Is Faulty Work by “Preferred” Vendor Covered by Carrier?


Advise & Consult, Inc. | September 28, 2015

Many insurance carriers often provide their insureds with a list of “preferred” vendors that are able to perform repair work on their home or property when a covered loss has occurred.  While these lists, and how to get on these lists, can vary greatly from carrier to carrier, most carriers will supposedly “guarantee” the work of these vendors, but how effective is this “guarantee” and what happens if your property has faulty work being performed or if they cause further damage to the property?

Recently, Rattan v. United Services Automobile Association 1 looked at answering such questions.  In this particular case, Rattan, the homeowners decided to use one of the insurer’s “preferred” contractors with their work “guaranteed” by the carrier for repairs for fire damage.  During the renovation process the homeowners accused the contractor of:

“[C]overed up a burned stud in the master bedroom with foam and drywall instead of removing it; allowed [the contractor’s] employees to live in the home; allowed [the contractor’s] employees to make long distance calls from the [homeowners’] telephone; did a poor job of painting; left a smell of smoke in the home; left baseboards missing; and frequently had no workmen at the site.”2

As a result, the insurer pulled the contractor off of the job and another contractor was hired to repair the faulty work, with the permission of the homeowner and at the cost of the insurer.  After the repairs were completed the homeowners were still not satisfied and decided to sue the insurer in tort as compensation for all possible consequential damage that would result from the faulty work.  The court ruled that the guarantees offered by the insurer “were not themselves contracts of insurance or part of the insurance policy” that was issued to the Rattan’s.  Furthermore, the court decided, that the protection for all consequential damage caused by the contractors would in effect make an insurance company the liability insurer for the contractor.  Therefore, the court determined that absent any evidence that the insurer took on more responsibility for its preferred contractors other than acting as a guarantor of workmanship, the insurer cannot be held liable in tort for the omissions or errors of contractors engaged to provide repair services.3

The court also rightly explained that many homeowner insurers recommend “preferred” vendors “no doubt for their own convenience and as a means of limiting their claim costs.”4 The lesson to be learned here is that the property owner has a right to hire whomever they choose and should be aware of these rights.  Hiring a “preferred” vendor does not increase the level of workmanship provided nor does it mean that there will be no problems with the repairs being made.

1 Rattan v. United Services Automobile Ass’n. (2000) 84 Cal. App. 4th 715.

2 Id. at 718.

3 Id. at 723.

4 Id. at 717.


Construction Injuries and the “Fatal Four” Causes of Death

Advise & Consult, Inc. | September 25, 2015

Construction is an inherently a dangerous occupation and construction injuries are going to happen despite increased awareness and OSHA requirements and penalties.  During the 2013 year, there were 4,585 deaths on the job with 828 of those deaths from the construction industry, which is just over an average of 2 construction related deaths per day.  The Occupational Health & Safety Administration (OSHA) list four top causes, the “Fatal Four”, of construction deaths, which accounted for more than half of the deaths in 2013.

  1. Falls are by the far the most common cause of death on construction sites. In 2013, 302 deaths, or 36.5% of all deaths related to falling from floors, roofs, and platforms. This has been an increased focus with a number of fall protection requirements being mandated on construction sites in recent years.
  2. Being struck by an object (struck-by) accounted for 84, or 10.1% of construction related deaths in 2013. The majority of struck-by fatalities involved heavy equipment, trucks and/or cranes. Struck-by fatalities would also include being hit by a flying object falling, being thrown or being propelled by a power tool, machinery or equipment.
  3. Electrocutions numbered 71, or 8.6% of construction site deaths in 2013. Common electrical hazards would include overhead powerlines, defective tools and/or machinery, improperly installed outlets and wiring as well as carelessly working on “live” wires.
  4. Being caught in or between resulted in 21 or 2.5% construction deaths in 2013. Some of the most common occurrences of being caught in or between involve getting caught in machinery, being caught between two pieces of machinery and/or walls, a result of a trench collapse, and as a result of scaffolding collapsing.

Construction will always be dangerous regardless of the provisions implemented on construction sites and it is easy to sit in my chair at my computer and tell construction workers to slow down and use common sense when on the job site to at least slow down construction injuries.  If you are involved in a construction injury or are aware of unsafe construction conditions that could result in injury or death, please contact an expert witness or OSHA and a lawyer to assist you.  OSHA has set up whistle-blower procedures to help prevent work related injuries and deaths, and it could be your own life you are saving.

Construction Contract Design & Construction Liability Waivers

Advise & Consult, Inc. | September 24, 2015

A construction contract is now more and more frequently being written to include liability waiver clauses.  These clauses are also growing in diversity as to which clause will limit the liability of each party included in the contract.  Lawsuits involving design professionals have been trending upwards for a few years now, and some people speculate that this is still a fairly untapped market for litigation and that we could see even a greater focus on defects arising from the design side involving architects and engineers.

As is typical in most any contract, clauses and such are hidden either in the fine print or at the end of lengthy proposals.  Here are some typical types of clauses that you should be aware of either to include when writing your next construction contract or when reviewing a construction contract on behalf of your client.

This list is generated by Eric A. Grasberger at Stoel Rives:

1.      The Consequential Damages (CD) Waiver

Consequential damages consist primarily of lost revenue from the inability to use a completed project.  Whether composed of lost rents in apartment projects or lost sales of manufactured products, consequential damages are the very dollars the project was built to generate.  Like all liability waivers, the CD waiver is often sold as “standard in industry,” even though many upstream parties successfully avoid the clause in negotiations.  Consequential damages can be as great or greater than the cost to repair a defective facility.  They can also be covered under commercial general liability policies and professional liability policies carried by contractors, designers, suppliers and manufacturers.  The cost of these policies is (directly or indirectly) a cost of the project that upstream parties bear, so waiving the benefit of a policy you paid for is uniquely unsavvy.

2.      The Limitation of Liability (LOL)

Why waive only one type of liability (like consequential damages) when you can waive them all?  LOL clauses usually limit all types of liability and damages, and are the most dangerous of all waiver clauses.  For some contracts, LOL clauses can appeal to the upstream parties’ sense of fairness or at least their practical business sense.  Examples include (1) geotechnical investigations that sample minute portions of a site to determine the overall soil profile for the project and (2) manufacturing projects where the facility will generate more revenue in one month than the cost to build the project.  In these cases, exposing the vendor to unlimited liability grossly disproportionate to the fee earned would limit or extinguish the number of vendors available to provide the service.  But most LOL clauses cannot be justified.  Why should the upstream party bear the liability of a failure by the downstream party?  Almost all LOL clauses start with a dollar limit that is disproportionately low compared with the owners’ risk and the vendors’ insurance limits or other assets.  Like CD waivers, leaving a proposed LOL clause in the contract, without at least negotiating conditions and reasonable dollar limits, reveals an unhealthy level of optimism.

3.      The Warranty Illusion

Some warranties are great.  Many are not.  Our eyes focus on the number of years of “protection” while failing to see the many limitations imposed by the fine print.  To the sophisticated purchaser, fancy colored ribbon printed on the border of the warranty page is a red flag.  The liability limitations found within a warranty may justify relabeling the document a “Disclaimer,” not a “Warranty,” and you may be better off with no warranty at all.  The limitations are not just limitations on the warranty itself, but on all damages that the product or service may cause to the purchaser.  Windows, roofing products, HVAC equipment and heavy machinery all carry warranties that deserve a careful read.  Warranties or guaranties offered by service providers can also disguise unfavorable terms that should be avoided.  Especially if the volume of the product or service purchased is large, the consumer has leverage and should not assume the warranty is nonnegotiable.

4.      Options

There are several other types of liability limits and disclaimers, but they are easy to spot if you look for them.  Many can be avoided completely once spotted, and almost all can be negotiated to more reasonable conditions and limits.  Here are some common negotiating points:  waivers should not limit recovery of insurance proceeds, waivers should not waive completely uninsured claims or damages, liability limits that exceed the insurance policy limits and/or proceeds encourage the liable party to push for full payout from the policy, waivers should be void if the vendor fails to maintain the insurance coverages and limits required by the contract, and waivers should cover only the direct vendor and not sub-tier providers.  Finally, limitations of liability should be for dollar amounts large enough to encourage careful vendor performance, and large enough to provide a meaningful upstream remedy, but not so large that they create risk unreasonably disproportionate to the vendor’s fee and its ability to control the project outcome.

Construction Estimates For Attorneys: 7 Things You Need To Know

Eugene Peterson | Advise & Consult, Inc. | September 23, 2015

A good construction estimate can be an effective tool in resolving construction related disputes. Conversely a bad construction estimate hinders the resolution process. There are 7 specific points relating to construction estimates being used in dispute related litigation, that if understood, will help attorneys get the best estimates out of their testifying contractors and experts.

Today construction related disputes are very common and come in many forms. Listed now as examples, (not a comprehensive list), are a few that immediately come to mind:

  • disagreement with final billing
  • expectations that have been set but have not been met
  • loss of trust between parties
  • contractual obligations that have not been filled

If construction estimates are to be helpful and supportive in dispute resolution and litigation they need to be good ones, not bad ones.

Here are the 7 things every construction attorney needs to know regarding estimates. Hopefully this will be a quick refresher of information you already know and understand and not necessarily new information.

  1. Basic definitions:
    1. scope of work – a detailed listing of the work agreed-upon to be completed for the project
    2. estimator – the person who applies a dollar cost to the scope of work including labor and materials
    3. estimate – “To form an approximate notion of the amount, number, magnitude or position of anything, without actual enumeration or measurement”- Oxford English dictionary
  1. Estimates: There are two general categories or types of estimates, one that deals with “time and material” while the other deals with forecasted “costs.”
    1. Time and material – the historic cost of the work based upon job records including invoices, timecards, etc.
    2. Cost – construction cost estimates are divided into four major categories:
      1. Order of magnitude estimate: loosely described this is an educated guess, sometimes referred to as a “napkin estimate,” or “ballpark estimate” as these estimates often result from conversations between contractors and clients in which an estimate is created, and if not given verbally, written down on the nearest piece of paper. This type of estimate can be completed in a matter of minutes. Accuracy is -30% to +50%.
      2. Square foot 10 ft.³ estimates: these are often useful one only the proposed size and use of a planned building is known. Very little information is required and thus the accuracy is -20% to +30%.
      3. Assemblies (or systems) estimates: unit cost assembly includes budgeted labor and materials needed to perform a single unit of work, for example a square foot, lineal foot, etc. The estimator then plugs in numbers of units, multiplies the units by the cost per unit. Accuracy is expected at -10% to +20%.
      4. Unit price estimates: provide a budgeted expected cost of each stick, brick and labor hour. This is the most accurate and also the most time-consuming estimate to detail. Accuracy is -5% to +10%.
  1. Traits of a good estimator: what it takes to write the best and most accurate estimates.
    1. Working knowledge of the details of the construction work. Having a theoretical understanding of how things are put together is good, but it is much better to have hands-on experience.
    2. Be seasoned in the industry so as to understand conditions that might affect the cost of the work.
    3. Well-trained in the use of the estimating software.
    4. Get, have and use the correct scope of work.
    5. Uses scientific approach to the arrival of the estimated costs.
    6. Honesty/integrity in the creation of the estimate. It is very easy to underestimate and also to overestimate line item quantities and values depending upon the estimator’s bias or intent.
    7. Trust of the abilities and qualifications of the estimator is essential.
  1. Understand the estimate: the presentation of the estimate in document form must be easy to read and understand. The calculations must be accurate and the reader must be able to easily determine what is included and what is not. It is important to know the abbreviations used in the estimate such as “SF” [square foot], “L F” [lineal foot], “LS” [lump-sum], “C Y” [cubic yard], etc. It is easy for an untrained eye to miss inappropriate and possible fraudulent line item entries.
  1. No estimate is perfect:
    1. Manual estimates are subject to improper takeoffs and simple calculation errors.
    2. The selection of the improper line item code for quality/value can lead to an undervalued or overvalued estimate.
    3. Use of incorrect quantities and/or the wrong type of units of measure, i.e. “SF” instead of “SY” can also make a huge difference in the estimate.
    4. The old saying applies here, “Garbage in garbage out.” Clerical errors in data entry are not unusual even with the best estimators and estimating software.
    5. The detail of what is included and what is not.
  1. Xactimate™ Estimating Software a Good Choice in Dispute/Legal Resolution:
    1. Strengths – The pricelist. Having the right pricing information is critical to the creation of an accurate estimate. The pricelist published by Xactimate monthly, by ZIP Code, is accepted as the best one in the industry. With few exceptions it is accurate, comprehensive and makes it possible for the estimator to write the best and most accurate “unit price estimates.”
    2. Weaknesses – this estimating software has so many bells and whistles it is difficult for a person who is not properly trained in the program to use it correctly.
  1. Choosing the right construction expert:
    1. A construction expert needs to have an exceptional working knowledge of construction practices, materials, equipment and site conditions.
    2. Also, an understanding of contractors’ standards and practices.
    3. And a working knowledge of a good estimating system or software, which includes access to an acceptable database.
    4. Many experts have good “book knowledge” associated with construction techniques and practices, yet few have the actual hands-on field experience that makes a difference in a good expert and an exceptional expert.
    5. Choosing the right expert, and getting them on board timely, is one of the most important decisions a litigation team makes.

Quality Construction Estimates Help Stop or Avoid Disputes

Advise & Consult, Inc. | September 21, 2015

As construction estimate expert witnesses, many of the cases that we are involved in don’t necessarily revolve around the construction defect or property damage itself, but what the cost of the repairs will be.  If anyone has ever gotten multiple estimates for any type of work, you know how likely you are to get a wide range of estimates – and the more estimates you get the wider the range could be.

A tool that we at Advise & Consult, Inc. use is Xactimate, an insurance industry leading software used by 22 of the top 25 insurance carriers, that is used by companies who write more than 80% of homeowner property claims estimates in U.S.  Xactimate is a software program that is used to calculate accurate estimates for construction and/or renovation projects.

The makers of the Xactimate software compile price lists that reflect market prices for materials and labor in a particular geographical area. These price lists are based upon surveys of vendors, contractors and suppliers in each geographical area. To ensure that its pricing information remains current, Xactimate regularly updates its price lists.  At the time of Hurricane Isabel, Xactimate updated its price lists quarterly.  Xactimate now updates its price lists on a monthly basis.

Within each price list, Xactimate uses a coding system to identify specific types of labor and/or materials.  Once an estimator decides what type of work must be done on a project, he/she can break that work out into very specific line items and, using the codes in the price list, identify very detailed “per unit” pricing information for each such line item.

Ultimately, the estimator needs only to input appropriate measurements or quantities for a specific line item, choose the appropriate code for that line item, and Xactimate will calculate the total cost for that line item of the project.

When working on an estimate in Xactimate, one creates what is known as an “ESX” file. This is a computer file (similar to an “XLS” file that one creates when using Microsoft Excel). The ESX file tracks the information that an estimator plugs in to the estimate (such as quantities, measurements, etc.); the price list being used; and other information related to an estimate.  Using the electronic ESX file, one also can determine where an estimator deviated from the price list and track other changes that the estimator made to an estimate.

When an estimator completes an estimate using Xactimate, he/she can print out a final estimate from the ESX file.

Each Xactimate price list is given an alphanumeric identifier.  When a user creates an estimate in Xactimate, the estimate automatically includes the alphanumeric identifier for the price list upon which the estimate is based.  Thus, the price list identifier will appear on the estimate unless the user intentionally deletes that information from the final estimate.

While Xactimate does its best to provide as highly accurate information as possible, there are ways to manipulate the out coming report, if one wants to be deceptive, or honestly makes a mistake.  This will then create a construction estimate dispute, which is one of the construction related areas that we excel in.

Eugene Peterson, owner and head expert witness at Advise & Consult, Inc., has used Xactimate from its inception and worked closely with its creator, James B. Loveland.  He is one of the foremost expert witnesses in the country that provides independent expert witness testimony in insurance dispute and construction defect estimate cases and specifically those involving reports created with Xactimate.  His expertise has led him to all four corners of the United States working on insurance disputes and finding discrepancies in reports and helping to find solutions in estimate disputes or providing a quality construction estimate that avoids a dispute in the first place.