Developer Pays $9 Million to Settle Defect Suit

A California developer agreed last month to pay $9 million to settle a construction defect lawsuit rather than go to trail.

Dennis Sullivan, president of Philden Land Corp., said his firm agreed to settle because its insurance carrier feared that even a trial victory could prove more costly in terms of litigation expenses.

The suit, brought by the homeowners association of Pelican Point Condominiums, Avila Beach, Calif., alleged that a sinking deck on one of the 41 units was a sign of massive structural defects through out the 117-unit complex. Philden, in its own investigation of the problem found that the sinking deck was caused by a collapsed sewer pipe and that other buildings were fully compliant with local codes when built 10 years. ago.

Sullivan, a developer in California for more than 20 years, sees this lawsuit as part of the growing problem of defect litigation for developers and builders across the country. He says a sure result of these lawsuits will be to make it more difficult for developers to get insurance for planned communities.

"Construction defect lawsuits are more common today because problems from homes built during the housing boom of the 1980s are only now beginning to appear,"says in-house construction expert Bruce Kimmell of Myers, Widders, Gibson & Long LLP, a Venture, Calif., law firm. Kimmell, whose firm was retained by the Pelican Point homeowners to conduct the initial investigation and later to file suit against Philden and other subcontractors, said construction practices have improved in recent years and that the number of construction defect cases should trend down.

A recently formed committee of the NAHB is devoted to finding ways to minimize the use of faulty or defective building supplies, said the association’s director of construction and liability David Jaffe. Though the committee and the association has yet to deal directly with the problem of construction defect litigation, the committee’s formation--is a recognition on our part that all parts of the home building industry need to work together to avoid these types of problems.

--Patrick O’Toole