“Housing Boom & Bust – Is it the End of Construction Defect Litigation as We Know It?”
Wendy Wilcox, Esq., Michael Sargent, Esq., Bruce Wick, Ted Bumgardner, and Gary London
In this most recent recessionary period, the U.S. has lost 8.7M jobs, according to Gary London. While there are plenty of metrics that can be used to analyze the economy, London says that job loss is one of the most significant statistics. In the last two years, unemployment insurance claims have gone down. He also said that the GDP and Dow Jones Industrial Average have improved in the past two years. What these statistics mean that the U.S. economy is improving overall. In the housing sector, new home sales have decreased 76% from the peak several years ago. London illustrated that the bulk of home sales over the last 5-6 years involve people that “have to” sale, versus those that “want to” sale, although that is starting to change. London predicts that it will be several years before builders are able to respond to the demand for housing.
Regarding construction defect litigation, London illustrated that the number of cases filed have increased, but that trend will reverse in the coming years.
Ted Bumgardner pointed out the obvious, that without new construction, there will not be many new cases going forward. Since it is unlikely that plaintiff attorneys will retire en masse, they will continue to seek out new avenues. Bumgardner states that commercial construction, schools, public works projects are becoming subject to construction defect litigation more often. Most notably, new technologies – especially in use on green and sustainable projects – are increasingly ending up in litigation. Solar roof retrofits are resulting in claims, as well.
According to Bruce Wick, for the most part, residential builders are managing to survive. In the past, contractors operated under the assumption that three years of capital reserves were required to weather a recession. Obviously the recession has outlasted many of those reserves. Another important factor Wick points to is that experienced craftsmen are disappearing as a result of the economy. Many builders have eliminated customer service departments, as those functions typically do not generate revenue. Builders are looking towards quality assurance programs more frequently. Because of Self-Insured Retention (SIR), Wick anticipates that builders will be taking a more active role in responding to lawsuits, including taking careful notice of legal and expert fees. Subcontractors will likely pursue sharing defense resources and will be taking a stronger defense against poorly written wrap policies.
Wendy Wilcox (who said her voice is a little hoarse from The English Beat concert last night…) represents primarily subcontractors. She sees that it is much more difficult for her to get her clients released due to Additional Insured indemnification. A new trend she has seen in litigation involves high net-worth and high profile plaintiffs. Another new trend that Wilcox has observed involves green building issues – especially regarding claims of resultant damage and loss of use. Advanced mechanical and electrical controls will introduce new types of claims, she said.
Michael Sargent also represents subcontractors. In order to obtain insurance coverage, many of his clients were forced to accept policies with extremely high SIRs. Properly evaluating exposure in construction defect claims is very important. Sargent said that while in most cases he wouldn’t advise his clients to perform repairs (opting to pay for others to do repairs instead), there are situations where it may help resolve cases. Having options has allowed Sargent to effectively and efficiently resolve claims with most large developers. He predicts that construction defect litigation will continue to “ratchet down” for a while, echoing some of the other panelists comments.
Image courtesy Bernt Rostad