The Manufactured Lawsuit
Methods for Combating the Latest Litigation Trend
By Jan A. Gruen
Over the years, claims have consistently been asserted against builders and architects for the defective design and construction of residential building projects. In the "old days," these claims alleged water intrusion through the building envelope or skin and sought compensation for the resulting damage associated with these conditions.
Armed with visible evidence to back them up, homeowners of the past would assert poor design and construction practices falling below industry standards of care. Were the claims legitimate? While overblown at times, many claims had at least some merit. Most importantly, these claims were made after homeowner complaints made to builders went unanswered or repairs failed. Frustrated, homeowners would then contact an attorney.
Fast forward to recent times. A cottage industry has emerged. Plaintiff attorneys are trolling for business in subdivisions where contented homeowners remain &mdash until they walk to their mailbox and find a solicitation letter from a lawyer claiming that their house is all but falling down. The solicitation states that others in their community are experiencing problems and that the problems seem consistent and widespread throughout the project. These letters, sent by a select group of firms specializing in the creation of construction-defect actions, whether or not defects exist, encourage an "evaluation" of the home to see if the owner is one of the unlucky ones. Over the course of time, homeowners may receive one, two or even three letters from competitor firms.
Ultimately, a suit is filed. At first, these lawyers brought suit on behalf of owners in a single subdivision. Over time, plaintiff lawyers developed a new strategy targeting a single builder and every community built by them in a particular county. At present, suits include multiple developments built over time by different subcontractors using varying building techniques and materials, and pursuant to different building codes. The only common thread: the builder and the geographical location. The innuendo at the time of trial: Every project built by the builder is defective.
One need not think too hard to figure out who benefits and who is hurt by this latest litigation craze. The plaintiff lawyers and their experts clearly profit by receiving handsome attorneys' fees and expert fees as they test a handful of homes and brand them as permanently defective. The unwitting homeowner who has the testing done to "prove" the existence of defects will forever need to disclose to future purchasers reports that are dramatic and often inaccurate. These reports impact property values regardless of whether the defects exist or not.
Damage estimates created by so-called experts will often range from $80,000 to $200,000 or more per home (you can raze and build a new home for these higher figures). These same claims typically settle for pennies on the dollar, leaving insufficient funds to make even legitimate repairs. Using legislative avenues, there have been attempts to force plaintiff lawyers to disclose these possibilities to their homeowner clients, much like drug companies must disclose potential side effects of the products they sell. Shockingly, plaintiff lawyers have mightily resisted.
These claims also hurt builders and subcontractors who spend countless dollars and countless hours defending these lawsuits. Facing difficulties securing insurance that actually provides coverage, we are seeing higher deductibles or self-insured retentions, wrap policies and other insurance trends growing out of these claims.
There are simple and effective solutions to counter this trend:
- Make sure that new buildings are designed and built to SB 800 standards, which are set forth in Civil Code section 896, et seq.
- Provide responsive customer service that addresses homeowner complaints promptly and professionally.
- Live up to the warranty you provide.
- Offer a comprehensive and easy-to-use homeowner maintenance manual and reference guide and explain it to customers whenever possible.
- Document customer service and conditions before, during and after repairs.
- Upon discovery of solicitation efforts in a community, offer to meet with homeowners, review their concerns and address complaints that appear appropriate or reasonable.
While these lawsuits will keep coming, the above techniques will reduce the value of claims, the number of claims and make overall exposure more manageable. Oh, and when all else fails, call your attorney.
September 2007 Builder Architect Edition Issue