Litigation over construction defects ebbs and flows in Oklahoma. The volume of litigation often follows the booms and busts of the construction industry. When the level of new construction rises, the potential for profits attracts those who don’t really know what they are doing. The result is shoddy workmanship and poorly built properties. Of course, quality issues and concerns lead to disputes.
In some cases, the dissatisfaction is really a lack of communication by the parties. The expectation of both the property owner and the builder just aren’t in line with each other. Sadly, these types of disagreements can be the hardest of all to settle and resolve. Each side locks in on their position wanting the part of the deal they feel is owed from the bargain made.
Failure to Communicate Causes Lawsuits
The failure to communicate is understandable as all of us have fallen into the trap at one time or another. The best way to avoid this kind of argument is a well-drafted written contract complete with contract drawings and specifications. The more the details are spelled out, then the less friction over what was to be done.
Sometimes a construction defect lawsuit is filed over defective materials or workmanship that doesn’t meet proper standards. These can be the construction standards for the local community or more serious failures like not meeting the building codes.
Construction Litigation Includes Arbitration
When we talk about construction litigation, it’s a good idea to point out that many disputes are litigated in arbitration. More and more contractors have gone to using the contracts of the AAA or American Arbitration Association. These contracts provide disputes will be arbitrated.
The AAA defines arbitration as:
“Arbitration—the out-of-court resolution of a dispute between parties to a contract, decided by an impartial third party (the arbitrator)—is faster and more cost-effective than litigation.
AAA cases are often settled prior to the arbitrator’s decision—and nearly half of those cases incur no arbitrator compensation.”
Nonetheless, disputes resolved in arbitration rather than traditional court cases are still litigation. The parties each hire a lawyer, typically experts in the construction industry, and battle out the case. In arbitration there is no jury, only private judges called arbitrators. If the lawsuit takes place in the public courts, the decision can be one for the judge or possibly a jury.
Regardless of who makes the final decision, construction defect litigation can be very expensive. It is quite common for the losing party to have to pay the other side’s fees and statutory costs for the action. In really egregious situations, there can be a request for punitive damages to teach a lesson.
Contractors Try To Use Their Insurance
Experienced contractors will turn in a claim to their insurance company in an effort to have the insurer pay for a lawyer. Since the property owner tends to assert several reasons for payment, including negligence, then it triggers the duty to defend under the policy. If so, then many insurance companies will provide a defense under a reservation of rights. This means the insurance company provides the contractor with an attorney to fight the lawsuit (at least for a while).
Depending upon the actual facts, the insurer may withdraw the defense at a later time if coverage is truly unavailable. Some insurance companies have gone to the practice of making the contractor pay back the attorney fees and expenses if coverage is declined.
The insurance coverage issues are far beyond the scope of this article, but the questions about the existence of coverage are far-reaching. A contractor who ends up without insurance will be facing paying the damages out-of-pocket.
Declaratory Judgment Actions Are Used To Decide Coverage
We have been retained countless times to address the coverage aspects of construction defect litigation. These often produce a secondary lawsuit called a declaratory judgment action. This is a lawsuit asking the court to declare whether or not there is coverage. For example, the insurance policy may have an exclusion for work of a certain trade such as roofing. Assuming roof installation is excluded, then water damage caused by a leak in the ceiling may not be covered.
The insurance company wants a legal answer from the court about whether the policy covers the situation. If there is coverage, then the insurer will want to settle the claim with a payment. If there isn’t coverage, then understandably the insurer wants out of the situation to stop the ongoing expense.
Subcontractors Usually Get Brought Into the Lawsuit
Subcontractors are used extensively in construction. The various trades do a particular type of work. When a general contractor is sued, the subcontractors can expect to be named in the litigation over any construction defect. The property owner may sue them. If not, then the general contractor probably will.
Adding subcontractors to the lawsuit increases the complexity. As you add more parties (each with a separate attorney), it adds layers of details and issues. In a legal action between the property owner and the general contractor with 15 subcontractors identified, you can see how many lawyer hours begin to accumulate.
Cases with a lot of subcontractors really stand out on court dockets. The judge calls the case, “Smith v. Jones Construction”. Immediately half the courtroom stands up. It’s all the lawyers who have shown up for the motion or hearing in the case. Each party, whether the owner, builder or subcontractor, has their own lawyer there.
Early Legal Advice Makes Sense
Talking to an experienced attorney early in the dispute can be helpful. Like many things, the best decisions are made with knowledge and understanding. If we can answer any questions or assist with a construction isssue, give us a call.