Home warranty and insurance companies handle disputes with intelligence – why don’t you?
If you look at the dispute resolution section of a Home Warranty Company booklet or an insurance company policy, it will almost always specify binding arbitration as the process to be utilized to handle any construction-related disputes. In addition, you will probably find language requiring the arbitrator to have construction knowledge. This dual dispute resolution procedure was selected after many years of experience by these companies with construction-related disputes. Let’s explore why the home warranty companies and insurance companies have chosen binding arbitration provided by a construction-knowledgeable arbitrator to handle their disputes.Why do you go to a doctor when you are sick or injured? You go because you want someone who knows how you are built analyzing what is wrong with you and you want someone experienced in fixing or curing your type of illness or injury. Doctors have spent many years learning about your body and will have a direct knowledge of how to repair, correct or remedy your illness. If your problem requires special knowledge beyond the understanding of the doctor, you will probably be referred to a specialist who is more experienced about your special illness. The same theory applies to construction disputes.
If your customer thinks that their house is “ill”, has defects, or may not be built the way it should be, wouldn’t you want a construction-knowledgeable person deciding if the residence is built properly and how to remedy the defects or improper construction, and to decide if they even exist at all. If the problem with the building is specialized such as an HVAC problem, shouldn’t an HVAC Specialist handle that dispute? Many construction arbitrators have been builders, remodelers, home inspectors, building inspectors and other construction-related specialists. Like a doctor knows your body, construction-experienced arbitrators know how a home should be built and how to properly cure or fix a construction defect or problem. Doctors spend several years training; construction arbitrators should also have spent several years learning about how a home is built and how to remedy any defects or deficiencies. It is only common sense that construction disputes should be handled by the most construction-knowledgeable individuals available.
Every individual has the right to a trial by jury according to the constitution of the United States. Everyone has the right to sue each other through the use of the court system. It is a constitutional right that can be modified or changed only with your approval. You have the ability to waive your rights to use the court system. You also have the right to choose an alternate method to settle disputes. The basic rule is “Two individuals can agree to anything as long as it is not contrary to law.” The law will not allow you to grab two pistols and settle your dispute with a duel to the death (even if you would like to). However, two individuals can select almost any other legal means to settle a dispute including flipping a coin, using rock-paper-scissors, drawing straws, or any other means including the use of Alternative Dispute Resolution (ADR) that includes mediation, binding mediation and binding arbitration. Over the years, binding arbitration has proven to be the best mechanism to handle construction disputes. The process is far less formal than a trial and is generally much less expensive and a lot faster than litigation if it is conducted properly. If it is not handled by a construction-knowledge arbitrator, it will probably still be better than going to court but not as effective and accurate or not as “fair and equitable” in the outcome. It is interesting to note that an arbitration award is more final than going to court as it is generally not subject to appeal, which is why you must have a construction-knowledgeable arbitrator. If you do not like the decision of an arbitrator, you can only appeal that decision on very limited procedural grounds. If you do not like the decision of a judge, who most likely will not be construction-knowledgeable, you can appeal that decision several times until you reach the Supreme Court, if necessary. Even the Supreme Court may not have the proper construction knowledge to render a fair and equitable decision and would most likely rely entirely on the presentations of the parties.
When a construction dispute goes to trial and the judge and/or jury has limited or no knowledge of the construction issues, it is usually the best and most convincing presentation that determines the winner, not necessarily who is right or wrong. Experienced trial lawyers who know how to present a convincing case usually are successful in representing their client. They hire construction specialists, at great expense to their client, to go before the judge or jury and/or jury to try to strengthen their case. If the specialist is both credible and convincing, their client certainly has a better chance of winning or becoming the prevailing party. It is not unusual to see specialists utilized during an arbitration if their expertise would help a party to prove their position.
If your dispute does go to trial, you will not have the opportunity to choose the judge who will preside over the case. That usually is determined by who the presiding judge is in the jurisdiction where the dispute is occurring. If you specify arbitration, both parties will be involved in the selection of the arbitrator or the arbitration provider. It is certainly to the advantage of both parties to be involved in the selection of the decision-maker who will render his/her award that will be final and binding on both of the parties. It is a common practice for the parties to mutually agree on the arbitration provider firm and to authorize the firm’s Senior Case Administer to select and appoint the arbitrator based on the knowledge and expertise required of that arbitrator in relation to the issues to be handled in the dispute.
Another major consideration is the time it takes to settle a dispute. According to the Rand Corporation, the average construction litigation dispute takes about 2½ years to complete including appeals. The average arbitration takes only a few months and can be expedited if the parties all agree to speed up the process. Most ADR providers have “Accelerated Arbitration Rules and Procedures” to allow for a speedy resolution to a dispute. I have seen arbitrations completed within two weeks of the dispute developing with the cooperation of both of the parties. Some disputes must be handled expeditiously or the project may end up either slowing down or even shutting down until a major dispute is settled, which will cost both parties unnecessary expenses and the mental anguish that usually accompanies disputes.
Also keep in mind the cost of the dispute resolution process. Many contractors walk away from the use of litigation and do not pursue getting their monies due because of the high costs of going to court. Arbitrations are generally far less expensive than litigation. Since attorneys always get their fees paid, they are the only guaranteed winners in a dispute. Another good thing about arbitration is that it is not necessary to use an attorney. The use of attorneys is only recommended in disputes that are complex in nature, involve legal issues and/or that involve large sums of money.
Personal emotions very often enter into the decision of a judge or jury which should not be the case with a construction dispute. The issue at hand is whether or not the construction is done properly according to the specifications of the project, manufacturer’s installation instructions, according to industry guidelines, standards or codes or other related issues. Home warranty arbitrations usually are centered on whether an item should be covered or not covered according to the specifications in the applicable warranty booklet.
As mentioned earlier, home warranty companies and insurance companies have found that it is to their advantage to use the binding arbitration process administered and conducted by a construction-knowledgeable ADR provider or arbitrator. I usually tell builders that if they are a lousy builder, they should stick with litigation to settle disputes as a good attorney canvery often help to lessen or mitigate the damages they have caused. They might even win when they are wrong if they have an experienced construction trial attorney. If you do go to court and you are right, you still may lose if the other attorney presents a more convincing case. If you are a good builder, you need to make certain that your construction contract or sales agreement specifies binding arbitration and a provider of those arbitration services who has construction-knowledgeable arbitrators on their arbitration panel. It will pay in the long run if you take the time to research and find an ADR Provider who specializes in construction disputes.
If the home warranty and insurance companies have come to realize that binding arbitration conducted by construction-knowledgeable arbitrators is the best choice to handle construction disputes, doesn’t it make sense that builders should be utilizing the same arbitration process? The intelligent choice for construction dispute resolution should be binding arbitration. There are so many things that are beyond your control during a construction project that it only makes sense to specify the correct dispute resolution process, which is under your control.
Although arbitration has been the choice of the construction industry for many years, I must mention that another form of ADR, Binding Mediation, is rapidly growing in popularity with builders and remodelers as it is even faster and less expensive than arbitration and also utilizes construction-knowledgeable ADR Specialists. Binding mediation allows the parties to first attempt to settle their dispute with the guidance and assistance of an experienced mediator prior to that mediator rendering a decision on any unresolved issues. Additional information on binding mediation can be found on the CDRS website www.constructiondisputes-cdrs.com. Also keep in mind that binding arbitration or binding mediation can be specified in Subcontractor Agreements as disputes between builders and their subcontractors are becoming more prevalent as contractors continue to rely on subs more often.
One simple sentence can protect you in your construction contract or sales agreement, for example: “If any dispute develops related to this construction contract, or any of the related documents to this contract such as, but not limited to floor plans, addendums, change orders or any other related documents, that dispute shall be settled through the use of binding arbitration (or binding mediation) as provided by, and according to the Rules and Procedures of Construction Dispute Resolution Services, LLC.” Many dispute resolution sections of a contract provide greater detail on the dispute resolution process, but, that one sentence is really all that you need as long as it states that the dispute will be handled according to a specified provider’s rules and procedures.
There are some insurance companies who offer discounted premiums if the insured builder specifies binding arbitration in their construction contracts. Those smart insurance companies realize that they will most likely see far smaller settlements and more just and accurate awards related to construction insurance claims from those contractors who specify ADR provided by a construction-knowledgeable arbitrator. Basically it comes down to the bottom line: If you want to protect and retain your profits, you need to specify the most efficient, expeditious and inexpensive dispute resolution process to handle your construction disputes that will render the most “fair and equitable” decisions based on the knowledge of the ADR provider and not just on the best and most convincing presentation. This isn’t rocket science; it’s just good common sense.
For further information on construction disputes including several examples of the contract language to use to specify binding arbitration or binding mediation in your construction or sales contracts or subcontractor agreements, please visit the website of Construction Dispute Resolution Services, LLC at www.constructiondisputes-cdrs.com.