Construction Defect Special Master
A NEW APPROACH
As a former Plaintiff construction defect attorney, I can honestly say the most difficult issue in resolving each and every construction defect claim I ever handled was the issue of attorney fees. Typically, each side would hire attorneys and experts. The developer would also sue each subcontractor whose work is in any way implicated by the Notice of Claim. Each subcontractor would hire attorneys and experts. Investigations would be scheduled, inspections performed and intrusive testing completed to determine what repair recommendations are necessary. Those repair recommendations are then given to a cost-estimator/contractor in order to cost or to put a price tag on the needed repairs.
When both the developer and HOA have their respective cost of repair estimates it is usually close to the trial date. In most cases the expert disclosures are driven by the trial date. Once both sides have the cost estimate, the real effort to resolve the claim begins in earnest, usually in the context of a mediation. Sometimes, the mediator will try to focus on discreet issues that are easier to address where only one trade may be involved, such as roofing or something similar. Even if the parties agree on the repairs that are needed it is difficult to resolve the claim because of the attorney fees. At least in my experience, the fee agreement with the law office will require a fee on any recovery whether that recovery is monetary or repair based. So, in addition to funding the repair the attorney needs to get paid. This conundrum usually results in Plaintiff firms listing every possible defect that they can in an effort to drive the repair cost higher in the hope that what is left after the attorney fees will repair what REALLY needs to get fixed. This can and often causes disclosure issues where items identified as defects ultimately do not get repaired.
A BETTER WAY!
After working for the insurance companies on construction defect claims against subcontractors once the claim with the developer was resolved and subsequently representing owners in construction defect cases for 20+ years and recovering hundreds of millions for homeowners, I learned all the reasons why cases are often difficult to resolve. I also learned that at least in Colorado, that the insurance companies are/were spending an enormous amount on costs and expenses on construction defect cases when compared to the actual indemnity dollars spent to resolve the claim. This also contributed to the difficulty in getting cases settled.
As a result of this experience, as an attorney we pioneered hybrid approaches in an effort to keep costs down while trying to get the case to resolution as quick as possible. One of the most successful hybrid approaches involved hiring a neutral expert team to investigate the claim. This approach cut down a lot of the arguing and bickering about which approach to repair was proper and addressed the issue for the long term. While this approach cut down some of the arguments on repairs, it did not address the toughest inhibitor to settlement, the attorney fees and overall costs and expenses.
HOW DOES IT WORK?
Benson Mediation has developed a new model to resolve construction defect cases that is a hybrid of the neutral team approach. Rather than have the HOA hire an attorney and a team of experts, only to have each and every other party do the same thing thereby prolonging the life of the claim, driving up the costs, and guaranteeing a multi-year approach because all of the hourly attorneys want the case to last as long as possible, Benson Mediation cuts directly to the chase from the onset in the context of a Mediation Agreement between the HOA and its general counsel and the Developer.
After preliminary investigation to identify issues, a neutral team of experts is assembled to investigate any potential defects and prepare construction drawings to have the defects repaired permanently. This approach, is done with the HOA and developer cooperating in the context of a Mediation Agreement. The Mediation Agreement is an agreement and cooperative effort to streamline the issues, keep costs down and get to the real crux of the issue, making necessary repairs as soon as possible.
Currently, there are experts that typically work for the Plaintiff and experts that typically work for the defense. While there are definitely experts out there that tend to be one sided, in my 25+ years in private practice, I came across experts on both sides that have integrity and do not tailor their reports or opinions based on who is paying the bill. These were the same experts that were successfully used when neutral expert teams were put together with developers and their insurers.
WHY CONSIDER THIS APPROACH?
As briefly touched on above, insurance companies are spending an inordinate amount of money on costs and expenses in construction defect cases when compared to the indemnity dollars spent to resolve the claim. The insurance company funds their own counsel, their own expert(s), the Plaintiff’s experts, ultimately the Plaintiff’s attorney and typically all costs and expenses of the litigation as well. This approach with only one expert team, and Benson Mediation acting as the neutral significantly reduces the overall cost of defending the construction defect claim. It gets the Parties to the construction drawings and repairs much sooner and more efficiently.
In addition, instead of having expert teams come up with conceptual repairs that are then estimated for costing for litigation purposes, thereby creating another step in the process, the experts will go from investigation directly to construction drawings. This streamlined approach will not result in “conceptual repair” recommendations, but actual construction drawings for permanent repairs. This extra step was traditionally reserved for after the litigation when the HOA or owner knew how much money they had and what repairs it could afford to make based on the settlement monies netted after costs, expenses and attorney fees are deducted. The Owner/HOA would then have to engage design professionals, usually different that the litigation experts, so they wouldn’t be giving different opinions than they had in litigation. This adds another layer of time and expense to what was already a very expensive time consuming process.
This approach also makes the most sense for an HOA. Rather than contracting with an attorney for 33-40% of the gross proceeds and incurring expert costs that typically run around 15% of the claim, Benson Mediation can work closely with the HOA’s general counsel in the Mediation to ensure the HOA’s best interests are being protected while removing the largest impediment in getting the case resolved.
When practicing, I always described the duties of a Board of Directors for an HOA as having one main overriding duty…to increase property values. I also explained to every HOA I ever interviewed with that you don’t do that by filing a lawsuit or Demand for Arbitration. Once involved in litigation or Arbitration, home sales come to a screeching halt. When home sales stop closing, property values tend to drop. Plus there are always unhappy homeowners who are trying to sell or were getting ready to sell. By utilizing the Benson Mediation approach, the claim will be in the Mediation process right from the start, thereby allowing home sales to continue and keeping home values closely in pace with the market. Lenders are typically much more willing to loan on a property where the community is working with the developer resulting in repairs as opposed to the unknown of litigation or Arbitration. In addition, the chances for a Special Assessment pursuing the Benson Mediation model is significantly reduced if not eliminated as long as the claim is brought within the statutory allotted time.
What about counsel? Does the HOA have counsel in this process? YES! Benson Mediation works with your general counsel and Board of Directors throughout the process. Your general counsel will be able to review the Mediation Agreement and participate as much as your Board determines is helpful. Anytime a decision is needed, Benson Mediation can meet with general counsel and/or attend homeowner meeting to inform owners of the process and progress.