By Stan Bachman
Morefield Speicher Bachman, LC
Two words that create instant anxiety for construction contractors are”construction defects.”
That’s because there are a host of complexities that cascade from construction defect litigation. The costs to defend a claim can be significant. The time involved to defend yourself is considerable. And the implications for your reputation leave you at a huge risk. Indeed, your entire livelihood could be at stake.
The construction business is already complex, and it continues to be even more so. New technologies have unknown consequences. New techniques in design and construction, along with new materials, and the relentless focus to be on time and on budget make your job all the more challenging. All the while, the legal risks mount.
So, let’s look at a few areas where you can reduce your legal exposure to construction defect litigation.
Take Control of Your Records
First and foremost, maintain excellent records. Most construction suits occur years after project completion. Maintaining impeccable records are a must for a strong defense.
Some of the more important documents to keep includes:
– The contract and all change orders.
– Requests for information.
– Insurance policies, both yours and your subcontractors and suppliers.
– The plans and specifications.
– All changes to the plans and specifications.
– As built drawings and specifications.
– Copies of inspection reports.
– Your notes and diaries maintained during the project.
– Meeting minutes and notes.
– Copies of schedules.
Make Sure You’ve Got A Strong Insurance Policy
A commercial general liability (CGL) requires the insurance company to provide your legal defense to any lawsuit against you for claims of negligence in performing your work. Construction insurance law is complex and beyond the scope of this article, but just know that even if the insurance company provides your legal defense, it doesn’t mean they are also going to cover your damages. Also keep in mind while the insurance company might pay for damages, you are still going to be liable to pay for the costs to remedy your work.
Managing Your Risk With Subcontractors or Sub-subcontractors
- Never use uninsured subcontractors or sub-subcontractors. This situation puts you at tremendous risk and even increases the cost of the insurance.
- When dealing with your lower tier subcontractors, be sure to request you be named as an additional insured on a primary basis on their policy, and be sure to get a certificate of insurance that shows this has been done. Also, be sure there is continuing coverage after the project is complete, as more times than not the lawsuits don’t occur until well after the project is completed.
- Be sure your subcontractor’s insurance policy limits meet or exceed your contract requirements.
- Use indemnification and hold harmless agreements with your lower tier subcontractors, while at the same time making sure you don’t agree to unfair agreements with your client.
Construction defect litigation is complex. It can involve multiple defendants, more than one insurance company and diverse legal theories. The best way to avoid construction defect suits is to work with engineers, architects contractors and lower tier subcontractors who have stellar reputations. It never pays to cut costs, and the lowest price is not always the berst price. Do it right the first time by planning and executing in the right sequence. Keep your documents and records up-to-date.
If you don’t have a lawyer, get one…you need one. Your livelihood depends on quick action after a claim is filed against you.
About Stan Bachman
I was a general contractor and business owner for 25 years before becoming a lawyer. This is a unique background that brings strong legal representation for my clients and companies in construction law, with an understanding of what it means to be in, and walk in your shoes. If you’re currently dealing with a construction defect claim, contact me immediately. I look forward to assisting you.