Contest That Defect Claim

by | Oct 2, 2018 | Defective Work, Getting Paid, Liens, Litigation & Arbitration

Whether a project is big or small, it seems inevitable that construction defect claims will surface. While the nature of these claims many vary, common patterns are generally present and construction professionals would do well to understand the distinctions.

Construction defect claims often fall into one of four categories: design defects, material defects, workmanship defects and subsurface defects.

Design professionals (such as architects and engineers) sometimes cause design defects. Building design can lead to issues in a structure’s performance, even if the design plans are followed precisely by everyone building the project. For example, complicated roof structures can lead to cracks, water intrusion or increased susceptibility to wind damage.

There can be material defects resulting from inferior or defective building materials. Using inadequate materials in a project can result in issues. For example, even though a window is properly installed, if it was manufactured and delivered with a defective seal, it may still become the source of future problems.

Workmanship defects are most often the leading cause of defect claims, leading to all types of construction problems. Even when plans are properly drawn and only the highest quality materials are delivered to the work site, careless installation can turn a project into a nightmare.

Of course, subsurface defects sometimes exist. They result from problems with the actual construction site, such as expansive soil conditions, subsidence issues or contaminated soils.

Several avenues are available to challenge all of these types of construction defect claims:

1. Procedural Prerequisites:

Several states have enacted laws requiring a claimant to provide notice of the alleged construction defects and to provide those that may have caused them an opportunity to fix them. In most instances, this is a prerequisite to begin litigation. If the claimant fails to do this, then the defect claim may be (at least temporarily) barred.

2. Statutes of Limitation:

Once a claimant discovers or should have discovered the construction defect, most states have a time period (often four years) within which the claim must be brought to court. If the claimant fails to bring the claim during the allotted time period, then the claim may be time-barred.

3. Statutes of Repose:

Similarly, most states have set a time period (often 10 to 12 years) within which a claim can exist. Under such a statute of repose, if a claim is not brought within the stated time period, it will not be allowed at all, whether the defect was actually discovered or not. This is particularly important for hidden defects that are not obvious upon a reasonable inspection. If the repose period passes without a claim being made, the claim may be time-barred.

4. No Standing:

If a condominium association, for example, initiates litigation, questions may arise if the association has been granted the right under applicable covenants or governing documents to proceed on behalf of the members or to carry on litigation in its own name. Alternatively, claims involving multi-unit developments (i.e., condominiums, high-rises and townhome projects) often proceed as a class action. Class actions require that the class representatives be members of the class. Also, if the defects vary from unit to unit (as no claim is ever “typical”), this may be a reason to challenge the legitimacy of class treatment.

5. Negligence:

Most defect claim defendants will attempt to assign at least partial or shared responsibility for defects to some other participant in the construction process (often expressed in a counterclaim, cross-claim or third-party claim). Inadequate performance by others in the construction process may provide a basis for shifting blame. Indemnification clauses in prime contracts and subcontracts are customary and also provide justification for such defenses or claims.

6. Economic Loss Rule:

Construction defect claims are often presented as a mix of contract and tort remedies. When there is a contract between the parties, the claimant may be restricted to contract remedies and be legally prohibited from recovering economic losses in tort. However, even when parties do not have a contract with one another, the economic loss rule may prevent recovery if a defective product causes damages to itself but no damage to other property. For example, both aspects of the economic loss rule have been applied in litigation related to Chinese drywall claims. Be aware that the claim restrictions imposed by the economic loss rule do not extend to personal injury claims.

7. Strict Liability:

Claimants may assert claims for strict liability in cases involving the use of defective products. This means the manufacturer and all those in the distribution chain are liable for the ill-effects of a defective product. If the targets of the claim can demonstrate they neither manufactured nor distributed the product, then the claim may be defeated. This was recently the case in a Chinese drywall action pending in Florida. The trial court found that the homebuilder did not manufacture the defective drywall, and the homebuilder was not in the distribution chain for the defective drywall. However, the question that remains is whether the homebuilder’s general contractor or drywall subcontractors were themselves in the distribution chain.

Even the simplest construction project presents opportunities for defect claims to arise. Construction professionals must therefore be ever mindful of such potential claims, crafting their contracts and running their business operations with that thought in mind.

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