Contruction Today - July/August 2017 - 39
IN THIS SECTION
So what can contractors and developers do to reduce the odds of
being named in a construction defect lawsuit?
Successful developers are having the architectural and engineering
drawings for their project reviewed by a second (or third) set of eyes.
This process, often called "peer review," gives an independent architect and/or engineer the chance to review the plans for errors or room
Another technique that is increasing in popularity is to rigorously
inspect the subcontractors' work and create extensive photographic
and video documentation of the construction techniques being employed on-site. These photos could be key evidence in a defect lawsuit
down the road.
Many developers and contractors believe that arbitration is a
better forum than litigation for the resolution of construction defect
claims. More specifically, developers and contractors frequently
conclude that having a claim decided by an arbitrator with expertise in construction (rather than a jury) is more likely to lead to a
fair result. On this basis, HOA declarations and other governing
documents frequently include mandatory arbitration provisions
that require unit owners to give up their right to have a construction defect claim heard in court. That said, courts have struggled to
balance the competing interests of developers, contractors and unit
purchasers - and they have sometimes found mandatory arbitration provisions to be unenforceable.
Keep in mind that, in addition to constituting best practices, many
of these same strategies will be required by the insurance carriers
underwriting the project.
Alliance applies its
strengths to a residential
development in Texas.
Chicago-based LG Construction Group enjoys
Alliance Residential Company
Integrated Real Estate Group
Weis Builders - NordHaus
Shiel Sexton Co.
Maplewood Senior Living/T.G.
Nickel & Associates
LG Construction Group
That's a Wrap
Speaking of insurance, perhaps the most important component
of any defect mitigation strategy is the use of an owner-controlled
insurance program (OCIP) or a contractor-controlled insurance program (CCIP), both of which are often referred to as "wraps." Traditionally, the general contractor and its subcontractors have been required
to purchase their own liability insurance. The result can be a maze
of insurance policies with varying limits, coverages and exclusions.
Worse, when there is a claim, each carrier is incentivized to point the
finger at other parties. Under a wrap, by contrast, a single package of
liability insurance policies provides coverage to all of the parties that
enroll and perform work on the project. A wrap can provide significant advantages to owners and contractors.
With a wrap, the parties gain control over what is included in
the insurance program for the project and how much insurance is
available to respond to claims. If structured correctly, a wrap should
also provide coverage for the entire statute of repose, so contractors
and developers don't have to worry about whether subs will have
insurance after the project is complete.
Rather than paying for insurance costs that
are imbedded in bids, by purchasing a single
policy, the parties can potentially negotiate
less expensive coverage and higher limits.
There may not be a silver bullet for avoiding litigation on condominium projects, but
developers that work to mitigate risks - and
maximize insurance coverage - can be successful even in the current environment.
Blair Lichtenfels, shareholder at Brownstein Hyatt Farber Schreck, is a real estate
attorney with a business perspective who advises prominent developers and equity investors in connection with redevelopment, urban infill, brownfields, mixed-use
and transit-oriented developments.
Jonathan Pray, shareholder at Brownstein Hyatt Farber Schreck, is an experienced litigator specializing in real estate and construction disputes. He has
represented clients in all aspects of the development and construction industries,
including commercial and residential developers and landlords.
JULY/AUGUST 2017 CONSTRUCTION-TODAY.COM