Legal and Regulatory

Best Practices After Receiving Notice of a Construction Claim

A contractor that is proactive in responding to a claim will be better suited to defend it.
By Lauren Meadows
June 7, 2022
Topics
Legal and Regulatory

Being served with a lawsuit is typically not a welcomed experience. However, a construction professional that has been proactive in an early investigation of the claim will be better equipped to defend the case. The following best practices should be used by construction professionals as soon as a potential claim becomes evident.

Notify

Immediately after the receipt of a claim or notice of an incident, efforts should be made to notify all essential parties. This includes any potential insurers that may provide coverage for the claim as well as any parties to whom notice may be required or warranted under the project contract and/or scope of work. Some construction contracts contain an insurance clause that requires one party to provide additional insured coverage under its liability policy to another party. Notice should be given to any insurer that potentially provides additional insured coverage as soon as possible. The failure to provide an insurance company with prompt notice of a potential claim could result in the denial of the claim.

Many construction contracts, especially between a general contractor and subcontractors, include indemnity provisions. For example, a contract may state that the subcontractor will indemnify and defend the general contractor for any loss, claim or litigation arising from the subcontractor’s work. Contracts also may include mutual indemnification clauses, where each party owes the other party a duty to defend and indemnify in various scenarios. Even in the absence of an express indemnification clause in the contract, a factual basis may exist for holding a third party liable for the claim. Prompt consideration should be given as to whether any other parties may be at fault. An entity that is owed contractual indemnification from another should immediately send a “tender letter,” which tenders the defense of any claim or subsequent lawsuit to the other party and demands that it be indemnified for any amount for which it may be found liable.

Identify and Save the Pertinent Project Documents

Obvious documents to preserve are the contracts related to the project, including contracts between the general contractor, various subcontractors, owners and any other relevant vendors. While these underlying project contracts are important to a claim’s defense, equally important are the subsequent communications generated during the course of the project, including change orders, billing records, emails, text messages, incident reports and witness statements. Photographs should immediately be taken, and surveillance video (if applicable) should be pulled. Project schedules, employee logs, inspection checklists, maintenance records, permits, government approvals and daily reports should also be pulled and preserved. As a general rule, it is better to err on the side of caution and save anything remotely related to the project. Do not post anything regarding the incident to social media and be cognizant that anything said in an email or text may end up as an exhibit in a lawsuit.

Preserving as much evidence as possible is a best practice, but once litigation is “contemplated or pending,” preserving the evidence is legally required to avoid sanctions related to the destruction of, or failure to preserve, evidence. Referred to as “spoliation” in the legal industry, the failure to preserve all evidence related to the project could be a costly mistake detrimental to a construction professional’s defense. Common spoliation sanctions include the presumption that the party is liable and a jury instruction that the missing evidence would have been harmful to the “destroying party’s” defense. Juries often view such failure to preserve evidence as a “cover up.”

Consider Experts Early

Many construction claims require an immediate analysis of what happened and why. In claims involving a catastrophic construction event, an expert may need to observe the scene firsthand and conduct immediate testing before the scene is modified. In this scenario, an expert can provide a crucial analysis of what went wrong, who is (or is not) at fault and what needs to be done to rectify the situation and resume work on the project. The outside expert can also serve as a buffer between the constructional professional and any government agencies that may be onsite at the scene.

Even if the claim does not involve a catastrophic construction event, early use of an expert can be beneficial to a construction professional’s defense by providing an initial opinion as to whether the construction professional reasonably complied with industry standards.

Another consideration is whether to retain an attorney early in the process. An attorney can assist in directing the investigation and in protecting evidence and communications under the attorney-client privilege and anticipation of litigation doctrine.

A construction professional that has been proactive in responding to a claim will be better suited to defend it. Prompt notification to the essential parties, identification and preservation of the project documents, and early consideration of the use of experts are the first steps that every constructional professional should take after receiving notice of a claim.

by Lauren Meadows
Lauren Meadows is an attorney in Swift, Currie, McGhee & Hiers’ commercial litigation and insurance coverage practice areas representing insurance companies and their insureds.

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