel accommodations, airline tickets and dozens of more insignificant expenses, these payment delays can cause severe hardship to the recipients

The bottom line is if you expect to get exemplary service, you must pay promptly-otherwise, the service you get may be the service that your tardy payment deserves.

10. Don't give up the ship. Construction defects cases are a lot like poker. On a recent case, my cost estimate to fix certain construction defects was $250,000, while the plaintiffs was almost $15 million. Our insurance carrier offered $3 million during the trial, which was rejected out of hand. The jury came back and awarded the plaintiff $290,000 and we're now suing the plaintiff for our costs and expenses. When you have a strong case, competent counsel and believable experts, don't be bulldozed by the opposition - "Play the hand out."

Coordinating these 10 management factors is sometimes like keeping 10 balls in the air at the same time and that is when an insurance executive finally knows if he's delegated authority to the right team.
About Author:
Michael Solender of The Solender Group Inc. is a construction defects expert with years of experience. Visit Construction Defects - How To Avoid the 'Big Hit' And Costly Litigation.