VE-ADR 2012: Emerging Strategies for Successful Construction Defect Plaintiff Lawyers

Last week, I posted an article entitled VE-ADR 2012: Where are we going with Construction Defect Litigation, summarizing some of my initial thoughts after attending LiMa Solutions’ seminar in Key West. This article is the first in a series discussing some of the key take-aways from the event for stakeholders. Since there wouldn’t be construction defect litigation without plaintiff attorneys filing suit, I figured I would start there. Please note that the opinions and observations here are mine alone, unless otherwise noted, and those of others may not accurately reflect those of their employers, etc., etc. – consider yourself fully disclaimed.

About the picture: This photo shows some resultant damage at wood trim on the exterior of the Westin Hotel, where the seminar was held – somehow fitting and yet also ironic.

On July 26th and 27th, 2012, LiMa Solutions invited about 50 or so of the top professionals in the construction defect litigation industry to Key West. Over the course of those two days in a series of six panels, we discussed some of the emerging trends for effectively resolving construction defect claims.

I took about 25 pages of notes and then sorted some of the various observations into categories. While there were a wide variety of opinions expressed, some clear trends emerged, with some strong consensus by both plaintiff and defense representatives. Below are six key take-aways for successful construction defect plaintiff attorneys to consider.

1. Have an Open Mind

Are your cases resolving as quickly as you and/or your clients would like them to? Of course not. Which means that if you, like most of your colleagues have contingency fee agreements, it also means you aren’t getting paid as quickly as you might like either.

They say that insanity is doing the same thing over and over, expecting different results. In other words, you’d be crazy not to try something different. I’m not advocating that you completely re-vamp everything you are doing. Instead, I recommend approaching change scientifically. That means conducting little experiments where you can isolate one specific variable. For example, maybe you suspect that your notice of claim might have more impact if you deposit representative photos from your expert’s investigation. The next time you have two cases ready to file that are somewhat similar, include the photos with one of them. Carefully observe and document what the response is from defense on both cases. Track the progress of both cases and see if there are any differences in the outcome.

When experiments prove successful, you can then integrate the new strategy into your work moving forward, with confidence.

Another important aspect of having an open mind has to do with how you approach each case. Ed Martinet likes to refer to the parties in a construction dispute as stakeholders instead of litigants. This is what Larry Kent (a successful and highly regarded plaintiff attorney himself) said during his opening address to seminar attendees:

Let’s set aside the inherent conflict. Everyone makes a lot of money unless you’re the one paying for it. We owe it to our clients to resolve cases as quickly as possible. We can do a better, faster and cheaper job. It will make your life better and better for the client.

2. Your Client Matters

One theme that was consistent across many of the panel discussions in Key West was the “human” factor in construction defect litigation. As Dave Stern (West Coast Casualty) said, “this is the largest ‘people business’ outside of retail.” I know that sometimes it probably feels like the defense attorneys and insurance adjusters have no regard whatsoever for your clients. But at the end of the day, we are all human and deep down, we can all empathize with what it must be like to purchase a new home, only to discover that it was not built to the required standards. The fact that a house is often a person’s most significant investment is not lost on those who are responsible for defending the claims that you are advancing. (A lot of your adversaries are also homeowners, some of whom may have even experienced defective construction in their own homes.)

One of the major complaints that participants in VE-ADR 2012 had of plaintiff counsel is the faceless nature of many construction defect claims. Signing up homeowners en masse may be more cost effective, and may have merit, but it takes the focus away from the individual. Nobody wants to be an “et al.” Representatives from the insurance carriers, and defense counsel alike repeatedly emphasized that having the opportunity to work one-on-one with an individual homeowner yields to more effective resolution of construction defect claims.

Typical plaintiffs in residential construction defect claims were categorized as follows:

  • Individual homeowner of a single family home (typically more involved and more aware of specific issues at their residence)
  • Multiple single-family homeowners (often unaware of specific issues, sometimes not even aware of their involvement, usually viewed as “opportunistic” by defense)
  • Homeowner association (HOA board members have certain obligations and as a result, typically have different motivations than individual owners)
  • High-profile, high net-worth owners (may be represented by personal counsel without significant CD experience)

Defense representatives all agreed that early evaluation of the case is the most important factor for successful and expedient resolution of construction defect claims. The first thing that they recommend evaluating: Who is the plaintiff? Many times when responding to claims, the defect list is identical from one case to the next – only the homeowner names have changed.

That may not lead to the response that you are hoping for.

3. Use the Right Expert

How much work does your expert do on behalf of defense? None? It is kind of hard to view that expert as anything other than an “advocate.” That’s your job – to be an advocate on behalf of your client. Your expert needs to be impartial and base their opinion on their experience and the evidence available.

Perception is everything in this world. So no matter how accurate the opinions of your expert may be, how they are perceived by opposing counsel and the carrier’s representatives (not to mention the mediator, judge, and/or jury) will ultimately impact the outcome of the case.

Make sure that your expert is mindful of the importance of demonstrating resultant damage. Perhaps you have legal standing for making claims related to all sorts of technical violations. But you know that without resultant damage, it will be hard for the insurance coverage to kick in.

Make sure that there is sufficient communication between you and your expert. Ask for early evaluation of the case by your expert. Make sure your expert isn’t artificially inflating costs because they think it will help you achieve a better settlement. And since communication is two-way, make sure you are listening to your expert. If there isn’t a whole lot wrong with a house (or tract), and a lower settlement is likely, the more work you put into that case, the less money you make – if you have a contingency fee agreement.

Your expert needs to understand that the bigger the number, the more evidence is required to convince others. As the Honorable Susan Johnson of Nevada stated, “Whenever the plaintiff has a large number compared to the defense offer, I need people to explain the numbers, whether big or small.” Or as Florida mediator, Rodney Romano put it, “Large numbers and tiny offers have never bothered me. To me, it is a window to the soul for the person speaking… Sometimes [they] have to put on a show for the client.” Put another way, it is going to be very hard for the defense to take your demand seriously when your expert calls for complete removal and replacement of the roof, stucco, windows and plumbing fixtures, yet only has a few pictures of slipped roof tiles and hairline stucco cracks. Especially when there hasn’t been any destructive testing.

Actively encourage and facilitate meetings between your expert and those of the defense. Playing “hide the ball” with information and evidence might make for good TV drama, but it won’t help you resolve the case any faster. The sooner that the opposing experts understand the technical aspects of what your expert has uncovered, the sooner they can help their client make an informed decision about resolution. Just make sure that the expert you hire is open to such exchanges and doesn’t make it harder for you to do your job.

4. Consider a Neutral Approach

At the conference in Key West, the central concept was finding better ways of resolving construction defect claims. A big part of this, especially in light of the economy, is controlling costs.

One of the biggest costs in construction defect litigation is related to discovery – and ultimately that means the cost of experts. Just as I previously mentioned that your choice in expert should include those that work on behalf of plaintiff and defense, you might want to consider the neutral option.

Many of the Right To Repair laws in various states (SB800, Chapter 40, for example) create a “pre-litigation” process. If during this pre-litigation process, you were to share the investigative cost with defense by utilizing neutral experts, you could expedite resolution and dramatically reduce the cost for all stakeholders. The neutral expert’s opinion would (and should) be protected under mediation rules, but if in the event the case moves into litigation, the evidence collected could be used by all parties.

Ed Martinet and Bob Freedman presented a special panel on the neutral approach. It should be noted, that a neutral evaluation is generally accepted and promoted by the courts, but it hasn’t been applied much in construction defect litigation due to the inherent complexity. The key to this approach is to gain early buy-in and engagement by stakeholders (plaintiff and defense parties). Once everyone is entrenched in their perspectives (plaintiffs calling for complete reconstruction, defense offering the spare change in their pockets), it is more difficult to get to resolution and narrow the gap.

If the plaintiff and defense are reasonable and rational, such a process could easily reduce settlement costs by 40% across the board, and reduce the cost of going to trial by 300%, according to Martinet.

For a neutral evaluation process to be successful, it has to be customized for the specific case. Martinet and Freedman also emphasized that use of neutral experts doesn’t preclude involvement by counsel’s own experts. In fact, outside experts can “shadow” the findings by the neutral team and therefore provide valuable insight to counsel.

5. Understand Coverage

Insurance coverage issues aren’t necessarily your responsibility when you represent the claimant. But if you don’t accurately understand what coverage exists, what policies are still in play, SIRs and AIs, you are at a disadvantage.

Nevada plaintiff attorney Mark Bourassa takes it a step farther. He recommends that plaintiff counsel bring in attorneys with a background in insurance coverage. Their insight and understanding can provide exceptional clarity to your more challenging cases. This will allow you to negotiate from a stronger position.

Wendy Wilcox, an attorney specializing in the representation of subcontractors puts this into perspective: “You may want $100,000 from my guy, but if he doesn’t have it and the carrier doesn’t have coverage, $100,000 times 0 still equals $0.”

6. Be Creative With Your Presentation and Your Fees

How you present your case, and how you handle your fees have a significant impact on the final outcome. Let’s discuss presentation first.

Jim Kurkhill is a true renaissance man. He has worked as an engineer at Kodak, helped a defense contractor on some lasers, practiced construction law for nearly two decades, and now runs a consulting firm specializing in trial exhibit presentations. During a panel at VE-ADR, Kurkhill showed some tips for presenting better. The most important concept: Construction defect cases involve lots of complex data that needs be simplified in order for you to be more persuasive.

Here are some tips that I have for presenting better:

  • Ditch PowerPoint. Especially the built-in templates. Pictures and graphics that are relevant are much more compelling than a slide loaded with bullets and 12 pt text. (For more on this check out Garr Reynolds’ Presentation Zen)
  • Tell a good story, based on the facts. It is easy to get bogged down by details. Every case has a story that is compelling – let that be your guide.
  • Outsource! Hiring a good presentation designer/consultant will yield a measurable return on investment.

How you handle your fees is between you and your client. But you might want to consider some other alternatives. One of the difficulties with SB800, in particular, is that there are no provisions for plaintiff attorney fees. Therefore, if the builder elects to make repairs, in lieu of a cash settlement, a contingency fee agreement means no money for you. If your fee agreement were to include an alternate flat-fee or hourly fee option in the event of repairs, it means you and your client have additional flexibility.

Additionally, some plaintiff attorneys participating in the seminar in Key West mentioned that they have been successful in accelerating case resolution by offering to reduce their contingency fee percentage. For additional alternative fee arrangements worth considering, see the Association of Corporate Counsel’s Value Challenge.

Conclusion

These are just some of the trends that I picked up on during VE-ADR 2012 in Key West. Many of us that work in construction defect litigation, have been doing so for a long time. Some of you may have devoted the bulk of your career to CD work. As with any industry, things change. And construction defect litigation is an industry in flux.

How you adapt to the changing environment will determine not only your own success, but the successful outcome of the cases you handle.

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