In recent years, wildfires ravaged much of California and damaged or destroyed thousands of buildings. See, e.g., James P. Koelzer, “Rebuilding from California wildfires will cause increase in construction-defect claims,” Lexology, Dec. 21, 2018, at https://www.lexology.com/library/detail.aspx?g=09ac5e97-1bba-478a-81c5-698482734950 (last visited Jan. 13, 2019). Part I of this series focused on a shareholder lawsuit regarding a decrease in the price of securities in conjunction with the fires. Part II centered on how data throttling may have impacted emergency responses to the fires, which led a California county and fire department to join a multiparty lawsuit over internet neutrality. This final part discusses construction defect claims that have arisen or may arise when rebuilding after the fires.
As one attorney articulates, “After devastating wildfires throughout California in recent years, a flurry of reconstruction will create an increase in construction-defect claims affecting the liability-insurance market for years to come.” Id. The 2018 Woolsey fire alone “burned approximately 100,000 acres in Los Angeles and Ventura County, and the ‘Camp Fire’—which charred much of Butte County and destroyed the entire town of Paradise—burned more than 150,000 acres and became the most destructive wildfire in California history.” Id. Moreover, a number of analysts have stated that the 2018 fire damage exceeded that of 2017, which set a record at the time and “which experts have estimated destroyed almost 1.4 million acres and cost $18 billion.” Id.
Many of the entities that were impacted by the 2017 forest fires are still in the rebuilding process. See, e.g., County of Sonoma, City of Santa Rosa, “County Supervisors Approve Recovery and Resiliency Framework,” Dec. 13, 2018, at https://www.sonomacountyrecovers.org/county-supervisors-approve-recovery-and-resiliency-framework/ (last visited Jan. 13, 2019). Much of the construction that is underway from the 2018 fires involves residential projects. See James P. Koelzer, supra. According to some, restoring and rebuilding the affected homes is quite lucrative because although the national market “has slumped, the housing market in California has continued its post-2008 boom, with major metropolitan areas exhibiting 10% annual price growth since 2012.” Id.
Given that substantial construction is or will be done to repair and erect buildings that were affected by the fires, one attorney in the field claims construction defect lawsuits are inevitable. See id. In his view, “[c]ontractors will…be tasked with partial reconstruction or new construction to replace destroyed property, and new construction—especially in a post-disaster environment—can lead to new construction-defect claims.” Id. Such litigation is likely to last far into the future because of California laws. See id. Specifically, “California’s Right to Repair Act gives homeowners up to 10 years to file certain construction-defect claims. Since many homebuilders’ liability policies provide coverage to homes that first close escrow or are first completed during the policy year, insurers won’t see the last of the new post-wildfire construction-defect claims until 2028 or later.” Id.
Given the considerable and costly repairs for structural damage incurred by the wildfires and the amount of time homeowners are legally given in which to file a claim alleging construction defects, attorneys in the field should anticipate and be prepared for litigation of this nature. Furthermore, construction lawyers should be aware that such cases will last for a long time, may be prevalent, and may involve large amounts of money. See, e.g., id.
Taking all these factors into account, practitioners who want to gain an advantage in dealing with construction defect suits arising out of the fire damage will wish to retain expert witnesses as soon as possible. When a catastrophic event such as a wildfire occurs, it has a significant impact on construction defect litigation. See, e.g., Stacy La Scala & Dave Stern, “When a Catastrophe Strikes During Ongoing Litigation, Expect Complex and Multi-Layered Disputes,” Construction Claims Magazine, Summer 2018, available at https://www.jamsadr.com/files/uploads/documents/articles/lascala-clm-when-catastrophes-and-construction-defect-litigation-collide-2018-summer.pdf (last visited Jan. 13, 2019). Traditionally, in a construction defect lawsuit, the parties will “seek information on causation, damage, and risk transfer.” Id. However, when a catastrophic event is involved, the litigation becomes more complicated for a number of reasons, and that added complexity makes construction experts even more important. See id.
Some of the issues attorneys may see that experts can speak to, with respect to construction defect cases from the wildfires, include: “expanded damage claims,… and with [those claims] comes the potential for new allegations concerning both causation and damages.” Id. There may also be additional problems with proving certain elements of a lawsuit or with evidence being lost because of the event. See id. Additionally, “new potential insurance coverages and…third party defendants help fuel a construction defect claim where none previously existed.” Id. All of these added claims and possible evidentiary hurdles combine to make such claims more intricate than a typical construction defect case. See id.
In a traditional right-to-repair defect suit, before an event like a wildfire has occurred, potential claimants already feel that the building in question was not constructed properly, “[c]ounsel and experts have been retained, and at a minimum, initial inspections have taken place” Id. The first inspections allow experts to determine the kind of testing that should be done and provide a basis for knowing where the underlying damage is located. See id. When a natural disaster is involved, the equation changes considerably. See id. In such instances, expert witnesses may discuss structural deficiencies with an emphasis on the natural disaster, rather than the initial claims, and they will be “without the aid of destructive testing.” Id. These witnesses can quantify the damages from fires or similar disasters in a report or notice that enumerates the defects believed to be related to the catastrophe and establishes the repair costs. See id. A further complication is that when a catastrophic event occurs during “the early phases of the dispute process, typically no destructive testing” will have been done, and without such testing, a party “may point to the previously alleged construction deficiencies as the direct cause of the resultant damage after the catastrophic event.” Id.
Some of the factors that expert witnesses must resolve will arise depend on whether a structure is a total loss or not. See id. If a building is not totaled, a natural disaster can function as a type of “de facto ‘destructive testing,’…providing additional evidence that, prior to the catastrophic event, would have gone unnoticed.” Id. A structure in this scenario is open to inspection and potential additional damages claims because “[w]here there are identifiable deficiencies, the…ability to show a connection to more extensive damages increases.” Id. Under these circumstances, defendants may “have additional significant burdens to show that the presence or absence of pre-event deficiencies did not contribute” to the extra damage. Id. Accordingly, both parties will need to rely upon construction defect experts to sort out claims of this nature.
When a building is a total loss, the defense’s burden may be onerous because proving “the link between the original construction and its impact on damages” is more difficult to establish. Id. In such cases, plaintiffs may depend on “prior inspections and [expert] opinions” to prove “the causal connection between deficiencies and expanded damage claims.” Id. The “Camp Fire,” which began on November 8, 2018, destroyed over 18,000 buildings, approximately 10,000 of which were residences. See, e.g., Priya Krishnakumar & Jon Schleuss, “More than 18,000 buildings burned in Northern California. Here’s what that looks like from above,” Los Angeles Times, Dec. 10, 2018. Many of the structures were completely destroyed. See, e.g., id.
In some cases, a natural disaster occurs after a claim has been filed and the dispute is in an advanced stage. See Stacy La Scala & Dave Stern, supra. For example, one group of litigants amended their pleadings after an earthquake, adding allegations “associated with the failure of the structure to further enhance [their] claims.” Id. Even where open destructive testing has been initiated, an event like the recent fires can have a devastating impact on such testing. See id. Testing sites are frequently kept open so that the defense can make its own observations, and a plaintiff may not be “financially capable of completing the repair following testing, and/or…repair to the site without significant additional work and expense is inconsistent with the claimant’s position.” Id. In a situation like this, causation issues resurface, and those matters may implicate the person conducting the testing. See id. In addition, defendants may have new claims to assert, such as that the plaintiff “or its agents (counsel/experts) failed to prevent further damage…as a result of their failure to…seal off points of potential moisture intrusion.” Id.
In the wake of the California wildfires, attorneys can expect a substantial amount of construction defect cases in the foreseeable future. See James P. Koelzer, supra. There are several considerations in such lawsuits, and the difficulty in resolving such claims is compounded depending on whether prior defect litigation had commenced, whether a building will be repaired or replaced, and various other factors. Given the sizable awards requested in such cases and the enormous and widespread damage caused by the fires, construction lawyers have their work cut out for them: retain reliable consulting and testifying experts early and utilize their authoritative evidence. By working with construction experts, particularly those with experience handling catastrophic events, litigators can be well-equipped to meet a number of evidentiary challenges.