New Jersey’s Highest Court Scrutinizes Statutes of Limitation and the Discovery Rule in Construction Defect Cases

Robert C. Neff, Jr. | Wilson Elser | July 11, 2018

The typical construction defect case presents an up-front analytical challenge: the defense attorney is presented with boxes of project materials, perhaps an extensive case history and prior discovery, and likely an unhappy (but these days, resigned) client. So you start with the basics: a review of the complaint to assess the allegations; a review of the contract documents, particularly the scope of work, for an understanding of the client’s role in the project; and a conference with the client to review the project and the expected course of the litigation.

At the same time, you speak with the carrier involved for an understanding of the terms of the applicable policy, and whether that may affect your strategy. Is there an ability to spread the risk, perhaps through a contractual indemnification provision? Or might your client be on the hook to defend and indemnify another party?

There is so much to do that sometimes a statute of limitations or statute of repose evaluation might take a back seat, unless it’s obvious. After all, particularly if your client was brought into the suit late, aren’t these cases typically subject to the discovery rule? And aren’t there often multiple owners, such that this new owner bringing suit wouldn’t have had prior knowledge of any defects?

Well, yes and yes. But a new case in New Jersey illustrates the importance of reviewing this potential affirmative defense and the related statute of repose defense, and making the review part of every initial analysis. Most importantly, the case gives defendants the ability to defend against the assertion that the statute of limitations was tolled until the most recent owner (and plaintiff) discovered the cause of action.

Background
In Palisades at Fort Lee Condo. Ass’n v. 100 Old Palisade, LLC, 2017 N.J. Lexis 845, 169 A.3d 473 (Supreme Court of New Jersey, September 14, 2017), Palisades at Fort Lee Condominium Association, Inc. (plaintiff) sued the general contractor and three subcontractors, alleging various defects in a commercial/residential high-rise under plaintiff’s control at the time suit was filed. However, the complex had gone through two ownership changes prior to suit being filed, and the building had been completed more than six years earlier.

The relevant timeline was as follows: in December 1999, Palisades A/V Acquisitions Co., LLC (A/V) retained defendant general contractor AJD Construction Co., Inc. (AJD) to build the complex. The project architect certified that the project was “substantially complete” as of May 1, 2002. A/V then rented units in the project for two years, after which, in June 2004, it sold the complex to 100 Old Palisade, LLC (Old Palisade), which converted the units into condominiums. On October 1, 2004, an engineer retained by Old Palisade found the complex to be in good condition.

In July 2006, the unit owners took control of the Condominium Association and retained another engineer to inspect the complex. That engineer issued a June 13, 2007, report detailing construction-related defects, and the Association eventually sued various defendants in 2009 and 2010. The allegations were the typical breach of warranty and negligent workmanship allegations found in most construction defect complaints.

Rulings
In New Jersey, the statute of limitations to file such a suit is six years, as set forth in N.J.S.A. 2A:14-1. Ruling on a motion to dismiss for violation of the statute of limitations, the trial court found that the statute began to run on May 1, 2002, when the complex was “substantially complete.” Because suit had been filed after May 2008, the court granted the motion and dismissed the case.

The Appellate Division disagreed, concluding that the Association’s claims accrued when it assumed control of the complex and became “reasonably aware” of the claims of construction defect based on its June 2007 engineer’s report. The Supreme Court granted certification, but did not completely agree with either the trial or appellate courts, illustrating the difficulties inherent in the application of the statute of limitations and the discovery rule in construction defect litigation.

First, the Supreme Court disagreed that it is simply a matter of determining when a project is “substantially complete” when setting the accrual date. The discovery rule applies, it noted. So if an owner does not reasonably first discover a cause of action until after the project is substantially complete, then the full six-year statute does not begin to run until the date that the cause of action is discovered.

The Supreme Court therefore rejected the trial court’s opinion that, because damages and an at-fault party were discovered within the initial six-year period commencing with the substantial completion of the project, the plaintiff had to file the action within the initial six-year period. “We therefore reject defendants’ argument that, so long as plaintiff discovered the basis for an actionable claim within six years from the date of substantial completion, plaintiff had to file within the time remaining in the limitations period.”

Instead, the Supreme Court determined the statute of limitations does not begin to run until “the date that the plaintiff knows or reasonably should know of an actionable claim against an identifiable defendant” if that date is after the date of substantial completion. While defendants lost that argument, they won another, perhaps less obvious, argument.

The plaintiff in Palisades was the third owner of the project in question, a 41-story high-rise consisting of a 30-story residential tower atop an 11-story parking garage, including mid-rise apartments, townhomes and recreation facilities. A/V owned it in 1999, Old Palisade took ownership in 2004, and the plaintiff, the Condominium Association, owned it in July 2006 when 75 percent of the unit owners took control of the Condominium Association.

Plaintiff attempted to argue that the statute of limitations did not begin to run until the Condominium Association received its expert report in June 2007, notifying it of the defects. In fact, that is how the Appellate Division ruled. It made no difference to the Appellate Division that the prior owners had known of defects in the project. Instead, the Supreme Court held that a current owner stands in the shoes of a prior owner for statute of limitations purposes, and has no right to revive what may have been a lapsed claim simply because of a change in ownership:

“The statute of limitations clock is not reset every time property changes hands… A cause of action, for purposes of N.J.S.A. 2A:14-1, accrues when someone in the chain of ownership first knows or reasonably should know of an actionable claim against an identifiable party.”

Rejecting plaintiff’s argument and that of its amicus curiae supporters, the Supreme Court explicitly held that a condominium association is not exempt from that rule: “Old Palisade took title subject to the rights of A/V Acquisitions, and the plaintiff Condominium Association took title subject to any limitation on the rights of the two predecessor owners.”

As a final point, the Supreme Court noted that its holding does not abrogate the effect of the statute of repose, which in New Jersey is 10 years. Repose statutes are specifically enacted to save architects, planners, designers, builders and contractors from indefinite liability through operation of the discovery rule. Thus, the 10-year period begins to run on the date of substantial completion and cannot be extended.

At the end of the day, the Supreme Court found in Palisades that it could not determine the accrual date of the statute of limitations, and that a hearing would have to be held with respect to when each of the three owners knew or should have known of a cause of action as against each defendant. It remanded the case for that purpose.

Analysis
Back to the beginning: a statute of limitations analysis must be conducted at the start of each case. In Palisades, the motions to dismiss based on the statute of limitations were filed at the conclusion of all discovery. While an initial analysis might yield the conclusion that certain discovery will be needed to ascertain the appropriate accrual date (or dates, in the case of multiple defendants), counsel will then know what discovery to seek during the discovery period.

In addition, as a practical matter − and if the managing judge or counsel are in agreement − discovery limited to the statute of limitations can be conducted in the beginning of the case, early motions can be filed, and an early hearing held, potentially obviating the need for a lengthy full-discovery period.

…And potentially winning the case on an affirmative defense short of trial for one of those resigned, but now pleasantly surprised, clients.

How to Be an Effective Expert Witness in a Construction Dispute

Kent B. Scott | Babcock Scott & Babcock, PC | June 28, 2018

Being an expert witness in a construction dispute can be a difficult and stressful experience, but one that is made easier by following a helpful set of rules that govern the process. An expert witness is placed in a very controlled environment where every question is calculated and precise. This setting is atypical of daily life and as a result, being a good witness will take practice and refinement over time. Faced with the task of being an expert witness in a construction dispute, it’s not just about intelligence and experience. Instead it’s about preparation, understanding the audience, the rules, and the “central themes” of the dispute. Giving testimony is not a conversation, it has its own language and its own rhythm. Question, listen, pause, answer only what is asked, stop. Guessing, interrupting, and volunteering are wrong and dangerous in the narrow and artificial world of testimony, where every word is taken down, under oath, and scrutinized.

In this world, the questioner (lawyer) appears to be in control. That’s a lie, but even the
most experienced expert witness can fall victim to it. The expert witness has the right and the responsibility to take control. When it comes to meetings or other interactions, most people know that the way to take control of the situation is not by shouting the loudest, but by using clearly established techniques and rules. Being an expert witness is just a different kind of meeting, a way of communicating, and there are rules to be effective and be in control. The purpose of this article is to give you the rules and techniques to help you and your expert witness in a construction dispute.
Rule #1 – Instruct Your Expert To Take Their Time.
The first thing an expert witness should always remember to do is slow down and control the pace of the questioning. Lawyers often come with a strategy that involves rapid fire question and answer in the hopes that the witness will make a mistake that can be used to strengthen the opposing lawyer’s case. This tactic is easily counteracted by a witness slowing things down and taking time to think through an answer before giving it.
Rule #2 – Remind Your Expert They Are Making A Record.
It is important to remember that everything said as a witness is going to be recorded.
Every answer given in a deposition or in trial will be used by each side and can either you’re your case, or it can hurt it. It is crucial that witnesses remember to think through answers and to convey them as intended. This will be very difficult to master but is vital to the process.
Rule #3 – Tell The Truth.
While this initially seems obvious, it is often much harder to do than anticipated. This is
because telling the truth in an expert environment is a very narrow concept. Answers given in this setting should be restricted to only what the witness saw, heard or did.
Rule #4 – Be Polite.
The lawyer sitting across the table will frequently try to attack the credibility of a witness.
In order to do this, the lawyer may personally attack the witness. If a witness becomes hostile or defensive it is unlikely they will be thinking clearly and can say things that may be misconstrued. Stay focused and be polite. This will allow the witness to continue to control the pace and flow of the questioning to say what they intend to.
Rule #5 – Responding To Vague Questions.
It is imperative that a witness not respond to any questions they do not understand.
Don’t be afraid to speak up an say “I don’t understand your question.” If a question is vague or unclear, they must simply ask the lawyer to restate it or rephrase it. It is more important to take a little more time and truly understand the intent of the question, than guess or speculate when answering.
Rule #6 – If The Witness Does Not Remember.
Situations will arise for a witness where an attorney will ask a question the answer to
which the witness has no recall. Litigation often carries on for years and it can be difficult to recall certain details if questions are directed later on in the process. If a witness is presented with a question they do not remember, it is important to say “I don’t recall” and stop. Remember this is not a test; they are not being graded on how much they remember.
Rule #7 – Do Not Guess.
While in daily life it is appropriate to guess or infer particular things into a conversation, it is extremely dangerous to do this as a witness. A witness is only expected to answer to the best of their ability as to what was seen, heard or done. A witness should not take it upon them self to try and answer questions if they do not know the answer.
Rule #8 – Do Not Volunteer.
The rhythm of a witness should ultimately be “question, listen, pause, answer, stop.” The lawyer may ask broad questions in the hopes of discovering new information but it is critical the witness stick strictly to the question they are presented with.
Rule #9 – Be Careful With Documents.
Oftentimes lawyers will use documents to supplement their arguments or to ask specific
questions. It is important that the witness treat these documents mechanically and keep in mind documents are just written versions of what someone believed. There is a simple, unvarying protocol witnesses should follow when asked a question relating to a document: (a) ask to see the document. Don’t allow anyone to draw your expert witness into a debate with a document without the document being in front of you. (b) It is important the witness read it. The three issues that will pertain to any document are credibility, language and context. (c) The witness must ask for the question again. It is basic fairness, once the lawyer has read the document and picked a small piece to talk about, the witness be awarded the same time to review the document and answer.
Rule #10 – Use Your Lawyer.
A witness’s strongest ally will be his or her lawyer. You – as the lawyer – is there to object to any questions the witness shouldn’t be answering and are also aware of what the goals in the litigation process are. It is important the witness utilize their lawyer and ask questions if they are unsure of anything throughout the process. While the lawyer cannot answer the questions for the witness, you are there for support and will be the best tool to get the desired results.
Remember, these rules will not come easily. Being a good expert witness involves acting and speaking contrary to what is typical in the everyday world. The rules conflict with what your expert is used to and are often counter-intuitive. But, if they are practiced they can impose a degree of discipline and control on the legal process that makes it significantly more fair and productive. I hope that when you find yourself using an expert witness in a construction dispute these simple rules will help your case.
Kent B. Scott is a shareholder at the Salt Lake City based construction law firm of
Babcock Scott & Babcock, PC. Licensed in Utah, and all levels of Federal Court, including the U.S. Supreme Court, his practice focuses exclusively on the construction industry. He can be reached at kent @babcockscott.com or (801) 531-7000.

Contract Ambiguity Affected Accrual of Claim, and Statute of Limitations Analysis

Stan Martin | Commonsense Construction Law LLC | June 2, 2018

A seemingly minor ambiguity in contract terms, probably unnoticed at the time, has affected the timeliness of a claim for construction defects.

The contract was signed in 2008, after the 2007 updates to the AIA contract forms had been published. The contract form, in what the court described as a “boilerplate” clause, stated that the contract documents included the “current edition of AIA Document A201.” That would have been the 2007 edition. A list of contract documents, though, specifically identified the 1997 edition of the A201 as the general conditions for the contract.

The 1997 edition of the A201 stated: “any applicable statute of limitations shall commence to run and any alleged cause of action shall be deemed to have accrued in any and all events no later than such date of Substantial Completion.” In contrast, the 2007 edition of the A201 stated that claims should be asserted “within the time period specified by applicable law, but in any case not more than 10 years after the Substantial Completion of the Work.”

The project was substantially complete in April 2009, and a three-year statute of limitations applied. The owner discovered problems in September 2013, and filed a lawsuit soon after. Thus, if the 1997 edition of the A201 was the pertinent version, the statute of limitations expired in April 2012. And if the 2007 edition was in the contract, the lawsuit was timely.

Applying “well-settled rules of contract construction,” the court held that the typed reference to the 1997 edition took priority over the boilerplate reference to the “current edition.” (Many readers are aware that this is a normal principle of construing contracts, as specially-drafted or modified terms will take priority over conflicting terms contained within standard or standardized forms.) Applying the language of the 1997 edition to the three-year statute of limitations, the court held that the owner’s claim was untimely. All arising from an ambiguity that may only have been discovered once the claim arose.

The case is Black Diamond Hope House, Inc. v. U & I Invs., LLC, 2018 Del. Super. LEXIS 2 (May 22, 2018) (LEXIS subscription required).

Keep It Simple Stupid: Remembering The Basics In A Construction Defect Indemnity Case To Minimize Surprises Down The Road

John Gregory and Michael Ludwig | Jones, Skelton & Hochuli PLC | May 17, 2018

There is an old saying: familiarity breeds contempt. Admittedly, residential construction defect cases can be repetitive. They usually involve the same Plaintiffs’ attorneys, the same alleged defects, and resolve in the same fashion for the same per-home amount. As a result, there is a dangerous tendency to view new construction defect (“CD”) lawsuits as homogenous. So what happens when the courts in which we practice throw us a curveball? It turns out, as illustrated by recent developments in the authors’ home jurisdiction of Arizona, a curveball can be a blessing in disguise by providing defense counsel a chance to get back to basics.

The Amberwood Case

Arizona CD law was thrown for a loop recently when the Arizona Court of Appeals — the state intermediate appellate court — decided a case interpreting an indemnity provision in a construction contract between a builder and a subcontractor. In an unpublished opinion, the court decided that a subcontractor can be forced to indemnify a contractor for mere defect allegations, even those alleged defects which are neither attributable to any subpar workmanship on the part of the subcontractor nor otherwise actually caused by the subcontractor, unless the contract specifically required a finding of fault by the subcontractor. Amberwood Dev., Inc. v. Swann’s Grading, Inc., 2017 Ariz.App. LEXIS 207, 2017WL 712269 (Ariz. App. 2017)(unpublished opinion), review denied 2017 Ariz. LEXIS 242 (2017). While this may not be a major development in several states, it was the first time that an Arizona court addressed the issue. And defense counsel should consider whether such a development has arisen or may arise in your jurisdiction(s).

Amberwood Development, a general contractor, arbitrated a construction defect complaint brought by numerous homeowners that alleged, among other things, defects attributable to soils movement. The rough and finish grader, Swann’s Grading, provided a defense in the arbitration, but did not otherwise participate in the arbitration. Ultimately, Swann’s Grading did not agree to indemnify Amberwood for any part of the $1.75 million award to the plaintiff homeowners or the additional $723,000 paid in settlement to another group of homeowners. Id. Amberwood, therefore, brought an action for indemnity against Swann’s Grading, relying on the parties’ subcontract. The indemnity provisions of this contract required Swann’s Grading to defend and indemnify Amberwood “from claims, demands, costs, or attorney fees, causes of action and liabilities of every kind whatsoever arising out of or in connection with Subcontractor’s work performed for Contractor….” Id. At *2.

At a bench trial, Amberwood presented expert testimony establishing that 70.6% of the litigation settlement and 72.7% of the arbitration award were attributable, at least in part, to issues that “arose out of” Swann’s Grading’s work. Swann’s Grading’s expert denied causation for the alleged defects, but apparently did not rebut the arguments that the alleged defects themselves arose out of Swann’s Grading’s work. Id. This makes a measure of sense analytically: How can a defective condition arise from or relate to a subcontractor’s work if the defective condition was not caused by a defect in the subcontractor’s work? This has been the common position of subcontractors in litigation for years, and most contractors would likely tell you that they never thought they would have to pay for defect claims unless it was proven that their work was bad. Worse still, defense counsel for Swann’s Grading was not provided the expert’s report and allocation until the day of oral argument, was not granted a stay to analyze or respond to the newly disclosed report, and the report was admitted into evidence over defense counsel’s objection. The trial court ultimately rejected the subcontractor’s position, and the Court of Appeals affirmed the lower court’s decision finding Swann’s Grading responsible for $1.3 million (which included the allotted portion of arbitration award and settlement costs, plus a portion of Amberwood’s attorney’s fees and costs). Id.

The Court of Appeals’ decision in Amberwood is something of a departure from the approach undertaken by the CD defense community. The last Arizona case that had addressed the issue directly provided implicit support for Swann’s Grading’s position. In MT Builders, LLC v. Fisher Roofing, Inc., 219 Ariz. 297, 197 P.3d 758 (App. 2008), the same Court that decided Amberwood was faced with a similar argument: a builder who argued that fault was not a necessary prerequisite to recover indemnity from a subcontractor. The MT Builders case, however, involved a contract that limited the subcontractor’s indemnity to the contractor for claims “arising out of or resulting from the performance or non-performance [sic] of the Subcontractor’s Work under this Subcontract … to the extent caused in whole or in part by any negligent act or omission of the Subcontractor….” MT Builders, 219 Ariz. at 303, 197 P.3d at 764 (emphasis added). Under the plain language of the contract, the Court decided that a finding of fault was required for the general contractor to receive indemnity. In addition to citing to outside authority (a treatise and cases from nine other jurisdictions across the country), the MT BuildersCourt made reference to the well-settled rule of contract construction that an ambiguous provision be construed against the drafter. Id. The overall tone of the MT Builders opinion and ultimate result left the “subcontractor bar” feeling emboldened, believing that the same line of argument and reasoning would be applied to other subcontracts as well.

While there is ample room for disagreement with and criticism of the Amberwood Court’s decision, its immediate impact was drastic. The arbitration decision, though only a memorandum, was the first case to address this broader indemnity provision. Its persuasive value was likely high at the outset, and it has now been upheld by a respected trial court judge. A subcontractor’s potential exposure in a CD case has dramatically increased. The pendulum swung drastically in the developers’ direction, and developers immediately took advantage of the shift by taking aggressive positions in settlement negotiations and litigation.

Faced with this drastic swing, the Arizona CD defense bar was forced to re-evaluate its usual strategy for litigating a CD case. But, upon further review, it appears not much has really changed in terms of how CD cases involving indemnification issues should be handled, as long as practitioners remember to stick to the “basics.” So it is helpful to look back at some of the “basic” concepts that are far too often ignored, even by very good CD attorneys.

Ascertain Whether An Indemnity Provision Falls Into A Legal Gap

The Amberwood case surprised Arizona CD counsel because, before Amberwood, there had not been any case that defined the breadth of the type of indemnity provision in question. Absent case law directly on point, defense counsel chose to take for granted that the inevitable interpretation of a broader indemnity provision would be favorable to their clients. That was a mistake.

Most indemnity provisions have been sharpened over time to require little or no showing of fault on the part of the indemnitor to allow recovery. As the Amberwood case illustrated, broad indemnification provisions can be used to recover virtually all of the fees and costs incurred by a general contractor or indemnitee in defending claims made by a third party. See also Continental Heller Corp. v. Amtech Mechanical Services, Inc., 61 Cal.Rptr.2d 668 (Cal.Ct.App. 1997). Express indemnity is the strongest cause of action in almost every case between a general contractor and subcontractor, and therefore, this should be the very first thing counsel analyzes.

Most states we surveyed take a hands-off view of contract interpretation. Thus, where the contract terms are clear and unambiguous, the express terms of the contract will govern the extent of the indemnity obligation. See, e.g., Koppers Co. v. Missouri Pac. R. Co., Inc., 34 Ark. App. 273, 809 S.W.2d 830 (1991); Hagerman Constr. Corp. v. Long Elec. Co., 741 N.E.2d 390 (Ind. Ct. App. 2000); Mautz v. J.P. Patti Co., 298 N.J.Super. 13, 688 A.2d 1088 (App. Div. 1997). All analysis should start with application of the general principles of contract construction, especially if there is no dispute between the parties about the contract terms. It is important to discern immediately what effect an indemnitee’s own negligence has on the indemnity obligation. Most states we looked at have anti-indemnity statutes or rules that either forbid an indemnitee from recovering for damages resulting from its own negligence or otherwise limit the indemnitee’s recovery. See, e.g., New York CLS Gen. Oblig. § 5-322.1 (making agreements for indemnification of one’s own negligence void and unenforceable); Fla. Stat.Ann. § 725.06 (requiring a monetary limitation on the extent of indemnification that is commercially reasonable and specifically incorporated into project specifications and/or bid documents to be enforceable). Likewise, some jurisdictions, like Arizona, require that a contract specifically address the impact of the indemnitee’s own negligence on the recovery to be enforceable. These defenses arise from the mere language of the contract.

THE AMBERWOOD CASE SURPRISED ARIZONA CD COUNSEL BECAUSE, BEFORE AMBERWOOD, THERE HAD NOT BEEN ANY CASE THAT DEFINED THE BREADTH OF THE TYPE OF INDEMNITY PROVISION IN QUESTION.

The larger question is how to proceed when the indemnity language is not crystal clear or is otherwise open to multiple interpretations — a legal gap if you will. Rare is the case where the parties simply agree that indemnity is owed. Knowing how courts have interpreted the same or similar language when presented with disagreements is therefore crucial. Most often, the issue we face as litigators is whether the language in the indemnity provision requires a finding that the subcontractor was at fault for or otherwise the cause of the claimed defect. Because contractual interpretation is usually an issue of law to be determined by the Court, it is important to be aware of how the Court will likely interpret your indemnification provisions.

This is often easier said than done. Courts have interpreted the same or similar indemnification provisions and reached different results, sometimes even within the same jurisdiction. Compare Continental Heller Corp. v. Amtech Mechanical Services, Inc., supra, with Heppler v. J.M. Peters Co., 87 Cal.Rptr.2d 497 (Cal. Ct. App. 1999) to better understand just how important it is to know your jurisdiction’s indemnity cases. In Continental Heller, the California Court of Appeals found that no finding of fault or causation was required for a general contractor to recover indemnity where the subcontractor agreed to indemnify the general contractor for any claim that “arises out of or is in any way connected with the performance of work under this Subcontract” and “shall apply to any acts or omissions … on the part of the Subcontractor.” Continental Heller, 61 Cal.Rptr.2d at 670. The Hepplercourt, however, reached the exact opposite result when looking at a nearly identical indemnity provision (“arising out of or in connection with Subcontractor’s … performance of the work…”) and held that a finding of fault on the part of the subcontractor was a prerequisite to trigger the indemnity obligation. The Heppler court expressly distinguished the facts at bar from those presented in the Continental Heller case. Specifically, the court noted the following differences in the two cases:

1. Continental Heller involved only one subcontractor positioned to control its work, whereas Heppler involved multiple subcontractors whose work was only a component part and who had no control over the other subcontractors involved in the project.

2. The cases involved different commercial contexts — a large, sophisticated subcontractor in Continental Heller and a smaller, less sophisticated subcontractor in Heppler who could be financially ruined by the potential indemnity obligation without a fault/causation requirement.

3. Continental Heller involved a slightly broader indemnity provision that applied to “any” acts or omissions of the subcontractor.

Since the vast majority of CD cases settle, the practitioner is in the tough position of determining whether he/she wants to obtain a definitive ruling on the breadth of a specific indemnity provision. A motion for summary judgment may clarify the issue, but it also may result in making bad (or good) law for the instant or future cases. In other words, sometimes the devil you don’t know is better than the one you do.

Propound and Conduct Meaningful Discovery

Bad habits can result in parties sending out routine discovery requests which result in routine, less-than-helpful responses by the opposition. Sussing out problematic indemnity issues requires thoughtful strategy. Propounding written discovery asking the general contractor to identify any and all construction defects and/or damages relating to a client’s work telegraphs defense counsel’s intention and usually results in a laundry list of damages that have no conceivable connection to the client’s work. For instance, recently a general contractor stated in discovery responses that a perimeter fence subcontractor’s work caused or contributed to problems with stucco, concrete, drywall, and roofing issues. The issue may be better saved for an expert deposition where the expert may not be prepared for the question or is less likely to strain credulity, especially when the expert knows he/she is likely to be deposed on the same or similar issues by the same attorneys in the next case.

However it is done, a practitioner should take the steps necessary to avoid what happened to Swann’s Grading the Amberwood case-a last minute disclosure of substantially more claims alleged to be “connected to” its work than previously imagined. Because the Arizona Supreme Court denied review of the appellate court’s decision in Amberwood, the risk of last minute disclosure like that allowed in Amberwood remains a nightmare scenario for all defense counsel. Thoughtful discovery requests or strategic expert deposition questions can help minimize the risk of having a drastic increase in potential liability heaped upon a client at the last minute.

Manage Client Expectations

No one likes being sued, and it is natural for contractors to take complaints and lawsuits about their workmanship personally. Contractors worry about the impact that lawsuits will have on their ability to attract future business and/or buy insurance. For these reasons and others, clients are very invested in the outcome of their litigation. A good place to start in any case is advising subcontractor clients about the impact and possible interpretation of applicable indemnity language. Amberwood and other indemnity cases also provide a good teaching opportunity to educate clients on the importance and possible effect of indemnity provisions and to encourage clients to be proactive in attempting to draft and/or revise contractual indemnity provisions for their own benefit. Providing exemplars of ideal indemnity provisions is always well received.

While most developers are savvy enough to know the impact of their indemnity provisions, some misinterpret the strength of an indemnity provision in their jurisdictions. The surest way for a general contractor to hold up a potential settlement is by making a demand that does not reflect and is not supported by the indemnity language provisions of the applicable contract. A general contractor who settled with homeowners early should not expect a full and complete (100%) recovery from the subcontractors when the subcontract’s indemnification language requires a finding of fault. Similarly, general contractors should likewise temper their expectations where they cannot locate a subcontract or, in the rare case, are not indemnified parties under the contract agreement. There is no better way to blow up a mediation or insure protracted litigation than to have a client who is not ready to accept the realities of his/her own case.

This should sound, and is on many levels, elementary. Even so, the importance of remembering the basics cannot be overstated. Many good lawyers, under the demands of a changing and busy profession, can take the likely results of a case for granted. But surprises can and do happen. In order to minimize the likelihood or impact of these surprises, defense counsel must insure that all of the “basic” items discussed above are considered.

Published in the December 2017 issue of FDCC Insights, a Journal for Defense and Corporate Counsel.

The Fallacy Of Providing Estimates, Bids From Vendors To Substantiate Alleged Construction Defect And Deficiencies Claims Are Our Industry’s Problem To Resolve

Merlin Taylor | Advise & Consult, Inc. | May 3, 2018

The credibility of an expert witness’ testimony is largely based on their ability to have an objective opinion.

  • “Objective–not influenced by personal feelings, interpretations, or prejudice; based on facts, unbiased: an objective opinion.”

In representing a client with a construction defect claim, I am often faced with an opposing party who submits an “expert report” that is nothing more than an estimate provided by a contractor. I believe contractors are more than happy to provide an estimate for requested services.  However, the contractor’s estimate is later presented by a party involved in a dispute, as proof of a defect or evidence supporting their claims in a lawsuit. It is my experience and firm belief that when a contractor, subcontractor/tradesperson is asked to provide a bid for work, that is precisely what will be delivered. Little thought is given by the person preparing the estimate as to why they are providing the quote. I believe a qualified contractor’s estimate to perform services is not objective at all. Indeed, what could be more subjective?

If I were to ask a remodeling contractor or kitchen cabinet company to come to my home and provide a bid for a new kitchen, that company/business person is more than happy to accommodate my request. The fact that my kitchen is only 5 years old and in very good working order, is of little interest to the representative providing a bid. If I want to replace my kitchen, regardless of what reasons I may have, I will receive a proposal for the new remodeling work and kitchen cabinets, etc. This is merely an example of course; however, the estimate, this type of document can now be evidence of fault and could be deemed an expert report or evidence supporting a claim and submitted as proof of an issue in dispute.

Another example is a contractor who submits a quote to remove and replace the exterior stucco cladding on a residence. The stucco contractor is glad to provide a homeowner or a party involved in a lawsuit with a detailed quote to remove and replace exterior stucco cladding. This estimate is later submitted by the party to show proof that the stucco is defective, and the amount listed in the quote is “how much it will cost to repair the damages”. The quote provided by the contractor is just that, an estimate for services. When the parties use the quote as an objective expert’s evaluation of a possible building defect or substantiate a problem, is when it becomes a misrepresentation of facts. The stucco contractor is not concerned with problems which may or may not exist with the exterior finish, existing stucco. The stucco contractor is selling an exterior cladding product and providing an estimate per the party’s request. The stucco professional was not asked to render an expert opinion about the integrity of the existing stucco. How objective is a businessperson who provides a building construction services estimate? That said their estimate is entered into evidence to substantiate a defect claim. This estimate for replacement of the stucco reinforces a false claim, to instill credibility in their dispute about the integrity of the original stucco work.

These are examples only, but in nearly all building products you can imagine this ploy is used to give credence to a claim and substantiate the damages or loss by one of the parties in a dispute. I believe some parties involved in lawsuits are not interested in an expert’s objective and honest opinion. They seem to be blinded by the issues and become obsessed with proving their point at all costs.

Water intrusion, building envelope issues, comprise a large part of the building defects we deal with daily; involving homes and multi-family buildings. If moisture is located and destructive testing shows damage, making the corrections to repair and replace the defective building systems is important to resolve. What we see too often is isolated damage which is detected in a location, then documented and later the isolated defect is extrapolated to include all areas of the building. A defect, an isolated leak around a window let’s say, which has caused damage is then extrapolated to include all windows and like openings in a building without documentation. The amount of the claim is based once again on estimates from contractors to remove and replace all portions of the building’s finish materials because they were asked to provide an estimate.

An estimate to perform work is not evidence, nor is it a tool for supporting facts or claims concerning construction defects or deficiencies in a dispute.