Insurance FAQ

Construction Defense

The most common dispute in construction cases involves construction defects. The issues involved in construction defect defense litigation are difficult and challenging because the law is unsettled in many areas. In addition to having an attorney who is familiar with construction law, the best defense to claims of construction defects is to keep the claim from arising in the first place. Construction professionals need to know how to balance the contingencies of risk with their specific contractual, financial, operational, and organizational requirements.

In order to achieve this balance, proper risk identification and risk analysis is required. The risk management process entails identifying construction risks and exposures, and formulating an effective risk management strategy to mitigate the potential for loss.

Moreover, although some number of lawsuits is inevitable, through this process, contractors, subcontractors, architects, engineers, and developers can take steps to make the successful defense of these claims more likely. Once a suit is underway, however, the representation and counsel of an attorney knowledgeable in construction defense - as well as the support of your insurance company - can prove to be invaluable.

Construction Defect Claims

Almost any condition that reduces the value of residential or commercial property can be a construction defect. Construction defects can arise from a variety of circumstances, with some of the most common including:

• Soil analysis or preparation;
• Site selection and planning;
• Architectural design;
• Civil and structural engineering;
• Construction; and
• Building products and materials.

Construction defect cases arising from these and other situations are even more varied, with claims encompassing:

• Faulty drainage;
• Improper landscaping and irrigation;
• Cracks in the foundations, floors, walls or roofs;
• Water seepage at the floors, walls, windows and roofs;
• Dry rot, termites, molds and bacteria;
• Improper heating and ventilation;
• Improper electrical systems;
• Defective plumbing;
• Structural failures;
• Inadequate sound control;
• Inadequate fire protection; and
• Defective lighting and security.

A court may find liability on the part of the construction team if the specific condition under review:

• Occurred as a result of or in association with a violation of applicable building codes;
• Is the direct result of construction means, methods, or practices that are below the standard of care in the building industry;
• Resulted from a deviation from the permitted/approved plans and specifications; or
• Is below the reasonable expectation of the property buyer/owner.

These possible liabilities are daunting, but even if liability appears obvious, there are many procedural defenses to a construction defect claim. An experienced construction defense attorney is necessary to give you the benefit of these procedural rights.

Standing

Due to the many different parties who may be involved in a construction defect suit, it is necessary to determine whether the person bringing the suit has proper "standing." Only parties who are damaged or stand to suffer a loss as the result of another's actions have "standing" to bring a lawsuit; being able to show existing or imminent damages is a perquisite of starting a lawsuit. When an individual property owner brings a suit, the issue of standing is straightforward and usually not an issue. When numerous owners or homeowners associations bring the suit, the issue of standing is more complicated. Class actions and homeowners association actions are very similar. They involve persons or entities suing on the behalf of others. Such actions are allowed as exceptions to the usual rules governing standing. Homeowners associations may also have direct standing under covenants, conditions, and restrictions. The capacity of the homeowners association's standing to sue requires careful consideration.

Class actions involve plaintiffs who are all member of class whose claims are typical of each other. A construction defect case is fundamentally different from a typical class action where all class members have sustained the same damage or been the recipient of a uniform misrepresentation. Defendants in a construction defect suit may be able to prevent the certification of a class action if the defects affecting the various homes in a particular project are all different and do not have the requisite similarity of claims to become certified.

Statute of Limitations

Another preliminary consideration in a construction defect case is whether the claim has been brought within the time limit allowed for a lawsuit to be brought. The period of limitation does not typically begin to run until the defects are discovered or reasonably should have been discovered. Consequently, the potential liability of a builder or developer can continue for an extended period of time, but in most states, not longer than ten years from the completion of the project. The courts will not allow a lawsuit to proceed if a plaintiff fails to bring a suit within the applicable statute of limitations period.

Assignment of Liability

In addition to opposing the actual defect claims, most construction defendants will refer to the various contracts involved in the construction to assign liability for the work being criticized. For example, a contractor sued for roof leaks may claim that the roofing subcontractor is responsible for the damage caused by the leakage. As a result, numerous cross-complaints are filed in almost every construction defect case. The indemnification clauses contained in subcontract agreements and certificates of additional insurance that have been provided to the developer and general contractor are the primary materials used to determine financial responsibility among the parties.

The successful defense of a construction defect suit will depend on a variety of elements, including:

• Expert opinion supporting the defense claim that the means and methods of construction were within the applicable standards of the building industry;
  
  
• Documentation or other evidence showing that the construction was within the standard of care for the building industry;
  
  
• Documentation or other evidence supporting the reasonableness of deviations from the plans;
  
  
• Documentation or other evidence of representations made to the property buyer/owner and proof that the construction meets the representations; and
  
  
• Documentation or other evidence of buyer/owner expectations and any efforts that were made to contain the buyer/owner's expectations if they were unreasonable.

Conclusion

Individuals and businesses involved in construction can do a number of things to minimize their damages in the event of a construction defect lawsuit. Although familiarity and compliance with the building codes is important, it is also important to discourage unreasonable expectations in buyers and to document deviations from plans. Professional advice is warranted; if a potential problem arises during construction, most insurers and construction attorneys will welcome the opportunity to provide risk management advice.

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