Power of Attorney - December 2005

Construction Defect Litigation:

Tips on Avoiding the Tar Baby

by Rob Hendrickson

Construction defect litigation has spawned its own cottage industries of consultants and counsel who do little but prosecute (and defend) these cases. Plaintiffs’ consultants often "identify" defects to justify the cost of their destructive testing investigation, while defense consultants frequently require further destructive testing to prove that the defects are not as extensive as claimed. Counsel often insist upon deposing everyone even remotely involved, sometimes leading to hundreds of depositions.

This runaway litigation has led many to wonder whether there is any way to work in this area and yet avoid and/or defend against such claims. This article provides practical tips on how to avoid getting caught up in this "tar baby." With the explosive development in Nevada over the last several years, and the resulting massive increase in construction-defect litigation, anyone involved in the design and construction fields will benefit from a realistic assessment of the litigation environment and trends, and from undertaking advance planning and risk management to avoid problems, or at least position oneself in the best possible place to defend a claim if one is inevitable.

Who will the ultimate owner or consumer be?

Construction defect litigation started out with condominiums and other wood-framed, multi-family residential projects, and quickly spread to single-family residences and high-rise luxury condominiums. The type of eventual owner can have a direct bearing on the risk of litigation. Experience has shown that single-unit owner projects are more likely to face litigation than multi-unit apartment projects, if for no other reason than larger, sophisticated property owners are more likely than individual unit owners to maintain their projects appropriately. Likewise, individual purchasers of high-end "luxury" residences are much more likely to expect perfection and to complain regarding what some would consider to be, at most, minor annoyances.

Managing risk proactively is more efficient than litigating over it later

Too many developers believe they can rely upon the contractor’s insurance and onerous indemnity agreements to protect against problems that arise after the project is complete, rather than developing appropriate risk-management procedures before the fact. It generally is less expensive to avoid, or at least minimize, design and construction problems rather than paying to fix them (or litigate them) after the fact.

Interestingly, project insurance is now often available only under the condition that the developer retain a "Quality Control" consultant to monitor the known danger areas in residential construction, including waterproofing and acoustical. Project policy insurers have learned that investing time and energy in a prospective attempt to mitigate and avoid problems ultimately results in less claim frequency and severity.

The designer should address both the design and the important details

Architects sometimes focus on the "art" of design at the expense of the "science" of construction. Constructability concerns/suggestions are best accommodated early in the design process, rather than in the field during construction. Design professionals should welcome rather than resist input from contractors and specialists. Consistency between details is important, as is focus on making sure the details specified for known potential trouble spots (e.g., windows) have been vetted by experts and are followed in the field.

Pay attention during construction and document how it was built

Too much time in construction defect litigation is spent ascertaining why and how the construction deviated from the plans or from generally accepted construction practices. If developers and general contractors spent a fraction of the time during the project that they later spend in defect litigation on careful and consistent documentation regarding the construction process, they would catch most defects before they are covered up and later cause damage (and lead to claims). Moreover, knowing how a project is designed and constructed is important in determining how to maintain it.

Conclusion

There is an old saying: "If it seems too good to be true, it probably is." If the project seems to be less than well thought out, it probably is. If you are a designer and the developer wants to cut you out of construction administration, beware. If you are a contractor, consider the long-term cost of retaining inexperienced subcontractors.

Rob Hendrickson
Rob Hendrickson, licensed as a Professional Engineer (Civil) in California, is a partner with Hancock Rothert & Bunshoft LLP, with offices in Las Vegas and San Francisco, among other locations.