Complex Construction Defect Litigation

Complex construction litigation typically involves new construction of entire buildings or several buildings, multiple construction defects, and a large cast of characters.  The project might be a lavish custom home, a school, a shopping center, an office building, or an industrial building, to name a few examples.  On the plaintiff’s side we usually have a single owner.  On the defendant’s side we typically have everyone who has had anything to do with the project.

A complex case  might begin simply enough, perhaps with roof leaks and damage to interior improvements caused by water intrusion.  The owner hires roofing experts to investigate the roof system and sues the general contractor.  The general contractor in turn sues the roofing subcontractor by filing a cross-complaint against him, and from there things get complicated.

A large roof system has many elements, which means the roofing subcontractor probably used several subcontractors and several suppliers to construct it.  The roofing subcontractor doesn’t know exactly where all the leaks are and what caused them, and usually there are several competing explanations. So, to be on the safe side, the roofing contractor hires its own experts and cross-complains against the architect who designed the roof system, the subcontractors who helped install the materials used in the roof system, and the suppliers of the materials.

In the meantime the owner, who doesn’t want to miss anything else that might be wrong, hires more experts to investigate every other aspect of the project.  Sure enough, other defects turn up, perhaps cracks in the concrete floor and faulty wiring.  Before long, the owner has also sued the architect and the construction manager, the general contractor has sued all the subcontractors, all the subcontractors have sued each other, everyone who supplied any materials has been sued by somebody, the courtroom is hardly large enough to hold all the lawyers, and there are more experts than you can count.

To make matters worse, most of the defendants have general liability insurance.  This insurance is not supposed to apply to the cost of fixing things they didn’t do correctly, or to the cost of replacing faulty materials they supplied, but it does apply to the damage caused to other contractors’ work.  The lawyers write the initial complaint and subsequent cross-complaints with general allegations of such damage, and eventually most of the defendants have insurance adjustors working alongside their lawyers and experts.

The parties then engage in discovery.  Everyone wants to see everyone else’s documents, and everyone wants to depose (i.e., examine orally before a court reporter) all the witnesses who might know why or how things went wrong, as well as all the experts.  The documents and deposition transcripts are voluminous, so a “document depository” is established, usually at a court reporter’s office.  The court has by now made an exhaustive case management order laying out a schedule for getting the case to trial.  Among other things, the order will appoint a discovery referee to deal with discovery squabbles and a professional mediator to orchestrate settlement discussions, and require the owner to compile a complete defect list and a complete cost of repair schedule.

These cases seldom go to trial.  If they do, a trial is furiously expensive and may go on for months. Usually they settle, and they usually settle when the lawyers reach the conclusion that the insurance companies involved have been convinced to offer the maximum amounts they will ever offer to settle the cases rather than go to trial.  As one might expect, after deducting attorney fees and costs the owner will not have enough left over to do all the repairs his experts claimed were necessary, or to do them exactly as his experts said they should be done.  On the other hand, the defects in the project were probably less severe than his experts claimed.

A well known example of this phenomenon is the typical construction defect case brought by the homeowners association of a large condominium project against its developer.  The association’s lawyers and experts spend years claiming that the cost of necessary repairs is staggering, then advise the association that it must settle for considerably less, and then take one third or more of the settlement amount to pay their fees.  The association is left with only a fraction of what the homeowners were lead to believe would be the money needed to fix the project.

If this doesn’t sound entirely fair, you’re right.  Unfortunately we have yet to devise a better way to deal with complex construction defect litigation.  The moral of the story is one you’ve heard many times before: an ounce of prevention is worth a pound of cure.  Human nature being what it is, fewer resources are usually devoted to the former than to the latter.

If you are a contractor involved in a large project going sour, you should talk to me immediately.  When you are sued, you must tender the defense of the claim to your insurance carrier, which in most cases will be legally required to accept the tender, and at its expense hire a lawyer to defend you.

San Diego Attorney Stanley D. Prowse is a Civil Litigation Attorney specializing in California Construction Law.