Verdicts & Settlements (front page), May 12, 1995

Mediation of contracting disputes brings complex issues into the open. In these times of enormously high legal expenses and expert witness fees, to lower insurance costs it becomes incumbent to find new ways to shorten and simplify the existing complex litigation process. The route that appears to achieve the most success, the speediest as well as the least expensive conclusion for all concerned, should encompass the mediation process right from the start.

With mediation rather than trial as the vehicle for the successful settlement of the controversy, all elements of the dispute should be exposed up front and open to discussion right from the start.

In contrast, when trial is the final arbiter, experts and counsel alike tend to keep as much information as possible close to the vest and out of the prying eyes of the opposition. Because counsel have a general obligation to settle the case for as much or as little as possible (depending on whose side they're on) extreme caution is the golden rule.

To analyze the possible construction defects in a case, invasive or destructive testing of the various construction elements, although very expensive, must be performed. The results of these tests form the initial basis of the plaintiff's case.

Unfortunately, such tests are not the end - they are merely the beginning of a prolonged series of tests by the contractor and then by various subcontractors, all of which are designed to refute or cast doubt on the plaintiff's findings.

For all parties, accuracy in defining and characterizing the issues is of paramount importance. One should not assume that the opposition will not notice mistakes. In fact most experts search for discrepancies, mistakes, duplications or other anomalies in the opposition's reports before they look to the defects themselves.

Once the issues are properly defined and evaluated, the mediation can commence. This is when the realization sets in that mediation of construction defect issues is far more complex than most realize.

Even experienced lawyers who can anticipate most of the eventualities in conventional cases are frequently surprised at the complexities encountered in their first construction defect mediation.

A case in point: Subcontractors are often at odds with each other about their actual work in place, while being insured by the same carrier. Or the same carrier has to provide coverage through additionally insured endorsements to parties that would otherwise be in complete conflict with each other. Each party has insurance complications because each one has a different idea and agenda concerning the alleged defects.

Mediation in such conflicts generally involves three separate (but not always distinct) coverage issues. Plaintiff vs. General contractor and/or developer, plaintiff vs. the various subcontractors, and contractor and/or developer vs. the subcontractors. To define the issues in their simplest terms; the plaintiff sues the developer, who in turn sues the general contractor, who in turn sues the subcontractors who actually performed the alleged defective construction work.

Each subcontractor eventually tries to blame another trade or two ("they made me do it") or alleges that the work in place was defective because it was constructed out of sequence (the fault of the job superintendent, who of course made them do it). Few subcontractors admit that the defects affecting their work were caused by any fault or carelessness of their own.

Last but not least, the defect may have been determined to have been caused by shoddy maintenance. Sometimes the homeowner, after years of property neglect, now wants the developer or contractor to pay for the damage caused by that neglect. Of course the plaintiffs have the obligation of proving their contentions, but it is generally the contractor or developer who must eventually prove the issues to the various subs.

Each subcontractor is required to have a comprehensive understanding of the requirements of its own trade, together with a general understanding of the various specialty trades whose work should have been performed prior to or under their work. Subcontractors should not attempt to perform their work over the work of any other trades that they know, or should have known, is defective or incomplete. Unfortunately, in the complex world of fast-track construction, multifarious elements are supposed to be nicely coordinated into a cohesive bundle, but because of the speed required to complete the work in a timely manner, the cohesiveness is missing.

A day late with supplies may mean that the labor required to install that particular element is now off working on another job. Other trades standing by to complete their work will sometimes start before the job is ready for them. Sometimes this process succeeds, but sadly for the insurance carrier, more often than not the out-of-sequence construction helps provide the legal and expert witness communities with an abundance of work.

The legal aspects of the interrelated construction issues, coupled with the liability and coverage issues, are the chief reasons why mediation has come to seem the settlement method of choice. Without mediation, cases will continue to be settled, but at what cost to the community at large? The cost of doing business involves the cost of defending and paying for the defense as well as the ultimate costs of the actually required re mediation work. If insurance companies pay out millions in claims costs, that money comes from the increased premiums paid by policyholders. Such a wasteful system could be improved with the fresh mind-set of mediation instead of litigation.

New articles and publications will be added to this section regularly. If you wish to be notified of all updates, please enter your email address in the box below and click SUBMIT.

Enter your email to be notified of updates: