Alexander Gebert | Fremman Mathis & Gary
Nearly all risk managers, insurance carriers, brokers, and attorneys alike can remember getting the dreaded call that major property damage has been discovered or reported.
Their first thought may be, “here we go again.”
When an owner or other party first reports water intrusion, cracking, movement, or some other alleged defect, a restoration or repair crew is sent swiftly to the site. The claim gets forwarded to a broker or carrier. Project personnel start searching for and setting aside all potentially helpful documentation. In sum, everybody battens down the hatches and gets busy rather quickly.
Unfortunately, everybody is often moving or pulling in different directions.
By the time counsel becomes involved, key evidence may already be long gone. While key notice deadlines are approaching, repairs may have to be set in motion before anyone truly understands what caused the problem. It is these early decisions that can have consequences long after the leak is stopped or the crack is patched.
Every claim is certainly different. However, the first 30 days often establish the trajectory of the dispute. Contractors, claims professionals, risk managers, and defense counsel who approach that period deliberately place themselves in a far better position to evaluate liability, manage costs, and protect available defenses.
The following are five key decisions of the many that deserve attention from the outset to get organized and stay ahead of the curve.
1. Establish ownership of the response
A very common problem at the beginning of a construction defect claim is the absence of a clear decision-maker. Establishing who is in charge is an important initial hurdle to clear.
Each party plays their own role; the project manager talks to the owner. The superintendent coordinates repairs. The broker communicates with insurers. Internal stakeholders exchange emails. Outside consultants become involved. Before long, multiple people are making decisions without a coordinated plan. It becomes increasingly important for a liaison to exist between each of them.
Assign one person to oversee the response and ensure that communication flows through a central point of contact. That person does not need to handle every task personally, but they should know who is doing what and when.
At the same time, review the project contracts and available insurance. Identify potentially responsible parties, determine whether additional-insured coverage may apply, and evaluate any project-specific insurance programs. Notice and tender obligations should be addressed early and tracked carefully.
Equally important is to understand who is paying for the defense. A subcontractor’s contractual obligation to defend and an insurer’s acceptance of a tender may be (and often are) related issues, but they are not necessarily one in the same.
2. Preserve evidence before it disappears
Many construction defect cases are won or lost on evidence that existed during the first few days of the claim and nowhere else.
Repair work, remediation efforts, demolition, and cleanup activities can alter or eliminate important evidence before anyone has the opportunity to investigate. In nearly all cases, nobody is trying to destroy evidence. But even with the best of intentions, problems can be created by failing to preserve what documentation may become relevant later.
Early on in the process, a prudent professional should make their best efforts to collect and preserve all photographs, videos, field reports, project correspondence, text messages, RFIs, submittals, drawing revisions, daily reports, and relevant project-management-platform records. Personnel should understand that routine deletion of potentially relevant information may need to stop. A potential litigation hold type of letter is usually a wise choice in this regard.
Whenever circumstances permit, coordinate inspections as soon as possible. This is especially so to ensure inspections and documentation of the site conditions can be observed before destructive repairs occur.
It is equally important to preserve the broader context on a project. A photograph of failed flashing or a damaged roof assembly only tells one part of the story. Installation methods, sequencing, weather conditions, maintenance practices, and surrounding construction activities may ultimately prove just as important. Those items can only help you if you are sure to document them together.
3. Match the expert to the problem
Construction defect claims often involve a rush to identify a cause before enough information exists to reach a reliable conclusion.
A visible condition may point toward a problem, but it rarely answers every question. Water intrusion can stem from anything from design issues, installation deficiencies, maintenance failures, product defects, or some combination of those factors. The same is true for cracking, settlement, and many other commonly alleged defects.
The goal is not simply to hire an expert. The goal is to hire the right expert.
Select someone whose expertise matches the suspected mechanism of failure and provides clear direction regarding the scope of the investigation. The expert should evaluate competing theories, identify additional testing that may be needed, and help distinguish established facts from assumptions.
In the early stages, a focused expert and a focused investigation often produce far more useful information than planning for a lengthy report attempting to answer every conceivable question.
4. Be strategic about repairs
Feeling the pressure to fix the problem quickly is certainly understandable. Owners want answers. Occupants want the issue resolved. Everyone wants the project to move forward.
Still, there is a difference between emergency mitigation and permanent remediation.
Stopping active damage is often necessary and appropriate. Permanent repair decisions, however, should generally come after the relevant stakeholders have had an opportunity to evaluate the conditions, conduct inspections, and consider applicable contractual and insurance obligations.
Before significant corrective work begins, consider notice and right-to-cure requirements, coverage issues, inspection opportunities, and the proposed repair scope. Make sure everyone understands who will perform the work, who will document it, and who will bear the cost.
Thorough documentation throughout the repair process can be just as important as the repair itself.
While it may be tempting to reassure an owner that a proposed solution will completely resolve the issue, those assurances are best reserved for situations where the investigation supports them.
5. Develop a strategy and revisit it regularly
Construction defect claims rarely come with complete information during the first month. Waiting until every question has been answered is usually not a practical option. Instead, those who want to get ahead—and stay ahead—utilize the first 30 days to develop a working strategy.
Counsel, claims professionals, risk managers, and company decision-makers should evaluate liability exposure, potential damages, available coverage, anticipated defense costs, and operational impacts. The team should identify what facts remain unknown and which of those facts are likely to matter.
Those same discussions also help to frame larger business decisions at play. Would additional investigation be likely to change the analysis? Does it make sense to gauge the potential benefits of early negotiations? Is a more aggressive defense posture justified based on all currently available information?
Whatever strategy emerges from your first 30 days, it should not remain a static one. As additional facts develop, the team should reassess reserves, settlement authority, litigation strategy, and projected costs.
Final thoughts
No contractor, insurer, claims professional, or lawyer can turn back the clock and prevent an alleged defect from occurring. What they can control though, is the foresight involved in strategically implementing all phases of their response to the dreaded call that a defect has been uncovered.
The companies that manage construction defect claims most effectively are not necessarily the ones with the fewest claims. Often, they have plenty of claims to go around and it is not their first rodeo. Those companies that best manage construction defect claims are the ones that respond in a disciplined and coordinated manner from the beginning. They preserve evidence, involve the right people early, make informed decisions about repairs, and continually reassess the path forward.
The first 30 days do not determine whether a defect exists. They do, however, determine how well prepared you will be to deal with the dispute that follows. It is up to you to use that time wisely and to all parties’ potential benefit.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 801.641.8304, or email experts@adviseandconsult.net.