Joe Ferrentino at 2009 WCC Seminar: “Bad economy leads to increase in construction defect claims…”
“A bad economy leads to increase in construction defect claims,” Newmeyer & Dillion partner Joe Ferrentino told attendees at the 2009 annual West Coast Casualty Construction Defect Seminar in Anaheim.
Much of Claims in Context of SB800
Ferrentino participated in a panel addressing how current market forces are impacting construction defect litigation, noting that with U.S. home prices down over 20% from the 2006 peak, the building industry can likely expect a continued rise in construction defect claims. A bad economy leads to an increase in claims for a number of reasons. With few resales and diminished equity, unhappy homeowners are often more susceptible to plaintiff lawyers that promise easy money. Ferrentino emphasized that builders’ reductions in customer service staff can also lead to a rise in claims, as short-staffed departments struggle to meet homeowner demands. Unmet customer service requests can often lead to more receptive homeowners when the plaintiff lawyer’s flier lands on the doorstep. Reduced staffs have also led to increased challenges of locating documents and witnesses in litigation.
Much of the construction defect litigation taking place in this downturn will be in the context of the Right to Repair Law set forth in SB 800. (Civil Code section 895 et seq.) Ferrentino’s panel addressed the fact that while some builders may be reticent to spend money on repairs in the absence of a release, many subcontractors are hungry for work, and may be willing to do the repair work at a discount. The panel further noted that in Right to Repair cases, numerous homes are dropping out due to foreclosures, which reduces plaintiff lawyers’ margins, and disincentivizes them from weathering a protracted Right to Repair Law process.
The panel looked in greater detail at the growing trend of plaintiff lawyers looking for “volume” and having an increased incentive to get cases done quickly. Ferrentino noted that some builders are willing to settle quickly for a steep discount, and emphasized the importance of getting insurers on board as early in the case as possible. On the other hand, the panel noted that if a builder is willing to take some of these cases to trial, jurors are often unwilling in tough economic times to give plaintiffs “the Cadillac fix.”
Lastly, the panel discussed the changing terrain and importance of insurance issues, including ensuring that coverage is properly transferred from one builder to another in the context of an acquisition. Specifically, the panel addressed the potential risk of a gap in coverage, insolvency of builders and subcontractors, and other issues involving potential waiver of coverage if condos are built and then rented as apartments.
By Mike McClellan
