Recap of Part III
This article is Part IV of a four part series. Part I was meant to inform the Board of a Condominium or Homeowners Association of some basic steps that should be taken when significant latent construction defects are discovered. Part II was meant to inform the Board about the process of retaining an expert witness and serving a Notice of Claim. Part III was meant to inform the Board about common insurance coverage issues, whether to bring a direct claim against the subcontractors and whether the Board can be forced to arbitrate the claim. This article will discuss how to quantify damages and will discuss the mediation process.
Once all of the necessary parties have been added to the proceeding and some basic discovery has been conducted, the Board will need to prepare for significant settlement discussions. Up to this point, the Board likely knows there are significant defects but likely doesn’t have a real concrete understanding of what is causing the problem or have an accurate estimate of damages. Unless the Board is going to make all of the repairs prior to resolving the claim, the Boards damages will be based on a very extensive estimation of repair costs.1 This means that the expert will need to identify common problems and extrapolate the findings. As the litigation process begins, the expert almost always starts with a small sample size. This sample size will grow as the expert does more work and learns more about the construction defects initially discovered. Eventually, destructive testing will be performed to confirm some of the expert’s theories about the exact nature of the defects. Once the destructive testing is completed, the expert will likely prepare repair protocols, which will direct a general contractor as to the exact nature of the necessary repairs. It is at this point that the repair protocols are submitted to the general contractor (or in the case of a bid multiple general contractors) to determine the repair costs.
Mediation is the process in which the parties pay a mediator (who will be an attorney experienced in the area of construction) to help them find common ground and resolve their dispute. Mediators typically communicate with each and every party in an effort to fully understand each parties’ respective positions and concerns. In a construction defects case there are often more than thirty (30) parties to the action. As you can imagine, speaking to each one of the thirty (30) parties separately would take a very long time. For this reason, it is extremely important that your attorney help you choose a mediator that has extensive experience mediating large multiparty disputes. Every mediator handles a mediation slightly different but most that handle these large multiparty disputes will break the parties into groups and meet by group instead of individually. By way of example, the mediator may meet with groups based on the type of work they performed (i.e. roof, stucco, etc…). It is generally preferable to have the Board’s expert present at mediation and perform a presentation which communicates the nature of the defects. Hopefully, the Board’s expert will be able to demonstrate what caused the leaking, or whatever other problem there is, and tie in how the construction defect doesn’t just damage the work that particular subcontractor performed but also damaged the work of other subcontractors. It is also preferable to demonstrate how repair of the faulty work will require ripping and tearing up of other subcontractors work. These two insurance coverage concepts (resulting damage and rip and tear damage) will help the mediator demonstrate to the insurers that the claims are covered (or primarily covered) and will help to maximize the settlement value of the case.
So if mediation concludes without a settlement then the Board is at a place in which a very significant budget has been expended on attorneys and expert witnesses. It may seem that there is little value to this expense because the Association has not yet received money in return on its investment. However, the mediation process, even if unsuccessful, typically benefits the case because all of the subcontractors and the insurers have been educated about the nature of the defects. It is also beneficial because the subcontractors will be introduced to the Board’s testifying expert witness and will hopefully understand that you hired someone that is very good and going to make defense of the case very difficult. At this point, there should generally be a push for trial as quickly as possible. As trial approaches, settlement talks are often reopened. Many cases that don’t settle at mediation settle shortly before, and even during, trial. By the time trial approaches the Board will have been through enough to know the value of their claim and will not require a trial unless the settlement offers are wholly inadequate. Trial of these types of cases can take weeks and are a significant investment of Association funds.
Reading all four parts of this article will provide a general understanding of how a construction defect claim proceeds from discovery of defect until trial. Although this article is meant to provide a general understanding of the process, construction defects litigation requires a very fact intensive analysis to determine the most appropriate legal strategy. It is important to note that often discovery of a small leak or a small area of rot that doesn’t seem extensive starts this process. Although the process from start to finish is expensive, it is relatively inexpensive to hire an attorney and/or expert to perform a preliminary analysis of whether the defects uncovered are likely isolated or systemic. Even minor construction defects, if systemic, can be very expensive to repair. Failing to identify systemic construction defects when the resulting damage first manifests itself can be fatal to a future claim and can result in the Association having no viable way to pay for necessary repairs. For all the reasons stated, an attorney should be retained early to help with this complicated process.