By Peter Schroeter, Esq.
Residential construction cases are legally complex, fact intensive and
difficult to resolve before incurring significant legal expense that can
exceed the amount in controversy if the case goes to trial. Multiple legal
theories provide for a variety of different remedies that make recoverable
damages difficult to predict. Insurance coverage is often limited because
of policy exclusions of the cost of fixing substandard work. Experts are
typically needed to address issues of quality of work, cause of damage,
and methods and cost of repair. Subcontractors are often brought into
the case resulting in multiple parties and attorneys. Effective representation
of clients in these disputes often requires case management designed to
achieve early resolution at mediation.
In residential construction cases, particular attention should be given
to educating clients about attorney’s fees and insurance coverage
issues prior to mediation to avoid unrealistic expectations. No matter
how often they are told, lay people will struggle with the idea that the
other party does not have to pay their attorney’s fees when they
are found to be at fault. This is particularly true in this type of case
because of claims for payment of attorney’s fees under Maine’s
Home Construction Contract and Unfair Trade Practice Acts. Clients should
understand that just because the claim has been made does not mean that
they will recover attorney’s fees and that the difficulty in recovering
attorney’s fees on these claims is such that they may not be a significant
factor in the negotiations unless the facts are egregious.
Insurance company involvement where there are claims for defective workmanship
can create similar client expectation problems. Once lay people learn
that the other side’s insurance company is involved, they incorrectly
assume that any damages awarded to them will be paid by the insurance
company. Unaware that such coverage is usually limited to consequential
damage caused by defective work and does not cover fixing the defective
work, they understandably have a hard time understanding that an insurance
company that has appeared with a reservation of rights may only be responsible
to provide the contractor with an attorney and not have to pay damages
awarded for that contractors defective work. Unless clients are properly
prepared on this issue, they will come to mediation with the unrealistic
expectation that an insurance company will pay whatever damages they are
awarded and negotiate without regard to the considerable risk of obtaining
a judgment that is uninsured with resulting collection problems and costs.
The opening session of the mediation provides counsel with a unique opportunity
for persuasion and is the only time during the life of a case that they
can talk directly to the opposing party. Having already presented the
factual and legal background of the case in a mediation submission, counsel
can choose those facts and exhibits most important to his client’s
successful outcome if the case goes to trial to emphasize in the presentation.
Whether it is a photograph clearly showing a serious structural defect
or an e-mail exchange that is potentially dispositive on who was the breaching
party when performance was terminated, counsel has the ability to focus
the attention of everyone present on the evidence or issues that could
potentially be the elephant-in-the- room for the other side. Not only
does this help to persuade the other side of the merits of their position,
it provides the mediator with the information necessary to narrow the
discussion of the evidence and the issues upon which the negotiations
will be based.
To make an effective presentation in the opening requires spending the
time, sometimes extensive, to sort through numerous documents and photographs
to determine the best few to show and discuss to highlight the key points
of the case. Spreading out numerous photos of relatively minor construction
defects, often what the client wants, does little to help the mediator
understand what is important to the dispute or convince the other side
that it has significant exposure. Selective use of a few photographs enlarged
to 8 x 10 with marker arrows pointing to the defects, on the other hand,
can be very effective. One email, contractor work sheet or bank construction
loan payment schedule showing that an item in dispute as to whether it
was included in the contract was a documented or undocumented extra will
be far more persuasive on the issue than generalized claims that one party
or the other is more credible on the disputed facts of their numerous
communications.
No matter how solid the evidence may be on the existence of construction
defects, counsel should not overlook the need to present credible cost
of repair damages for the mediation. Contractors providing estimates to
do the repair work themselves may be unwilling or unable to provide the
type of breakdown between items necessary to present in court or be persuasive
in mediation and may lack the credentials and experience to be able to
effectively testify on those issues. In the absence of an independently
hired expert who was generated an itemized breakdown of cost of repair
damages, contractors and their insurers will only be willing to offer
a significantly reduced amount of the claimed damages. To be able to effectively
negotiate recovery of a substantial portion of cost of repair damages
requires that competent expert evidence be developed for and presented
at mediation.
Because of the need for expert evidence on workmanship standards of practice,
the measure and amount of damages and potential complications involving
building code issues, consideration should be given to bringing experts
to the mediation. They can help the parties focus on the most important
damages claims and understand how building code requirements can effect
both workmanship and cost of repair issues, including how they can cause
costs repair and replacement to necessarily include "betterments"
to the property. While the attendance of such experts at mediation increases
the expense, it is often well worth it given the persuasive impact along
with showing the other side that your case is prepared for trial.
The preparation and for and presentation at mediation of the residential
construction case is invariably challenging due to the numerous, often
overlapping, legal issues and the fact intensive nature of the cases.
Resolving cases at mediation is particularly important to achieving successful
outcomes in view of how expensive they are to litigate in relation to
the expected recovery range. For that to happen, managing the information
in the case and maximizing opportunity for persuasion provided by mediation
is essential.
Peter Schroeter is a Mediator with the firm of Shaheen & Gordon, P.A. He is a member
of the National Academy of Distinguished Neutrals, rated AV by Martindale-Hubbell
and recognized by Best Lawyers in America in mediation.