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Arbitration Of Construction Defect Claims

July 8, 2010

This article was originally published in NASP’s Subrogator Spring/Summer 2010 publication. © 2010.  Reprinted by permission.

Arbitration Forums, Inc. and Construction Defects Claim Managers Associations (CDCMA) have begun a new joint project to develop a special arbitration forum related to certain construction defect claims. This joint project is intended to develop awareness that certain types of construction defect claims can be arbitrated through arbitration forums.

These disputes can be brought in the Special Arbitration Forum for Arbitration Forums, which is intended to resolve disputes between member insurers/self insurers related to claims involving concurrent coverage, time on risk, and additional insured issues related to third party liability construction defect claims. While arbitration of these types of construction defect claims has been available in the Special Arbitration Forum for some time, it has been underutilized by member insurers/self insurers of Arbitration Forums. The joint project with CDCMA is intended to increase member awareness of the availability of arbitration for these types of disputes. Arbitration Forums provides that a Construction Defect Dispute is “[a] dispute among one or more casualty insurance companies or entities that are self insurers for a construction defect claim involving completed operations resulting in damages to property for which one or more insurers or self insurers provided defense and/or indemnity for the construction defect claim and allege that one or more other insurers or self insurers provided concurrent coverage for the same construction defect claim. “[1] As with any Special Arbitration

Forums claim, any claim brought within Arbitration Forums must comply with the jurisdictional limits provided under Arbitration Forums’ rules. These rules provide that for “completed (paid) constructive defect claims there is a combined award limit for indemnity and expense of $250,000.00 per responding company’s insured per project.”[2] Additionally, as it pertains to the jurisdictional limits, “all claimants of a construction project, regardless of the manner or number of underlying claims, suits or ‘companion claims,’ shall be considered as one claim for hearing and contribution limits.”[3]

As part of the joint project with CDCMA, Arbitration Forums has developed a new certification program for its construction defect arbitrators to ensure that the arbitrat0fs are knowledgeable of general liability and construction defect claims, general insurance coverage, and applicable case law, as well as possess a working knowledge of construction practices and nomenclature. According to W Russ Smith, President and Chief Executive Officer for Arbitration Forums, Inc., “If carriers resolve the underlying case and agree to arbitrate their differences, rather than litigate, the time, effort and expense associated with these cases could be reduced significantly.”

[1] Reference Guide to Arbitration Forums’ Agreements and Rules, p. 5—6, Arbitration Forums, Inc., 2009

[2] Id. at p. 5

[3] Id.