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Effective Mediation Practice and Persuasion in Residential Construction Cases

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.