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Hard to Handle: Managing Increasingly Complex Construction Claims

May 16, 2018

Through my work in construction forensics over the past 20 years, I have had a front row seat to over 1,000 construction lawsuits, claims, and other disputes. From allegations over defective design, manufacture, or installation, to claims of delay or cost overruns, to cases involving diminished value or even injuries or death, there are some clear trends and patterns that have emerged. The last decade, in particular, has seen sweeping changes to the nature of construction claims and disputes, and as a result, many veterans in the legal, insurance claims, and expert services arena have struggled to adapt.

In this article, I will share some of the trends and insights I have gleaned from working with many top industry professionals, as well as best practices for handling the increasingly complex nature of construction claims and disputes.

Single-family residential lawsuits involving dozens or hundreds of homeowners in a single tract, which once represented the bulk of claims in terms of both quantity and dollar value, are now quite rare. The reason for that should be immediately apparent to most in our industry: America’s home building productivity screeched to a halt during the recession and has yet to resume to previous levels. Similarly, condominium and other multifamily for-sale projects haven’t been in vogue for a decade, so we don’t see nearly as many lawsuits and claims involving homeowner associations as we once did.

The types of projects most often involved in disputes these days are apartments, hotels, schools (K-12 and higher education), governmental facilities, medical facilities, office buildings, skilled nursing and assisted living facilities, and other nonresidential projects.

Looking at this list, a common theme emerges—these are all more complex project types.

Not only that, but the parties involved in these types of claims tend to have a lot more at stake, in addition to having the resources to retain top representation. The stakeholders themselves are more complex, often with sophisticated organizational structures, sometimes even involving foreign entities. For instance, one trend that insurance carriers are reporting is that more and more claims are coming forward on projects involving EB-5 Visa money.

Since insurance carriers are the entities that most often end up funding various claims, disputes, and their ultimate resolution, you can be sure that insurance policy language is evolving in response to the new trends as well.

How Best to Manage Complex Construction Claims and Disputes

The increasingly complex nature of modern construction claims and disputes demands a completely different skill set and level of analysis to achieve resolution. That applies not only to the legal team but also to the designated team of technical experts required to make sense of various claims.

With regards to the legal team, multiple layers of representation are often required, and that goes for the plaintiffs as well as the defendants and cross-defendants. Sure, a solid understanding of contracts and construction practices is an obvious prerequisite. But, you’ll also need someone on the team that has intimate knowledge of your state’s applicable legislation and case law as it applies to design and construction.

An essential resource that is needed on most cases is coverage counsel, an expert on your state’s insurance coverage policies and interpretations with real-world experience litigating such issues.

Also, make sure that there is a strong line of communication with key decision-makers for the parties you are representing and make sure those decision-makers show up when required. (We have seen too many cases drag on unnecessarily, with millions of costs/fees wasted, all because a representative of the carrier with proper signing authority failed to show up to a mandatory settlement conference.)

Another critical aspect to managing complex claims and disputes is having the right technical experts, consultants, and specialists on hand when needed. Sometimes it’s obvious which types of experts are needed, but not always. For example, if you are representing the architect or engineer, you clearly want an expert on standard of care for that profession, but you might also want to consider bringing in an expert on construction management standard of care to evaluate the design professional’s relationship with the rest of the team. Additionally, you need specialty experts, available on an as-needed basis, to answer the specific, highly technical issues that will inevitably come up during the process.

Of course, there are some other economic realities that need to be considered when handling complex construction claims and disputes, including the cost of these wonderful legal and technical experts that have now become critical. Whether you are working on behalf of the owners, designers, contractors, or some other party, the more manageable the costs, the happier your client will be, and the more likely you’ll get future assignments and referrals.

The biggest cost factor (by far) that we see in today’s claims and litigation world is dealing with the massive volume of evidence. In a single-family home tract, besides the drawings and subcontracts, you aren’t typically going to find too much data to go through. However, on a $125-million mixed-use high-rise, you could easily find yourself with hundreds of thousands of documents. What’s worse is that those documents might be in hard copy, spread amongst dozens and dozens of banker’s boxes, or scanned into massive PDFs containing thousands of pages. Rarely are any of these document repositories ever well-organized.

The key is retaining a consultant or expert on document management to reduce wasted time and duplicative effort on the part of your entire team. The last thing you want is for one of your experts to miss a critical piece of evidence because they weren’t provided the necessary document in an attempt to save cost or (worst yet) because nobody knew the document existed. Having the right document on hand, at just the right moment, has been decisive in many cases. A six-figure cost for document management may be warranted in a high-stakes, bet-the-company claim when tens of millions of dollars are at stake.

Perhaps the most important factor in reducing the incredible cost of today’s complex construction claims and disputes comes down to plain old good project management. These days, it’s not possible for one single person (or even party) to handle 100% of a complex claim. It needs to be a well-orchestrated collaboration between multiple lawyers, their staff, experts, consultants, and others. Just like on an actual construction project, communication is key. Maintaining strict protocols for communication to ensure that what’s privileged remains so, while keeping everyone informed of what they need to know to do their jobs effectively, is a dance that is not for the faint of heart.

What’s Next?

Just as the design and construction of the built environment have evolved greatly over the past several decades, so too has the process for handling the claims and disputes associated with it. Since the early-1990s when my career in forensics began, we took pictures on actual film, took notes using paper on clipboards, and stored our project case files in so many three-ring binders. Nowadays, we use digital cameras and tablets and have terabytes of data stored in secure encrypted private clouds.

Some of the upcoming trends we expect include:

  • An increasing percentage of claims will be resolved in mediation and/or alternative dispute resolution and outside of the courtroom.
  • More claims related to occupant health and indoor environmental quality.
  • Failure to achieve certain sustainability goals or incentives will become a cause of action in more jurisdictions.
  • Operations and maintenance of facilities will play a larger role in building performance, and will thus come into play more in future claims.
  • Insurance technology, particularly enhanced through artificial intelligence, will become greatly beneficial to the carriers (and less so for insureds).
  • As BIM and other collaborative construction technologies become more mainstream, the need for digital forensics will become more critical in e-discovery.
  • Drones, robots, LiDar, 3D scanning, infrared and other advanced technologies will facilitate more advanced and less costly/risky investigations.

Finally, the factor that has proven most critical in handling complex construction claims and disputes is agility. Bamboo’s strength comes from its flexibility. By adapting and adjusting your approach to a given situation, and perhaps most importantly, by actively listening to opposing parties, even the most complex and contentious of claims can be resolved successfully with a minimal wasted expense.

This article originally appeared on Construction Law Musings.

This article was originally published by Xpera Group which is now part of The Vertex Companies, LLC.

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