Cooperation necessary to minimize risk exposures

August 11, 2010

Builders, subcontractors, manufacturers and insurers need to work together to minimize the threat of construction defect exposures by promoting high-quality products and proven risk management techniques.

'Because construction defect exposures threaten all these industries, the best way to defuse that threat is through improved communication and cooperation between the industries,' said Dave Golden, director of commercial lines at the National Association of Independent Insurers (NAII).

The point was driven home at a recent meeting of NAII's general liability committee, where guest speaker David Jaffe of the National Association of Home Builders (NAHB) pointed out his organization's emphasis on researching new building technologies. 'Builders and manufacturers must work together before products come to market, during construction, and after the homes are built and sold in an effort to minimize liability and satisfy the ultimate customer - the home buying public,' he said.

As an example, Jaffe pointed to the exposures presented by synthetic stucco (EIFS), probably the best-known deficient building product class, which does not allow trapped water to escape and results in water damage claims. The NAHB was actively involved in addressing the EIFS issues on behalf of its members, who are primarily small businesses, many of who were involved in EIFS-related litigation.

The building industry learned a lesson from synthetic stucco - that everyone needed to think of a building as a system and not as a series of unique subsets, and that manufacturers, builders and subcontractors all needed to be involved in new product development, Jaffe said.

Other ways the building and insurance industries could help head off construction defect lawsuits include:

  • Urging legislators to pass laws permitting construction businesses to make repairs to affected structures before allowing plaintiffs to file lawsuits;

  • Legally clarifying additional insured status so that subcontractors and other parties involved in building construction don't get involved in a lawsuit caused by only one of them;

  • Encouraging courts to allow arbitration agreements to function in order to discourage lengthy and expensive trials; and

  • Adopting proven risk management and loss prevention techniques to stop problems before they start.

Construction defect litigation, which first emerged in California in the 1980s, has since spread to other western states, and has also emerged as far away as North Carolina, Virginia and Pennsylvania, Golden said. Trial lawyers in these states are targeting multi-family construction and filing suit, in some cases before a defect is even identified - a practice that has led to multi-million dollar awards against builders, resulting in higher housing costs for consumers. Since then, several states have introduced or are considering legislation to address the problem, including Washington, Colorado, California, Nevada and Arizona. NAII supports legislation and practices that are aimed at controlling the exposure, Golden added.

The NAII, located in suburban Chicago, is a leading property/casualty insurance trade association with more than 690 members that write $98 billion in premium annually. Its members write 33 percent of the property/casualty insurance nationwide and almost 35 percent of the nation's homeowners' insurance.

         
 

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