Source: http://www.businessinsurance.com, November 20, 2013
By: Matt Dunning
Although most contractors acknowledge that maintaining thorough contractual and operation records can greatly reduce the severity of construction defect claims, insurance experts said Wednesday that lack of documentation among their clients remains a pervasive issue.
In 2012, in four out of five construction defect disputes involving Hartford, Conn.-based Travelers Cos. Inc.’s construction clients nationwide, vital documents and photos detailing change orders, inspections and approvals of onsite work were unavailable, said Robert Kreuzer, Travelers’ second vice president of construction risk control, during a presentation at the International Risk Management Institute Inc.’s 33rd annual Construction Risk Conference in San Diego.
“Whenever we have an allegation of construction defect on a project that was completed some time ago, we typically struggle to find the documents that we need to understand what exactly happened and why it happened,” Mr. Kreuzer said. “Eighty percent of the time, the documents are either not there, or they’re inaccurate, or we can’t find them. Sometimes it’s as simple as one piece of paper, but it comes down to one piece of paper filed somewhere in one of dozens of boxes, so it becomes quite a daunting task.”
On average, Travelers’ experts said construction defect claims — claims made against a general or specialty contractor alleging the failure of a building component or system based on defective design specifications or building materials, faulty installation or improper maintenance of a project post-completion — take an average of seven years from the initial allegation for contractors to notify their insurers of a defect claim, and many more to litigate in cases where documentation is either incomplete or missing.
“Lack of documentation is a common theme in the litigation process as well,” said Michael Koppang, Hartford-based director of construction claims at Travelers. “When you wait to collect evidence of a possible defect, and then someone on-site goes and tries to fix it, you lose the opportunity to document the as-built conditions.”
“If you can do those things ahead of time, you have a better chance of getting yourself out of the dispute, and avoiding that 11-year headache,” he added. In order to improve the quality and maintenance of their construction records, Mr. Kreuzer said many contractors have begun assembling in-house or third-party assessment teams to review and organize their contracts, project designs and material orders.
“We’ve also heard about lot of contractors doing things during construction operations, like conducting jobsite walkthroughs, change order and RFI reviews, and going back over their project diaries to look at any onsite issues or problems that came up on a given day and how those issues were resolved,” Mr. Kreuzer said.