Every year at West Coast Casualty’s Construction Defect Seminar, at least one panel discussion is held on a new or innovative way of resolving construction disputes as efficiently, effectively and most importantly, as inexpensively as possible. This year is no exception.
Resolving Construction Defect Claims Early
Panel: J.D. Turner, Joseph Kaneda, Timothy C. Earl, Phil Collias, and Todd Schweitzer
Where have we been and where are we now?
Some trends:
- More multi family construction disputes, more nonresidential, and in general, more complex project types
- These projects require a completely different skill set and level of analysis, particularly on the part of the experts
- EB–5 Visa money seems to fund more projects that end up in litigation
- Insurance coverage changes as well to meet the requirements of these needs
- COVE insurance product provides a novel and collaborative approach to preventing protracted and expensive litigation
- Preference towards more extensive, thorough and more proactive investigation of buildings early on
Some challenges facing the building industry:
- Unsatisfactory responses by homebuilder warranty programs has led to increased litigation
- Due to extremely high SIRs (self-insured retention), insurance claims adjusters may not have a lot of hands-on involvement early on in a case, so builders often need to seek out their own counsel and conduct repairs
- Difficulty triggering the carrier’s involvement in a claim, in absence of an actual lawsuit, can make it difficult to resolve claims
- Repairs may not actually result in a full release of liability
There exists a real opportunity in the industry to educate builders to the economic impact of various claims management and dispute resolution strategies.
What are some of the benefits to early case resolution?
- Certainty as to outcome
- Repair of home and prevention of future damages
- Limitation of attorneys’ fees, expert fees, and other costs
- Savings to builder’s general and administrative expenses
- The longer a claim takes to resolve, the more expensive it will always be
Some obstacles to early case resolution:
- A recent court case reaffirmed the intentional acts exclusion which had a distinct chilling effect on resolution of claims
- There is a trend stemming from multiple occurrences exclusions that is delaying or slowing carrier response and thus resolution in some situations
- Policy language interpretations will almost always dominate settlement of claims, bogging down the entire process
- Deciding whether or not to pursue subcontractors and/or design professionals is a critical decision to be made when an OCIP or CCIP is in place
What are some of the elements of a successful early resolution of a claim?
- Stated goals
- Stipulation for discovery/mediation
- Ensure all parties have sufficient information to participate in meaningful discussions
- Ensure correct participants
- Ensure insurer participation
- Interim discovery between mediation sessions
- Realistic cost and scope of repairs
- Possible involvement of neutral experts (this is most likely an unrealistic goal)
- Get to know the various players and their roles
- Don’t lose sight of the coverage
- Maintain credibility throughout
- Always be trying to settle
Ultimately, resolving construction claims is a process. As Mr. Kaneda said, “it is often a dance.” As long as the stated goals include early resolution of claims, and as long as all parties share those stated goals, only then can an effective early claims resolution process occur.
AEC Forensics 