MEDIATING A COMPLEX
CONSTRUCTION DEFECT CASE
Construction Defect Litigation
George D. Calkins
June 19, 2008
Session 1
1
Introductions
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Panelists
Participants
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Mediation Experience
Construction Defect/ Claim Experience
Expectations
Scheduling and Breaks
MCLE Credit, Class Certificate and
Evaluation Forms
2
Explanation of the Goals Conduct of the Program.

Goals



Overview of Construction Defect Litigation,
Case Management and Mediation and
related construction delay/claim matters
In-depth Examination of the Factual and
Legal Problems encountered in these
matters.
Explore Strategies for the effective
handling of issues and problems
3
Explanation of the Goals and
the Conduct of the Program (Con’t.)

Process
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Interactive and Socratic (not individual problem
solving-save for post session discussions)
Will not use the team and breakout session
approach common here - Have found that utilizing
classroom participation is more enjoyable and
productive
The Pepperdine Summary Sheets
Use of the Fact Patterns and the Case
Management Orders (familiarize)
4
The Unfortunate State
of Current Construction Defect
Mediation Practice in California


Need for Reform - steps taken by the
legislature
Revalidation of the Basics of the Purpose of
the Case Management Order and the Role of
Mediation in the Construction Defect Arena
5
Definition of Terms and Acronyms
Encountered at Construction Defect Mediations

Terms
 Mediation: The resolution of a dispute
through consensus and compromise
utilizing a neutral party as a facilitator of
agreements.
 Mediator: A neutral party who assists in
the resolution of a dispute by using
facilitative and/or evaluative techniques.
6
Definition of Terms and Acronyms
Encountered at Construction Defect Mediations
(Cont’d)

Special Master: A term of art that has been
developed over time in Construction Defect
litigation and, although never formally defined
in statute or case law, is often used to describe
a mediator or a referee or both. It has evolved
into a description of the party who assists the
court in the management of a construction
defect case under a case management . order
and oversees the orderly preparation of the
case for mediation and/or trial.
7
Definition of Terms and Acronyms
Encountered at Construction Defect Mediations
(Cont’d)

Referee: A party designated by the Court
under California Code of Civil Procedure
Section 639, to handle discovery disputes
and to make recommendations to the Court
for the resolution of those disputes. Cannot
be a mediator and a referee pursuant to
California Rules of Court.
8
Definition of Terms and Acronyms
Encountered at Construction Defect Mediations
(Cont’d)

Order:
A document prepared by the parties to
a Construction Defect Case and approved by the
Court to facilitate discovery and the orderly
management of the case.
9
Definition of Terms and Acronyms
Encountered at Construction Defect Mediations
(Cont’d)

Acronyms

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AIE: Additional Insured Endorsement
CMO: Case Management Order
CORE: Cost of Repair Estimate
EIFS: External Insulation Finish System
HOA: Homeowners’ Association
MKP: Most Knowledgeable Person
PMK: Person Most Knowledgeable
10
Definition of Terms and Acronyms
Encountered at Construction Defect Mediations
(Cont’d)
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MEP: Mechanical, Electrical & Plumbing
OCIP: Owner Controlled Insurance Policy
CCIP: Contractor Controlled Insurance
Policy
RMO: Responsible Managing Owner
SIR: Self-Insured-Retention
TPA: Third Party Administrator
11
The Roles of the Mediator,
Special Master & Discovery Referee


As a Mediator, one is the Facilitator between
the Parties to a Dispute.
The goal is to facilitate an agreement between
the parties by making certain that they are
looking at the same facts, have an
understanding and appreciation of the law that
governs their dispute, and are realistically
assessing strengths and weaknesses of both
their position and that of their opponent.
12
The Roles of the Mediator,
Special Master & Discovery Referee
(Cont’d)

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
In addition to the foregoing, a Mediator needs to
Surface Hidden Agendas and Subjective, Emotional
Issues that may have a significant impact on the
positions of the parties.
The Mediator needs to guide counsel and the parties
into the appropriate frame of mind for mediation: a
willingness to compromise.
Unfortunately, in construction defect mediations the
atmosphere is not always conducive to conciliatory
behavior, and the strong adversarial tone needs to be
ameliorated.
13
The Roles of the Mediator,
Special Master & Discovery Referee
(Cont’d)


The term “Special Master’’ connotes a party that is
service in a Quasi-Judicial Capacity and who is
responsible for the administration of construction
defect case under a CMO to insure that it is
prepared for mediation or trial in an orderly fashion
under the CMO. The term is not defined in the
statutes and is only found in the code of civil
procedure section 170 relating to peremptory
challenges.
A Discovery Referee is appointed by the Court to
resolve discovery disputes. This is a quasi-judicial
role.
14
California CD Litigation & Mediation:
Past, Present and Future

The Past

Pre-1986/87 CD litigation in California was treated the
same as any other civil lawsuit and because of the size of
these cases and their complexity were generally not
resolved until very near the end of the mandatory 5 year
statute of limitations within which all civil litigation had to
be resolved after the date of filing of a complaint.
 There was no proactive case management by the
Courts
 Discovery was conducted per the California Code of
Civil Procedure
 The volume of CD litigation was relatively small
15
California CD Litigation & Mediation:
Past, Present and Future (Cont’d)



In 1986 the Civil Discovery Act of California
was revised
In 1987 the Trial Delay Reduction Act (Fast
Track) became effective
The litigants and the Parties to CD litigation
and other complex litigation matters along with
the Courts determined that these cases could
not be efficiently administer under the new
discovery Act and effectively comply with the
Fast Track requirements.
16
California CD Litigation & Mediation:
Past, Present and Future

CMOs are developed to circumvent the
provisions of the Discovery Act and to insure
that complex cases can comply with the trial
requirements of Fast Tract (18-24 months from
filing) .


CMOs were intended to provide for informal, efficient
and economical exchange of relevant evidence.
Private sector neutrals were utilized to handle the
administration of these matters, their discovery
issues and their mediation.
17
California CD Litigation & Mediation:
Past, Present and Future

The Present

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CMOs have grown from outlines to facilitate
discovery, settlement and trial to tomes purporting
to micro-manage every aspect of the case. (May
Use Civility opposition)
The mediation process has become protracted and
over-adversarial, exacting economic costs
disproportionate to the benefits received and
destroying time efficiency.
The system is no longer user-friendly
18
California CD Litigation & Mediation:
Past, Present and Future

The Future


Indicative that the system is not working the
guidelines for Fast Track trial time has been
extended for complex cases
The Concept that originally led to the use of the
CMO process needs to be recognized and the
process returned to a focus on the expeditious
and economical exchange of evidence, settlement
and trial preparation and removed from the micromanagement of all phases of the litigation
process.
19
California CD Litigation & Mediation:
Past, Present and Future



The Courts need to be more firm in the adherence
to trial dates within Fast Tract guidelines
The mediation process must be improved through
better mediator action insuring that cases are
prepared and ready to mediate and the proper use
of the parties and experts
The mediation process needs to be taken more
seriously by the parties, the attorneys, the
insurers and the experts and not treated as a pro
occurrence that has been mandated by the Courts
20
Key Components of the CMO
(Refer to Sample forms developed in S.D.)

Selection of the Mediator, the Special Master
and the Discovery Referee

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Define the roles
provide for fee and cost allocations
Provide a timely mechanism for identifying
and naming the necessary parties

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Extend time to prepare the CMO until the
necessary parties can participate
Attempt to involve the Special Master/ Mediator in
the process
21
Key Components of the CMO
(Refer to Sample forms developed in S.D.)(Cont’d)

Establish a process to expedite the filing of
requisite pleadings

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Deemed filed cross-complaints (controversy)
Notices
22
Key Components of the CMO
(Refer to Sample forms developed in S.D.)

Set up a procedure for the acquisition of the
necessary documentary information (Plans,
Specifications, Contracts, Insurance Policies,
Certificates of Additional Insured
Endorsements, Notices of Completion)


Document Depositories
Cost sharing
23
Key Components of the CMO
(Refer to Sample forms developed in S.D.)

Establish realistic time-lines for
mediation sessions and for trial
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Preliminary and final defect lists
Site Inspections
Destructive Testing
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Define Destructive Testing
Define Participation
Establish method of cost sharing
24
Key Components of the CMO
(Refer to Sample forms developed in S.D.)
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Plaintiffs preliminary and final costs of
repair
Plaintiff’s Show and Tell Presentation
Developer/Builder cost of repair
Defendant’s Defect and Cure
Presentation
Developer/ Builder demands to the
Subcontractors
25
Key Components of the CMO
(Refer to Sample forms developed in S.D.)

Mediation Schedule
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Scope of Work Mediation sessions
Insurance Day(s)
Expert mediation sessions
Peripheral Party mediations
Money mediations
26
Key Components of the CMO
(Refer to Sample forms developed in S.D.)

Exchange of Experts and Discovery
Schedule
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Stays
PMKs
Parties
Experts (order-defect--trade)
Discovery and Motion Cut-off dates
Trial
27
GENERAL DISCUSSION
28
MEDIATING A COMPLEX
CONSTRUCTION DEFECT CASE
Construction Defect Litigation
George D. Calkins
June 19, 2008
Sessions 2 & 3
29
Organizing a Construction
Defect Mediation

Determine the nature of the case and
the types of claims that are being made
and the nature of the legal issues that
are involved

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

Identify Parties and relation to Claims
Prioritize and segregate claims
Determine the status of Defendant entities
Identify legal issues-statute of limitationsstanding--etc
30
Organizing a Construction Defect
Mediation (Cont’d)

Make certain that all contract (scope)
information and insurance information
is available (Depository)


Use of Insurance Day(s) and Scope
sessions
Evaluate contract (indemnity) and
insurance issues (AIEs and coverage)
31
Organizing a Construction Defect
Mediation (Cont’d)

Attempt to identify peripheral parties at the
earliest time possible and set up a protocol to
remove them from the case as soon as
possible


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Use of dismissal without prejudice
Scope of work releases
Examine the basis for the claims

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Use of expert mediation sessions
Protocol-with or without attorneys
Keep a record of the proceedings to avoid
misunderstandings
32
Organizing a Construction Defect
Mediation (Cont’d)

Set up a protocol to insure that all things
necessary for a productive Money Mediation
have been done
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Phone Calls
Readiness conference
Certificate of readiness
Require an agenda for each mediation session
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Avoid Cattle Calls
Set up sessions by discipline or defect
Stick to the agenda/schedule
Avoid “overtime” sessions
33
Organizing a Construction Defect
Mediation (Cont’d)

Insure that all of the necessary parties
with authority are at the Money
Mediations

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Letters-phone calls
Caveat the mandatory settlement
conference-destroys the mediation
Privilege
34
It is vitally important to establish
all insurance coverage issues

Need to set up a matrix of liability and
indemnity/additional insured coverage

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Information obtained through the form
interrogatories and by defending carriers
not always accurate
Must have an accurate picture of coverage
before mediation
Use of Insurance Day mediation session
35
It is vitally important to establish
all insurance coverage issues (Cont’d)

Important to know indemnity and
additional insured information (1) AI
as important if not more so than
liability

Must keep AI on separate track from
liability mediation (conflict of interest)
36
What a Mediator should Expect from
the Attorneys for the parties in a CD
Mediation

Preparation
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Familiarity with the facts and the law and a
knowledge of the clients role in the construction of
the project
Possession of a Game Plan for the resolution of
the client’s issues
Courtesy and Professionalism
Absolute Candor
A willingness to participate in the mediation
process (voluntary v. involuntary)
37
What Counsel and the Parties should
expect from a Mediator in a CD Mediation


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General knowledge of the construction
field and the law that applies to
construction defect litigation.
General knowledge of the law of
indemnity and insurance issues peculiar
to construction defect litigation.
Familiarity with the overall facts of the
case being mediated.
38
What Counsel and the Parties should
expect from a Mediator in a CD Mediation
(Cont’d)



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A willingness to listen and withhold evaluative
positions until fully in possessions of all of the
facts,
An ability to administer a complex matter and
manage numerous issues parties.
Skills to facilitate agreements
Ingenuity of thought regarding potential
resolution of disputes
39
What Counsel and the Parties should
expect from a Mediator in a CD
Mediation (Cont’d)


Sufficient experience in the field to be
effectively evaluative when such is
required
Willing to observe the requisite
confidentiality of information received
when required
40
GENERAL DISCUSSION
41
Assignment
Review the Written Material
and to be Familiar with the Fact
Patterns
42
MEDIATING A COMPLEX
CONSTRUCTION DEFECT CASE
Construction Defect Litigation
George D. Calkins
June 20, 2008
Sessions 4 & 5
43
The Changing Face of Construction
Defect Litigation and Mediation

Mold and Personal Injury Cases and
Concrete Sulphate Issues

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“Junk” science issues-expert intensive
Need for different construct when dealing with
personal injury issues
High-rise commercial and condominium
cases
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Different approach-difficult to separate issues
Very paper intensive
44
The Changing Face of Construction Defect
Litigation and Mediation (Cont’d)

Legislative action impacting CD litigation
and mediation

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Comprehensive legislation directed at CD claims
Pending attempts to significantly modify the law
of indemnity
Use of Modified Insurance Policies


“Burning Tree”
WRAP -- OSIP - CSIP
45
What should a Mediator do to set up a
successful Construction Defect Mediation?

Review the plaintiff’s and the defendant’s
costs of repair
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Prioritize the defects by magnitude and/or cost
Perform an “Aas” evaluation of the defects
Show and Tell
Review the expert reports .

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Determine areas of agreement and disagreement
Utilize an expert mediation with or without
counsel
46
What should a Mediator do to set up
a successful Construction Defect
Mediation? (Cont’d)

Review the cast of characters


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Determine that all of the players are at the table
Determine the status of the players-viablebankrupt, etc
Determine if there is an agreement on the scopes
of work
Determine the status of indemnity agreements, if
any
Utilize a scope of work mediation
47
What should a Mediator do to set up
a successful Construction Defect
Mediation? (Cont’d)

Review the insurance. picture

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
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Determine whether all triggered policies are on
notice
Determine the nature of the existing policiesprimary-excess
Determine the coverage positions
Determine whether any of the carriers are in
receivership (stay orders)
Determine whether there are aggregate problems
Determine if the policies are “Burning Tree”
Determine the existence and status of the AIEs
Utilize an Insurance Day session
48
What should a Mediator do to set up a
successful Construction Defect
Mediation? (Cont’d)

Insure that all of the necessary parties
will be in attendance (carriers, coverage
counsel, AI carriers and principals)

Devise method of insuring attendance


Court-ordered mandatory settlement
conference (at courthouse)
Personal letter or phone call
49
What should a Mediator do to set up a
successful Construction Defect
Mediation? (Cont’d)

Organization of “Money Mediation”



Utilize priority of defects in setting
appearances (small to large-large to small)
Organize by category of defect
(architectural, structural, etc)
Set reasonable time lines for appearances
in the agenda
50
Classroom Discussion concerning the activities
and skills needed by a Mediator in a complex
CD case to maximize a successful result

What is the role of a mediator in complex CD
case?


Consensus facilitator-position evaluator
Requirement of expanded approach

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Break through resistance due to involuntary nature of
the process
Must have good administrative skills to organize and
control the process
Proactive mediation approach to achieve realistic and
objective position evaluation
Mediator is not a Judge or an enforcer
51
Classroom Discussion concerning the activities
and skills needed by a Mediator in a complex CD
case to maximize a successful result (Cont’d)

What are the skills required?

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Basis consensus building abilities
Administrative and organizational
capabilities
Ability to assimilate large quantities of
factual information quickly
General knowledge of the applicable law
Understanding of the insurance issues and
the needs of insurers
52
Classroom Discussion concerning the activities
and skills needed by a Mediator in a complex CD
case to maximize a successful result (Cont’d)

What techniques are effective to achieve a
successful result in a complex CD mediation?

Be a good listener

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Allow the parties to discuss the legal and factual issues
Create an atmosphere of openness and understanding
Remove peripheral parties quickly
Avoid being judgmental at an early stage


Remain objective
Make evaluations when appropriate
53
Classroom Discussion concerning the activities
and skills needed by a Mediator in a complex CD
case to maximize a successful result (Cont’d)


Use experts as problem solvers and not as
advocates
Look for inventive ways of resolving disputes

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Use the relationship of the parties
Resolving issues with plaintiff and reserving rights
Mary Carter agreements
Settlement and assignment of rights
Issue and scope of work releases
Work the case and keep the parties talking
Maintain a tight agenda
54
Classroom Discussion concerning the activities
and skills needed by a Mediator in a complex CD
case to maximize a successful result (Cont’d)

What are the expectations of the parties?

The “parties” have no expectations


Generally the “parties” are not around (bankruptcy etc)
The insurance companies are the driving force
 They believe that mediators are ineffective and
charge too much
 They believe that the attorneys use the process to
increase fees
 They believe that the majority of the alleged defects
are phony
 They believe most mediations are a waste of time
55
Classroom Discussion concerning the activities
and skills needed by a Mediator in a complex CD
case to maximize a successful result (Cont’d)

The attorneys and the insurers have
expectations



They expect the mediator to convince the other
side to dismiss the case or to pay what is being
asked
They expect the mediator to provide. them with
discovery otherwise would be entitled to
They expect the mediator to come up with all
the proposals to resolve the case
56
Classroom Discussion concerning the activities
and skills needed by a Mediator in a complex CD
case to maximize a successful result (Cont’d)

What is the mediator’s role vis-a-vis
the Court?

Problematic-Rojas-Foxgate-depends on
the Court
57
The Top 10 Things
a Mediator needs to do

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Help Unprepared Parties to the extent
possible
Control Aggressive Parties, Attorneys and
Experts
Identify Key Players and get them to the
settlement table
Identify Key Issues
Evaluate Role Players
58
Top 10 Things a Mediator needs
to do (Cont’d)



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Find and Use Helpful Experts
Get the Necessary Information to the
appropriate parties
Find Useful Tools and Implement them –
facts-legal-practical
Create Settlement Options and Alternatives
(carve-outs, issue released, Mary Carter,
etc.)
Close the Deal
59
MEDIATING A COMPLEX
CONSTRUCTION DEFECT CASE
Construction Defect Litigation
George D. Calkins
June 20, 2008
Sessions 6 & 7
60
Review of Fact Patterns, Identifying
Issues & Developing Mediation Plans


General Class participation-solicit comments
re: what steps required to administer the
case as the mediator and prepare for
mediation
Checklist of issues for Hypotheticals

Determine the issues involved in the case




categorize-defect-personal injury
prioritize
prepare a liability and insurance analysis
Determine if all of the necessary parties are in the
action
61
Review of Fact Patterns, Identifying
Issues & Developing Mediation Plans
(Cont’d)

Determine the status of the defendants and extent
of involvement



Set up a matrix that will identify what defendants worked
in what areas and at what times
Set up a matrix of repairs-when-where-who--what
Determine the existence of Coverage



Primary-aggregates-burning tree-self inured retentionsdeductibles-outstanding claims-policy defenses
Excess coverage
Addition Insured endorsements-determine if need two
tracks
62
Review of Fact Patterns, Identifying
Issues & Developing Mediation Plans
(Cont’d)




Determine the nature and extent of
indemnification provisions
Be certain that there is a mechanism in place for
the deposit of all necessary documents, releases,
records etc.
Need to be certain that the issue of cost-sharing
for testing and necessary examinations addressedopt-in-opt out provisions
Review site inspection and testing schedules to be
sure that they are realistic
63
Review of Fact Patterns, Identifying
Issues & Developing Mediation Plans
(Cont’d)

Review the discovery protocol to see if realistic





Full or limited stay
Written and deposition
Establish firm deadline for the submission of
plaintiff’s CORE and other demands
Same-for Defense and for the demands to the
sub-contractors
Mechanism to identify peripheral parties for early
resolution
64
Review of Fact Patterns, Identifying
Issues & Developing Mediation Plans
(Cont’d)




Determine if there are any subrogation claims that
need to be addressed
Obtain a list of subsequent purchasers (Krusi)
Review facts re: Statute of Limitations issues
Establish a mediation schedule


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Show and Tell (plaintiff and defense)
Insurance day
Expert meetings
Scope of work
Money Mediation
65
Review of Fact Patterns, Identifying
Issues & Developing Mediation Plans
(Cont’d)

Determine mediation schedule and issues to be
mediated





Multi-tier-defect/personal injury
Organization-defect-trade etc
Require agendas
Method to insure matter is ready for the money
mediations
Determine a method that will insure that the
necessary parties attend the money mediation
66
Review of Fact Patterns, Identifying
Issues & Developing Mediation Plans
(Cont’d)

Recommend a realistic trial date if the
mediation is unsuccessful
67
Common Problems Encountered in
Construction Defect Mediations - and
how to deal with them

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The missing defendant
The missing Insurer
The obstreperous party, attorney or
expert
The hard-line insurance representative
Chronically unprepared parties
Large gaps between demands and
offers
68
Mediation Techniques useful in
Construction Defect Mediations

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Working with the major defendants and the
plaintiff to obtain a consensus on issues and
costs-firm target
Keep the subcontractors in the loop and
make them a part of the process
Work toward eliminating claims
Provide suggestions for settlement and
encourage parties to be inventive
Encourage the use of dispositive motions
69
MEDIATING A COMPLEX
CONSTRUCTION DEFECT CASE
Construction Defect Litigation
George D. Calkins
June 21, 2008
Sessions 8 & 9
70
Discussion
Construction Delay/Claim matters
71
Recap:
Points and Principles
established in prior sessions
72
Developing a Construction Defect
Mediation Practice
73
Questions and Answers General Discussion
74
Preparation of Evaluation Forms
75
Distribution of Certificates
76