What Every Lawyer Should Know about Construction Defect Litigation
by Alicia N. Vaz
(County Bar Update, December 2006, Vol. 26, No. 11)

What Every Lawyer Should Know about Construction Defect Litigation

By Alicia N. Vaz, an associate at the Los Angeles office of Cox, Castle & Nicholson LLP. Vaz is a commercial litigator with substantial experience handling complex business and real estate litigation. The opinions expressed are her own.

1. What are construction defects?
Construction defects can range from complex structural issues to aesthetic issues including 1) unintended water or moisture infiltration through some portion of the building structure, 2) significant cracks in the foundation, 3) use of inferior building materials or defective manufactured products that cause components to fail to function adequately, 4) subsurface soil conditions, and 5) prematurely deteriorating fixtures, trims, or painted surfaces. See Civ. Code Sec. 896.

Courts typically have measured culpability for construction defects by whether the specific structure or component was constructed so as to materially comply with applicable government building codes, regulations, and ordinances, and whether the construction or installation fell within the standard of care for the building industry.

The bottom line, however, is that any component of a structure that causes damage can be actionable as a defect.

2. What is SB 800, and how does it affect construction defect litigation?
Senate Bill 800 was enacted in 2002 and modified slightly on January 1, 2004 with the enactment of Assembly Bill 903. SB 800 is codified at Civil Code Sections 895 et seq. and applies to new construction of single-family homes or attached residential units sold after January 1, 2003.

Prior to the enactment of SB 800, Code of Civil Procedure Section 337.15 provided a 10-year statute of limitations for latent defects, i.e., defects that are not readily visible, and Code of Civil Procedure Section 337.1 provided a 4-year statute of limitations for patent defects, i.e., defects that are readily discoverable or apparent.

However, Code of Civil Procedure Sections 337.1 and 337.15 do not apply to actions brought under SB 800. (Civ. Code Sec. 941(d)). Instead, with few exceptions, Civil Code Section 941(a) sets forth a 10-year statute of limitations following substantial completion of the improvement. The builder is not permitted to shorten the time period or decrease its statutory obligations by contracting directly with the homeowner.

In addition to modifying the statute of limitations for residential construction defect claims, SB 800 requires homeowners to comply with certain prelitigation procedures. The homeowner must notify the builder in writing of the specific claimed defect and allow the builder the opportunity to attempt repair of that defect, compensate the homeowner for the defect, or participate in mediation. On request from a homeowner, the builder is required to provide all documentation relating to the construction and maintenance of the home.

If the homeowner is unsatisfied with the repair or the builder fails to comply with the provisions of SB 800, the homeowner can institute litigation against the builder.

3. How do courts manage construction defect cases?
Due to the number of parties involved (e.g., owners, contractors, subcontractors, and suppliers), most construction defect cases are designated as complex and subject to special rules and procedures governing complex cases. Early on in the litigation, courts usually issue a case management order to govern all aspects of the case, including 1) the time by which new parties are to be added, 2) the scope of written discovery and appointment of a discovery referee, 3) the dates(s) for mediation and appointment of a mediator, 4) the dates by which the plaintiff(s) must provide preliminary and final defect lists and cost of repair statements, and 5) the dates for visual site inspections and destructive testing of the structure.

4. How quickly should experts become involved?
The importance of experts in construction defect litigation cannot be emphasized enough. In the construction arena, experts should be selected not only based on their training, experience, and area of expertise but also on their methodologies, analyses, and testing procedures.

Experts are an important part of the litigation team. As a result, experts should be retained early in the litigation to assist in, for example, deciphering the key contracts, plans, reports, and other documentation to compare them with what is actually constructed; investigating and identifying component failures; defining culpability; defining remedial solutions; providing repair cost estimates; and assisting with presentations during mediation and at trial. Construction defect litigation is entirely expert-driven, and eventual settlement or trial results will directly correlate to the presentation by and conclusions of the experts.

5. What role does insurance play in construction defect litigation?
Most construction contracts require that builders, subcontractors, and design professionals carry insurance to cover any construction defect claims. Usually, builders also are named as additional insureds under the insurance policies of their subcontractors.

Due to the rising cost of insurance and the difficulty in ensuring that a builder is an additional insured on its subcontractors’ policies, on larger projects some builders have elected to obtain wrap-up policies. A wrap-up policy is a single insurance policy naming all construction participants for coverage on all general liability on a given project. In addition to consolidating all insureds onto one policy, these policies typically provide coverage for a period of 10 years from the date of completion of the project.

Regardless of what type of insurance coverage was obtained for the project, identifying all policies on which your client is a named or additional insured and tendering the claim to those carriers immediately on receipt of the lawsuit is imperative. In representing a plaintiff, it is equally important to identify all policies under which the defendants are insured. Obtaining the participation of all possible insurance carriers early in the litigation tends to lead to the best possible chance at early resolution through mediation or at a settlement conference.

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