Abraham Lincoln once said, “Give me six hours to chop down a tree and I will spend the first four sharpening the ax.” When the housing market is strong, it is hard to find time to do anything other than acquire lots; build, market and sell homes; and service warranty calls. With the softening of the market, my hope is that builders can spend time sharpening their risk management axes.
I recommend meeting with a construction law and litigation lawyer to review the purchase and sale agreements used with homeowners and subcontracts. Ensure they comply with ever-changing Colorado law, remain enforceable, and provide as much protection from litigation as possible. I would also consider using, in conjunction with your insurance agent’s advice, a Subcontractor Insurance Compliance Statement. To the extent that you are relying on your subcontractors’ insurance to protect you from a construction defect claim, you want to ensure that your subcontractors have proper coverage. You don’t want to find out too late that the subcontractor that caused the defect has a residential construction exclusion on its policy.
I also recommend spending time with your insurance agent to ensure your policies do not contain exclusions that would nullify needed coverage. I would also ensure your subcontracts comply with any subcontractor warranty endorsements on your policies. Finally, I would look for the pitfalls associated with anti-concurrent causation clauses and expansive soils sub limits to get the protection you need.
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Finally, I recommend spending time with architects and engineers, especially if you typically build from a “builder’s set” of plans, to come up with a standard set of details that can be used over and over. Once you and your subcontractors learn to build the same way every time, that should improve the overall quality of construction and leave less to the imagination of the installer in the field. Finally, I would work with an architect or engineer with experience as an expert witness to develop a quality assurance/quality control program that aligns inspections with those things for which builders are being sued.
Of course, there is always the beach, but the beach won’t protect you from suit. The market will come back, and when it does, so will the risk of construction defect claims. Use this time wisely to sharpen your risk management ax and be prepared for the rebound.