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The Anatomy of a Construction Defect Law Suit and Steps to Take to Avoid Them

Posted By Western States Roofing Contractors Association, Monday, February 5, 2018
Updated: Monday, February 5, 2018

 

By: Dan Cornwell

Dan Cornwell is the President and founding member of CC&L Roofing Company established in 1978 in Portland Oregon and the Principal of Cornwell Consulting Group established in 2007. He is a former president of WSRCA, current director and former president of the National Slate Association, a member of the Tile Roofing Institute’s technical committee and the Secretary of the Portland Chapter of the Roofing Consultants Institute. Mr. Cornwell has provided consulting services on over 300 Construction Defect Litigation Cases. He can be reached for questions or comments at dan@cornwellconsulting.net

 

Picture This: You are a roofing contractor in the foyer at your office and in the process of shaking hands with a client who has come in to sign a contract for a lucrative job; the door opens and some guy walks in and serves you with a summons. You have just been named in a construction defect law suit and you and your client are both taken aback!

Of course you knew nothing about this coming, no one gave you notice of some alleged failure of your work and possibly you performed the work on said project 6 to 10 years ago or in some cases even longer. Possibly you don’t even remember the job, and if you do it is likely that there were no indications or notifications of anything wrong with your work. No one called you to say it was leaking or requested warranty service.  This does not seem like fair treatment so how could this possibly repeatedly happen to roofing contractors across the Western United States?

How It Started

The course that brought you here may have begun a year or more prior to you being named and it is possible and even likely that the roofing portion of the project had little or nothing to do with the initialization of the law suit you have just been named in.

 

Every construction defect case usually has one or possibly two main drivers or actual serious defects that get the case started. Possibly the property owners in wet climates noticed mushrooms growing out the trim on the corners of their windows or noticed mold on the interior, possibly settlement issues caused cracking, or decks began to sag from rot or condensation caused the roof sheathing to sag under foot? Any of these would initiate the building owner to call someone for repairs which brings the defects in the construction to light.

If it a is condominium project or homeowners association, it is  possible that professional plaintiffs experts looking for business initiated contact with the association board informing them of what the experts consider the boards “due diligence responsibly as trustees to ensure there are no latent construction defects prior to the expiration of the statue of repose”.

Whether the property owners noticed irregularity’s in the construction and initiated the call for repairs eventually leading them to an attorney or whether they were contacted by phishing plaintiff’s experts looking for business who directed them to an attorney makes little difference. Everyone is familiar with the term ‘Ambulance Chasing Attorneys” and today we now have “Sawdust Chasing Attorneys” or those along with their experts who rely upon construction defect litigation for their livelihood.

Once the plaintiff’s experts are on the scene they don’t just look at the portions of the construction that may be failing. Rather they inspect and observe all the building components often working from boilerplate lists of defects they have on file. Commonly following an initial observation of the building, a preliminary report is provided to the owners stating that a litany of potential defects have been discovered and additional investigative openings need to be undertaken to determine the severity of the issues.

The preliminary report usually leads to a select contractor being retained to preform destructive testing who makes investigative openings at numerous cherry picked locations in the building envelope while the plaintiff’s experts photograph and document the findings. The defects discovered during the invasive openings may be the actual cause of failures in the building envelope or structure with obvious resultant damage present. However, many of the alleged deficiencies which end up listed in the Lawsuit Complaint are often just technical in nature.

Although these technical deficiencies may be performing and causing no damage to the building, these alleged defects either do not follow the manufactures instructions, industry standards, ASTM or even code requirements.  Often these issues are related to items such as type of fasteners, or fastener placements not meeting specs, underlayment or weather resistive barriers not properly lapped with other components or flashings, improper sealant joints, undersized diverter flashings and so on.

These items all get listed on the complaint filed with the courts and often they are described in ambiguous terms that do not give the reader a clear description of what the actual issues consist of? Some examples of these statements are: Inadequate weather protection for exterior wall assemblies: Inadequate metal flashing provisions and dimensions: Improper water-restive barrier installation: Inadequate rough opening flexible flashing provisions: Inadequate rough opening air control provisions: Improper utility penetrations: and of course: Inadequate weather protection at roof assemblies and maybe, inadequate or undersized diverter flashings at roof/wall/eave interfaces.

The plaintiff’s experts who make these allegations may or may not possess construction related experience and backgrounds, some may, and others may have construction management degrees but no practical experience with the tools of the trade while others might have zero construction training or experience but got hired on to take photos and quickly worked their way up the status of “expert witness”. However do not underestimate plaintiff’s experts, they all study codes, manufactures instructions, and or course WSRCA and NRCA installation details or industry standards and are quick to point out any conditions that do not meet those accepted standards.

If you are fortunate the experts hired by plaintiffs on your project will be those who commonly provide services for both the defense of contractors and who also occasionally work for plaintiffs. This experienced type of expert usually has a good and realistic understanding of what is and is not causing problems for the building owners and as such their demands for repairs may be more realistic than those who only work the plaintiff’s side and often just call for full replacement of all components on the exterior of the building. It is not that the “plaintiff’s only” experts are evil; rather they see themselves as righteous protectors of property owners who have been damaged by ruthless contractors and may be overzealous in obtaining justice and of course as much settlement money as possible for their clients.  Put differently, they generally are very good at making mountains out of mole hills.

All of the above occurrences transpired unbeknownst to you at the job site which you worked on at some point in the past, the evidence has been gathered, the cards have be stacked and you are guilty of performing work on said project (be it improper work or not) and are now being sued for committing that work.

Who Sues Who?

Commonly you are a subcontractor and in most instances you are being sued by the general contractor who built the project. General contractors commonly require sub-contractors to name them as additional insureds on their insurance policies and once the general contractor is sued by the plaintiffs / property owners they turn the matter over to their insurance carrier for defense of the claim. Their insurance carrier then subrogates the claim to the subcontractors who may or may not be the cause of the defects alleged to exist at the property.

Even if the GC does not believe your work is a fault, even if you have a great ongoing relationship with them and have completed numerous jobs for the GC and might even be close friends after years of doing business together, once the GC turns the claim into their carrier for defense it is out of their hands. Their insurance carrier is going to look to you and every other subcontractor who performed work on the project to pay for the claim.  Conversely if you hired any sub-subcontractors to perform any work on the project your insurance will also subrogate the claim to them as well.  Who is actually at fault will be sorted out later. Unfortunately you are generally considered “potentially guilty” until proven innocent.

The Right to Repair

Some states have passed right to repair bills for instance in California, CA Civil Code 917 and in Oregon, ORS 701 in an effort to allow those who performed the work to have an opportunity to make repairs prior to the initiation of the law suit. These were put in place with good intentions but in some cases can have an adverse effect for subcontractors. In order to name you in a lawsuit the suing party must provide you with the required “right to repair” notices. Sounds good, but the requirement means that whether your work is suspect as contributing to damages at the property or not, if they don’t send you the notice of right to repair then they can’t name you in the suit. In essence this ensures that they will send you the notice so you are in. 

The notice you receive may also include some ambiguous wording such as:

“Please note that the investigations and conclusions are preliminary in nature. It is impossible to know the full extent of the construction defects and damage at the property without additional major destructive testing. In compliance with the statues of (your state) you are required to:

1. Send us a written response stating your intent to perform some or all the remediation.

2. An offer to pay a stated amount of compensation for some or all of the acknowledged defects and consequential damages.

3. Or a letter denying all responsibility for the defects at the property”

This wording puts you in the position of agreeing to either fix or pay for problems at the property which you do not know the extent of, and have no way of knowing the eventual cost of repairs, or even if your work is at fault at all?  At this point you end up notifying your carrier that you are being sued and turn it over to them to defend.

The Ultimate Statute of Repose

The statute of repose varies in time in different states and can be thought of as similar to a statute of limitations (ask an attorney for the true definition) for construction defect claims. 

Your states statutes may vary but in California and Oregon it is 10 years and in Washington it is 6 years from the date of substantial completion or the issuance of the certificate of occupancy. Basically this means that upon the expiration the statue of repose property owners can no longer bring construction defect law suits against contractors. However these limits have been trampled on in some cases and upon appeal have been extended by judges who apparently thought allowing a case to proceed after 13 or 14 years was the right thing to do.  

In some instances the general contractor was brought into litigation at the very end of the statute and by the time you get a summons, a year or more has past beyond the expiration of the statute, but since the case was brought against the general contractor prior to the expiration, who you named additional insured, you are now in the case.

What Happens Once Named in a Construction Defect Litigation Lawsuit

Once you are named: First notify your insurance agent who will notify your insurance carrier. Second; hopefully you kept good records of the construction process including photographs of the work in progress. You will need to copy your entire job file and supply it to your carrier as your file may at some point be subpoenaed by others and your attorney will certainly need your file for your proper defense. Your file is now evidence and you should keep both paper copies (in case of computer crashes) and electronic copies on file. Records from plaintiff’s or general contractor’s files may be incomplete or missing years after completion and you may even be accused of completing work you did not perform. Your file may be your salvation in such occurrences.

Your carrier will likely send you a reservation of rights letter which basically says they are looking at the case and may or may not provide coverage. This is complex stuff based on the fine print you probably never read in your policy, but in general they are required to provide a defense for you but may limit their exposure in paying for remediation of the alleged defects.   In short they are responsible for damages to the property resulting from your work, but they do not cover your work product. So if your work is found and proven to be deficient, improperly installed and requires replacement but no damages to the building resulted from your work, there is no coverage and you are on your own for the replacement costs.

Whereas if there are resultant damages to the building from the work you installed, leaks and rot instance, this will trigger coverage for replacement and repairs. No one wants to have their work found deficient, but finding damage as a result of your work is actually a good thing in some cases as it will trigger coverage by your policy.

You insurance company will hire an attorney to represent you in the case and your attorney will, with approval of the carrier, hire an expert to aid in your defense.  You may have a say in selecting who your expert will be and you will want someone with experience and knowledge in roofing installations. A good expert on your team can often refute overly aggressive claims of negligence on your part made by plaintiff’s experts and provide the proper arguments for your attorney to use in your defense.

You will need to provide your expert and attorney with your knowledge of the work process and as the case proceeds on you will likely be deposed by other attorneys in the case. However once this is accomplished and you have an expert and attorney working on your behalf, do your best to give them the ball and let them run with it. Go out and make some money and live your life and forget about the case if you can, eating your guts out won’t change the outcome.

Lastly once you are in the case, begin to earmark and set aside funds for your deductible payments when the case eventually settles or resolves. If you have changed carriers since completion of the work and damages have allegedly been accruing since that time, you may have multiple carriers providing and sharing in the costs of your defense, if that is the case you will likely end up making deductible payments to each of those carriers.

Your expert will visit the site and observe your work in place,  potentially there may be additional destructive testing by the defense parties to open additional areas not cherry picked by plaintiffs in an attempt to either prove that damage is either isolated to only a few areas or is not occurring at all. Following the site visits and any additional destructive testing, there will be experts meetings where the experts for all parties including the attorneys meet in a room to discuss the findings onsite. Generally attorneys are not allowed to offer opinions in experts meetings, but the experts are allowed as guided by a mediator to hash out what they believe are and are not problems with the building and upon whom the blame rests.

It is not uncommon to have disagreements and a variance of opinions between the plaintiff’s, subs and the general contractor in these meetings as to where fault lies and how significant damages really are. Defense experts may prepare an alternative scope or repairs targeting problem areas that minimize the overall scope of repairs recommended by the plaintiffs. Much of the fault as to who caused it and or why damage is or is not occurring can be cleared up during experts meetings even though the opinions expressed therein are protected as mediation communications and cannot be used in court.

The best possible outcome is that your expert will be able to show the mediator and other parties during the meeting that your work is perfect and not at fault whatsoever. This may lead to your dismissal from the case once the other parties see that it will be difficult to impossible to either extract settlement monies from your carrier or for them to prevail against you at trial.

Following the experts meetings which may be repeated with two to three follow up meetings after additional investigative openings are made, or when new information comes to light, the case moves on to mediation. Prior to reaching this point, your expert will have arrived at a conclusion of whether or not any of your work is at fault. If some of your work is deemed faulty or potentially shares in resultant damages to the property, then a speculation is made of how much of the damages may be related to sequencing of the construction, or can be attributed to other trades modifying your work after completion and who should share in the costs of repairs? The general contractor will often be assigned to pay a portion or percentage of any damages caused by their subcontractors for failure to properly supervise their work. 

Your expert will advise your attorney of how much, if any, liability you face in this case and provide an approximate estimate of the repair costs to remediate these problems or what portion of settlement demands made by the general contractor or plaintiff’s you may share in. Your attorney will then advise the carrier of the potential exposure in best in worst case scenarios should the case proceed to trial. The carrier based upon the information provided by your expert and attorney will assess the position and potential for loss should a jury not find in your favor at trial and will allocate a maximum settlement amount to be paid to settle the case on your behalf.

Commonly the parties attending mediation in the case meet in separate private rooms in the same building. Demands for payment to reach settlements are made by the plaintiffs to general contractor, who in turn makes demands for payment to the subcontractors in an attempt to settle the case.

The mediator travels back and forth from one room to the next, meeting with all the parties involved in an attempt to cajole the plaintiffs to take less and or the defendants to pay more to try to settle the case. It is common for no neutral ground to be reached at the first mediation with each party feeling out the others so the mediation fails. Often it takes a second and sometimes a third mediation prior to settlement being reached with around 99% of construction defect cases eventually settling in mediation. A successful mediation can be described as a situation where everyone goes away angry due to either paying more than they wanted or receiving less.

The remaining 1% of cases head to trial where anything can happen. Often as not the defense wins at trial having a good argument and reason to be there to begin with, however trail is always a crapshoot and juries can deliver big verdicts for plaintiffs as well. This is why most cases settle during mediation due to the fear of the unknown verdict coupled with the high costs of defense to bring a matter to trial.

Avoiding Construction Defect Lawsuits

Unfortunately the only surefire way to ensure you are not named in a construction defect case is not to do the work to begin with. Not a good choice when you make your living installing roofs, but the truth is when everyone who touches a building gets named in the suit, sooner or later even if you installed the most perfect roof ever, the windows, wall cladding,  trim, doors, or decks or other components may fail and you will be in the case.

There are clause’s you can add to your contracts that may cut your exposure time limit down to four years or less instead of the full statute of repose in your state which are a very good idea. However you should consult an attorney for proper advice in your state as to the wording. These may not be of much help when you are required to sign the general contractors contracts unless you can get your clause added to their language.

Short of that, avoiding mass production lowest bidder home owner association work which is a main target for construction defect suits will avoid the most probable exposure. If this is your bread and butter type of work then try to get the general contractor to provide a wrap policy with high enough coverage limits for everyone.

Basically just doing really good work will either help you avoid being named in a lawsuit or get you out once you are named. Education for the business owner and the entire crew is paramount, even if your grand pappy did it that way and you have been doing it that way for decades that does not mean it meets the manufactures requirements, specs or even code. I don’t have room to mention all the potential defects that one can be accused of here so I will say that belonging to associations like the WSRCA and attending seminars, reading technical bulletins, and studying written details, then implementing those practices into your installations is the best possible method of either staying clear of or being dismissed from a construction defect claim.

Virtually every roofing contractor I know including my own company has at some point in time assumed the role of a “plaintiff’s expert”, although not necessarily involving a lawsuit.

You get called out to a property for service where the original contractor is either no longer in business or will not return calls or the owner simply refuses to have them back. The roof is leaking, and you find some of the worst cut corner sloppy work imaginable which of course was performed by the lowest bidder. You have to tell the property owner that they got a really bad job and then what it will cost to fix it or completely replace it.

You have just assumed a role similar to what plaintiff’s experts do, conversely should this roof lead to a law suit some attorney and some other expert will be hired to provide a defense for the guy who did the cut corner work described above. Providing a defense for really bad work obviously will not be easy.

My point in summation is that construction defect claims are not going away anytime soon, but they may in some instances have raised the bar on the overall quality of construction now being built. Hopefully those who are the critics, the plaintiff’s experts and attorneys, along with those who provide defense of the contractors involved can rise to a level of looking at what is wrong and what is not instead of attempting to extract as much money as possible from every party involved regardless of the quality of work completed. Not every contractor’s work is prefect and where faulty work causes damages it needs to be fixed. Hopefully we can get to a point that when the contractors work is not the cause of damage, that those who are the accusers will agree and dismiss the allegations.

However there is money involved, so don’t hold your breath.

 

 

Tags:  LEGAL  TECHNICAL 

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