Construction Defect Product Liability
Handling Building Products Class Action Suits
William Nebeker and Amel Esposito
Summer 2012
Safe and professional building products are a necessity for construction projects of all sizes. A failure or a defect in a building product can lead to extensive financial damage and hazardous situations. Recently, there has been an increased trend toward class action claims in housing and construction projects regarding the products incorporated into the buildings themselves. Plaintiffs’ attorneys are becoming focused on single-defect product liability claims, ranging from Chinese drywall, to various types of siding, to Swiggle Seal failures in windows, to yellow brass plumbing fixtures.
The effects from the resulting class action claims reach far beyond the builder and often into the realm of national and even international manufacturers. These claims can stretch across multiple litigation districts and venues nationally and potentially internationally, which are often very costly to defend.
Implicated Parties
Although installation issues that can affect a builder's indemnity claims against subcontractors often occur in the run-of-the-mill construction defect claim, these newer types of claims implicate fewer actual subcontractors but involve more parties in the manufacturing and distribution process. In a product class claim and as is typical with a generic construction defect claim, the unhappy homeowner sues the builder for breach of warranty (either under the contract or common law, or both). However, a product liability class claim can also involve all in the chain of distribution, including the manufacturer, a supplier and a subcontractor.
Reach of the U.S. Court System
Although a state court construction claim against a local builder is usually confined to single state court, a lawsuit seeking to certify a nationwide product class can be based on the Class Action Fairness Act (CAFA) and is typically filed in federal court. Complete diversity is not required. In the event the original complaint does not name the product manufacturer as a defendant, the third-party complaint should. Jurisdiction over a foreign manufacturer is based on the manufacturer's contacts with the forum state and/or the United States. Most state product liability statutes cover a manufacturer's duty to indemnify others in the stream of commerce and can provide a basis for indemnity claims.
Class action defenses are typically aimed at defeating commonality and typicality. For example, defendants argue that class action certification is not an effective tool because the court will have to make too many factual determinations in order to determine who is in the class, or that class certification should be denied because determination of plaintiffs’ damages (including the nature and extent of damages and the actual cost of repairs) will require individualized inquiries.
Other arguments include: that individualized inquiries will be required to determine whether installation contributed to or was the cause of any damage; that individual damage at each unit/home will vary; that individualized inquiry will be required to determine whether homeowner maintenance or misuse, contributed to or was the cause of any damage. Of course, a crafty plaintiff's attorney can offer to bifurcate damages from liability, so not all the defenses to class certification are a guarantee against certification.
Investigation Protocol
Gathering critical information at the onset of the claim process is key to efficient resolution of a product class action claim. Key documents include the purchase contract, subcontract agreements, plans and specifications, and all product manufacturer information.
In addition to giving notice of the claim to the manufacturer and their insurer, as well as to distributors and suppliers within the supply chain, litigation hold letters should be sent to preserve various documents and communication related to the product at issue. With the increased use of electronic discovery, it is important to include electronic data within the litigation hold letter.
Insurance Issues
Various exclusions may affect insurance coverage available to cover product claims, including products completed operations exclusions, pollutant exclusions and mold exclusions. Self-insured retention amounts and deductibles are also a factor to be considered in defending and settling these types of claims, as well as in retention of counsel and experts.
Experts
Manufacturers may have their own in-house experts. From a defense standpoint, experts from a particular field of construction (e.g., window manufacture and installation, siding installation, and plumbing installation), as well as from fields that relate to the product (e.g., metallurgy and water chemistry related to plumbing systems and yellow brass claims) are necessary to defend a product liability construction defect claim, as are experts from the fields of construction cost, product quality and statistics.
Selection of Counsel
Selection of counsel experienced not only with construction defect litigation, but also class action defense and electronic discovery, at both the state and federal level, is critical. Additionally, given the insurance coverage issues that can come into play, counsel experienced in insurance coverage may be necessary.