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.