Construction Law Deals With Construction and Business

Antoinette Ayana – June 19, 2012

Many participants in the construction industry are affected by construction law issues to include subcontractors, builders, homeowners, contractor, business owners, and more. This area of law involves the application of several general bodies of law to industry problems. It also includes issues that result from the association of the construction process with its business relationships; the laws that govern the construction process; and the legal principles and laws that are in connection with different kinds of professions and businesses that serve the construction industry. If you are in need of a law firm that specializes in construction law, choose the legal professionals that will provide you with high quality legal service for just about any of the construction industry specific matters, problems, and issues.

When beginning a construction project, you may have to take into account that problems may arise. If this has been the case with you, it may be necessary to hire a lawyer that specializes in construction law cases. The type of lawyer you hire will have a significant impact on the outcome of your case. You should choose an attorney that has extensive knowledge handling disputes that involve breach of contract, property liens, and construction defects. Their service to you may include evaluating contract provisions, documenting defects, and recommending building inspectors.

There are also those in the construction business who recommend having a construction lawyer on hand, even when you are not facing a dispute because by the time a problem has occurred, you may already have incurred interest charges. For this reason, it may be important to hire a construction lawyer before you start a project to help assist you on virtually all aspects of construction legislations. The following are examples of how participants can benefit from having a construction attorney:

• They will advise you on the different city, state zoning laws

• They will acquire building permits

• They will draft service contracts

• Advise you on the regulations and rules that apply to your project type

• Provide information on land acquisitions

• Represent you in court & additional litigation matters

• They will negotiate and make settlement claims the construction industry professional

• And much more

If you wish to discuss your construction business issues with a professional lawyer, contact a law firm that specializes in construction law. A representative will set up a consultation, where you can talk about your concerns, and you attorney can tailor a legal plan that will address your interest, rights, and needs.


via Construction Law Deals With Construction and Business.

Construction Defects

Justin Stark – June 16, 2012

“Oh No.”

Construction projects are often humankind’s most remarkable undertakings, building beautiful improvements to our world.  Sometimes, however, things don’t work out quite right.

Defective Construction

What makes for a “construction defect”?

Failure to Accomplish the Anticipated Result

In order to be “defective,” the actual construction must necessarily have failed to meet some standard.  And the pertinent standard may come from:

The “Code”: The government may have imposed certain standards on the construction project participants for the work that was performed.  By failing to perform to the standard in the applicable code, the builder’s work may be deemed defective.

The “Contract”:  The prime contract, the subcontracts, the material product warranties, etc., may contain minimum standards of quality or performance for the construction project.  By failing to provide the requisite performance or quality, the work may be deemed defective.

The “Common Law”:  Under standards of tort law governing all persons (or governing particular relationships), the work accomplished in the construction project have resulted in a “wrong” and “damage.”

The above sources of standards are more likely to be objectively determined than one’s personal, subjective evaluation of the work.  One is reminded of the profound statement of The Big Lebowski’s main character: “Yeah, well, you know, that’s just like, uh, your opinion, man.”

The Accomplished Result Should Be Changed

We all make mistakes, of course.  Some of our mistakes “we can live with.”  Others we cannot.  A construction defect may be one that must be addressed.

In almost all instances, the cost to fix or “remediate” a particular construction defect is much higher than the original cost of constructing that item.  (And that’s looking only at the costs of construction—not taking into account the costs incurred in determining who will pay for the remediation.)  Insurance may be able to provide financial resources to address a construction defect (or maybe not).

Of course, parties can differ regarding their relative responsibilities for a construction defect (e.g., “We didn’t cause this.  They caused this.”)  And it is often the case that a construction defect arises from a combination of the work of multiple parties.  The involvement of multiple parties, of course, increases the difficulty in managing a timely and cost-effective “fix” of the defective construction.

via Construction Defects.

Construction Defect Lawsuits: A Road to Successful Resolution Through Insurance

Kent J. Pagel
Knowing what your Commercial General Liability (CGL) insurance policy can provide in terms of a construction defect lawsuit defense and payment is crucial.

With many property owners still owing more than their properties are worth, combined with the run-up in construction in the mid-2000s and resulting poor quality in many instances, I am led to conclude that thousands of construction defect suits will likely be filed in the next two or three years. Anti-construction defect litigation statutes adopted in many states will have little effect in stemming the tide. Component manufacturers will be among the many in the construction chain having to figure out how to defend and extricate themselves from such suits.

Knowing what your Commercial General Liability (CGL) insurance policy can provide in terms of a construction defect lawsuit defense and payment is crucial. Understanding the degree to which many insurance companies will go to neither defend nor pay on construction defect claims is even more important. Far too many construction subcontractors and suppliers, including component manufacturers, are, in my opinion, naive when it comes to knowing what to expect from, and how to effectively manage, their insurance companies over a construction defect lawsuit.

What is a construction defect lawsuit?

The short answer is a lawsuit filed by a home or project owner complaining of defects in design and/or construction. Construction defect cases can be filed over a single-family home (or multiple homes, a subdivision, or multiple subdivisions), a commercial building, an apartment building(s) or a condominium project. Cases filed over condominiums (or townhouses, wherever there is a common ownership of the property by a homeowners association), are particularly problematic. The damages sought in these types of cases are generally an over-estimated amount to repair the alleged defects and possibly a claim for diminished value after the repairs are undertaken. Damages can easily reach mid-seven to low-eight figures for a condominium project, for example. For component manufacturers, the types of “alleged” defects that are typical include one, or several of the following: inadequate truss design, the failure to utilize correct design loads, making unapproved changes to the construction design documents, or failing to instruct and warn about construction overloading. With regard to bracing allegations can include: not following all the project specifications and plan notes, inadequate disclosure of the manufacturer’s scope of work, not obtaining truss shop drawing approval, inadequacies with respect to the truss placement plan, and defective manufacturing.

What type of construction defect insurance coverage is available and can be expected by the component manufacturer under its CGL policy?

What follows is a longer answer with respect to the challenges and costs that are present in defending a construction defect lawsuit. The cost to defend and the potential liability to third parties for property damage caused by an occurrence arising out of the products sold by a component manufacturer can be enormous in a construction defect case. This seems straightforward, but it’s not. A CGL policy is replete with definitions such as property damage and occurrence, contains hard to understand provisions, as well as numerous exclusions, conditions and endorsements. In fact, there is so much uncertainty and ongoing change in terms of how courts interpret CGL polices, you should assume that significant insurance coverage questions will arise in virtually every construction defect suit, and the insurance company’s natural tendency will be to try very hard not to pay.

The following insurance questions for a component manufacturer are likely in most construction defect cases, adding further to the confusion:

  • What is the date of the occurrence, which implicates the   relevant insurance policy period, and in some instances, which  of your CGL carriers will have an obligation to participate?
  • For example, in some states a construction defect occurrence is deemed to have occurred when damage was actually sustained by the owner.
  • Other states may hold an occurrence exists when property damage first manifested itself (whether known or unknown to the owner).
  • Some states even allow for an occurrence to fall within one or more insurance policy periods, meaning the component manufacturer may need to involve several of its CGL carriers with regard to one construction defect suit.
  • Has property damage actually occurred? From the insurance company’s perspective, this means physical injury caused by the defect, but not the defect itself.
  • Is repair of the defect covered?
  • Do any one of the many policy exclusions, endorsements or conditions excuse the carrier from either a duty to defend the suit or to pay for damages?
  • Does a professional services exclusion exist in the policy that may eliminate any duty on the part of the carrier to cover design criticisms on the part of the manufacturer?
  • If the insurance carrier hires counsel and experts to defend the manufacturer, is that carrier obligated to settle or pay the damages from an adverse outcome?

Generally, I find component manufacturers love the free defense in a construction defect lawsuit when offered by their insurance companies, but they are clueless beyond that fact (tough, but true, unfortunately). They assume that if the insurance company agrees to defend, it of course will pay what is needed to settle or pay all the damages if the case goes to trial and the manufacturer loses. They ignore that many insurance companies are in the business to collect premiums and not pay claims (harsh, but oftentimes true). I can promise you that your insurance company will spend a great deal of time, and even money, to evaluate whether a particular exclusion or endorsement can be asserted to disclaim coverage, either at the time case settlement is explored or after the case is lost.

I find it the exception where things go 100 percent right for the component manufacturer, where: (1) notice is acknowledged promptly by the insurance company; (2) competent and experienced defense counsel and experts are immediately retained; (3) a thorough investigation is undertaken; (4) the carrier engages in nothing but positive contact with the policyholder; and (5) the suit is successfully resolved, all at the expense of the carrier.

Instead, I find that one or more of the following things go wrong for the component manufacturer: (1) the insurance company is slow to acknowledge notice; (2) counsel and experts regularly used by the insurance company are hired (with fierce loyalty to the carrier); (3) the carrier issues a Reservation of Rights letter (which I discuss below in more detail); (4) the company investigates and handles the defense with an eye more toward the degree to which they are responsible for coverage rather than to mitigating, on behalf of the CM, the liability or damages in the case; and (5) resolution becomes quite difficult without the insured (CM) offering to put up some or all of its own money.

The CGL Policy’s Duty to Pay & Duty to Defend.

A CGL policy contains two very important promises on the part of the insurance company. The first promise is the Duty to Pay claims (up to the stated limits of the policy), which are otherwise covered by the policy. Because of the confusing definitions that exist in the policy for terms such as property damage and occurrence and the various exclusions and endorsements that are present, trying to understand exactly what construction defect claims are covered by a manufacturer’s CGL policy is a daunting task.

The second primary promise that exists in the CGL policy is the Duty to Defend on the part of the insurance company, even if the insured is ultimately found to have no legal obligation to pay damages. This Duty to Defend is triggered much easier than the Duty to Pay. Your insurance company will have a duty to hire counsel on your behalf simply if the suit alleges claims that, if true, are covered under the policy.

With most construction defect lawsuits filed against a component manufacturer, the insurance carrier will likely be slow to investigate and assign defense counsel. The carrier will usually send a letter advising acknowledgement of the claim and that an investigation is being undertaken. The carrier will further advise that the manufacturer should take whatever steps are necessary to protect itself, which may mean hiring counsel to answer and respond to the suit filed in a timely manner. This letter will furthermore set out that the insurance company is not waiving any of its rights to either not defend or not pay the claim.

As most construction defect lawsuits will allege some wrongful act or defective product on the part of the component manufacturer (either in terms of design or manufacturing or both) and resulting damage, generally the CGL carrier can be expected to agree to at least defend the case with counsel selected by the carrier. Almost 100 percent of the time, when the carrier does agree to assign defense counsel, they will issue what is referred to as a Reservation of Rights letter (and when this does not occur, it is usually an oversight on the part of the insurance company).

A Reservation of Rights letter (also termed an ROR letter) is a communication from the insurance company to its insured that states essentially that no action the insurance company takes, including its investigation, or defense or settlement, shall be construed by the policyholder as a waiver of the insurance company’s right to deny coverage. These are written to avoid a waiver of policy defenses so that they can more easily deny payment on behalf of the insured at a later date.

Other than in construction defect litigation matters, the other situations where reservation of rights letters are issued include: (1) notification of potential risk that coverage does not exist–for example, where an injury occurred and there are allegations of intentional conduct precipitated by and against the insured causing bodily injury, as in the case of assault, which would not be covered by insurance; (2) disclosure to the policyholder of the potential that a verdict in a particular case may exceed primary limits and implicate excess liability coverage if it exists; and (3) notification to the policyholder as to the need to give notice to other insurance carriers.

A typical Reservation of Rights letter will contain varying self-serving language on the part of the insurance carrier. The letter will also repeat certain allegations of the construction defect complaint, set out provisions from the actual insurance policy that may give rise to the carrier ultimately denying coverage, and retain the right on the part of the carrier to supplement the letter at a future date.

Here are the questions and concerns that every component manufacturer ought to have when receiving a Reservation of Rights letter. My recommendations are also included.

  • Carefully review each Reservation of Rights letter. Have your insurance broker and hired counsel review the letter as well. Do not routinely sign the ROR letter and return it to the carrier as they will request. Promptly address any noted errors or misstatements in the letter. You will also need to provide the necessary documentation the letter will likely request, in terms of your involvement with the project. Your counsel can help you with how these letters ought to read.
  • Consider a face-to-face meeting with the adjuster assigned to the case (usually with your counsel present) to understand the underlying reasons for the Reservation of Rights letter.
  • Consider a face-to-face meeting with the assigned counsel as well and inquire as to his or her experience in the type of suit that has been filed and how often they work for this particular carrier (and the percentage of revenue they derive from that carrier). Confirm that assigned counsel will not take any type of insurance coverage position and will keep you and your counsel fully apprised of all developments in the case and provide copies of all reports provided by counsel to the insurance company. Also, inquire as to the assigned counsel’s willingness to hire an expert to defend you who is familiar with the structural building components industry.
  • Be aware that as the insured you cannot settle the case and then seek reimbursement from the carrier, unless of course the carrier denies coverage and refuses to provide a defense. You also cannot prevent the insurer from settling if they choose to undertake the defense. In fact, it is quite common that the carrier will settle without even conferring with you.
  • As the case progresses, the component manufacturer should continually ask itself the question, whose side is my assigned defense lawyer on—remembering that such counsel is being paid by the carrier and is likely dependent on that carrier for future case referrals.
  • The manufacturer should also consider whether there are facts that will be discovered through the course of discovery with respect to the claim that can be used later to exclude coverage, and whether this creates a sufficient conflict of interest that would allow the manufacturer to request (and perhaps pressure) the insurance company to allow the manufacturer to truly hire counsel that is independent of the insurance company and serving your best interests, while being paid by the insurance company.
  • When evaluating the right to request your CGL carrier to hire independent counsel, the questions you need to ask yourself are: (1) Do I trust the assigned counsel to represent my company; (2) What would independent counsel do that the assigned counsel would not do; (3) Will independent counsel more likely undertake a case strategy designed to find insurance coverage as opposed to not finding insurance coverage: and (4) Will independent counsel more likely undertake a case strategy designed to protect your or the insurance company’s best interests.
  • You need to discuss this option and how to effectuate it with your counsel as the factors are: (1) whether or not an actual conflict of interest exists; (2) whether your counsel, for example, is willing to work at the rates and guidelines imposed by the carrier; or (3) whether it is worth it to your company to pay your counsel’s regular rates and have them seek full reimbursement from the carrier, which is generally allowed in most states.
  • In fact, carriers are sometimes so motivated to not pay a fair and market rate to independent counsel in situations of an actual conflict of interest that they may waive the Reservation of Rights letter entirely, meaning they are obligated to either settle or pay the losses if the claim goes to trial and the case is lost. An insurance company will do this just so they retain control of the use of their counsel , or they may even immediately try to settle the claim to avoid any further expenditure of legal fees.
  • Generally, the key is an actual conflict of interest based on the rulings within a particular state, as from the insured’s perspective a conflict of interest is assumed as the policyholder wants more coverage and the insurer wants less coverage. Most insureds immediately seem to appreciate the concept that “no man can serve two masters” when it comes to evaluating the independence of assigned counsel hired directly by their insurance company.

How a component manufacturer deals with a Reservation of Rights letter, the involvement of the manufacturer in the advocacy of their best interests, and the use of personal counsel and personal expert(s) with the insurance company and at times, managing the relationship between the manufacturer and certain parties to the lawsuit, is essential to a successful resolution of a construction defect lawsuit.

Learn More About Construction Defect Law

Caitlyn Obolsky – June 6, 2012

Construction Defect is an area of the law that is fairly straightforward. Namely, it deals with situations in which your home was constructed in a defective manner. These shortcomings may manifest themselves in obvious or more minute ways, from foundation problems to faulty wood flooring. If your home has been a casualty of construction defect, you may be entitled to compensation or other remedies to fix the problems.

You might have a legally actionable construction defect if your home (or other building), or components of your home:

  • Violate(s) the relevant building code
  • Fail(s) to comply with the blue prints or other relevant building plans
  • (Is)Are constructed in a manner which falls below the industry standard of care, sometimes referred to as sub-standard construction
  • Fails to perform or last its full expected useful life
  • Exhibit(s) leaks or cracks as a result of any of the aforementioned categories

Depending on the laws of your state, you may be able to recover not only the cost of repairing the construction defects, but potentially also the costs of litigation. In California for example, developers of mass produced homes  are strictly liable for construction defects meaning that a property owner only needs to prove the existence of a defect rather than the precise cause of the problem.

Even if a developer or subcontractor has filed for bankruptcy, you may still be able to seek compensation from their liability insurance carriers.

Construction Defect is an area of the law where the statute of limitations is incredibly important. If you have discovered or suspect a defect in your home’s construction, contact a lawyer as soon as possible. Many firms offer free initial consultations, in which they can inform you of your rights and recommend how to proceed with your case. You can also find out if the firm will take your case on a contingency fee basis, meaning attorney fees will be paid pending a successful settlement or decision.

If you think that your home may have a construction defect, contact a Construction Attorneytoday.

Parties can Waive Arbitration, Despite a “No Waiver” Clause in Contract

June 1, 2012

The Sixth Circuit easily affirmed a district court’s finding that the defendant had waived its right to arbitration by participating in litigation for eight months. Johnson Assoc. Corp. v. HL Operating Corp., __ F.3d __, 2012 WL 1861675 (6th Cir. May 23, 2012). Plaintiffs had filed suit in late December of 2009 and a discovery deadline was set for August 26, 2010. The defendant did not assert its right to arbitrate in its answer, engaged in judicial settlement conferences, and participated in discovery. Then, the day before the discovery deadline, the defendant moved to compel arbitration. The court found that the defendant’s behavior was inconsistent with its right to arbitrate. Furthermore, it found the plaintiffs were prejudiced by the defendant’s behavior, largely because they “engaged in more discovery than would be permitted in arbitration.”

Neither of those rulings is especially surprising, but the court also had to address an interesting argument by the defendant. It argued that it could not have waived arbitration, because the contract at issue stated “no waiver by either party of any provision of this Agreement or of any breach or default shall constitute a continuing waiver of such provision or of any other provisions of this Agreement.” In essence, the defendant was hoping it had contracted around federal case law holding that parties can waive their arbitration rights. The Sixth Circuit made clear that a “no waiver” clause will not affect courts’ analysis of whether a party waived its right to arbitrate. It quoted reasoning from the Second Circuit:

“[T]o allow the ‘no waiver’ clause to preclude a finding of waiver would permit parties to waste scarce judicial time and effort and hamper judges’ authority to control the course of the proceedings” and allow parties to “test[] the water before taking the swim” by delaying assertion of their right to arbitration until the litigation is nearly complete.

I don’t usually associate arbitration with swimming, but the policy point here is right on target.

via Parties can waive arbitration, despite a “no waiver” clause in contract – Lexology.