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Timing is Everything: When is the Best Time to Resolve a Construction Defect Case? - Chapter 1 - AAA Handbook on Construction Arbitration and ADR - Third Edition

Author(s): 
Matthew W. Argue
Page Count: 
12 pages
Published: 
March, 2016
Author Detail: 

Matthew W. Argue has over 20 years of experience in complex construction disputes, mediation and arbitration. Based in San Diego, he is a Full-time Neutral focusing on construction, insurance and real estate mediation and arbitration throughout Southern California. Mr. Argue serves on the following mediation and arbitration panels: American Arbitration Association Panel of Complex Construction Mediators and Arbitrators; AMCC Panel of Construction Mediators; California State License Board Arbitrator; and as a Dispute Resolution Advisor and Dispute Resolution Board member for Caltrans. He may be reached at mattargue@onemediator.net or view his website at www.onemediator.net.

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Description: 
 
I. Introduction
 
The cost of defending a construction defect case in court is three to five times greater than the amount that is ultimately paid in settlement. This is a significant amount of money. For this reason, and particularly in this struggling economy, all stakeholders involved in a construction defect case, including attorneys, insurance claims representatives, mediators, general contractors, subcontractors, owners and developers, should be looking for ways to save money by cutting the cost of resolving these cases. This article discusses possible ways to achieve early resolution during the “pre-litigation” phase of the case.
 
II. What is Needed to Settle a Case in the “Pre-Litigation” Phase?
 
For purposes of this discussion, pre-litigation does not mean before a complaint is filed. I define it to include such a case as long as it has not gone through any of the following: extensive discovery, expert
investigation and testing, expert depositions, or trial preparation. I also consider a case to be resolved in the “pre-litigation” phase if it is fully resolved within one year of the filing of the complaint. The reason for this expanded view of the “pre-litigation” period is that most construction defect cases are not capable of being resolved until all parties and their insurance carriers are involved in the case. Generally speaking, the parties to cases that settle within the first year have only spent about 10-20% of the money that would be spent in the next two or three years had a settlement not occurred. For example, in a recent case that settled within one year of filing the complaint, the developer/general contractor spent approximately $250,000 in defense and expert fees. Yet in a related litigation case involving the same parties that took over three years to resolve the developer/GC spent over $2 million in legal fees and costs. Interestingly, the plaintiff recovered substantially less in the related litigation than it did in the case that settled within one year, due to the cost savings all parties benefited as a result of the settlement. These results should lead parties to construction defect cases to question how they can achieve similar results in appropriate cases.