2019 marked the 26th anniversary of West Coast Casualty’s Construction Defect Seminar
(WCCCDS), which took place in May at the Disneyland Hotel. As we have done every year
since our founding a decade ago, Xpera was a sponsor of the event and many of our key team members were on hand to meet new people; catch up with our old friends, clients and colleagues; and learn about the latest trends impacting problem resolution within the built environment.
One might think that you are asking for conflict by bringing together a bunch of people who are often opposed to each other in highly contentious disputes, including attorneys, insurance professionals, construction experts, judges and mediators. The truth is very different, however. As West Coast Casualty’s own Dave Stern likes to say, “The construction defect industry is the biggest people business outside of retail.” We celebrate the successes of others, learn from the mistakes of some, mourn the loss of those who have passed on, and reflect on how our work is evolving as a result of legal, regulatory and other impacts to the building industry.
I had a chance to sit in on a couple of sessions and although I was too busy to live-blog the event as I have done in previous years, I did document some discussion highlights that I wanted to share with all of you.
Disaster in the Making — Litigation Impacts from Fire, Flood and Hurricanes
Matt Kovacs, Adrienne Cohen, Stephen Henning and Janne Rogers participated in a lively panel discussion about how property loss claims from natural disasters intersect with the world of construction defects. According to the panelists, the devastating impact of natural disasters is being exacerbated/accelerated by global climate change.
You might be wondering how defective construction relates to natural disasters, but the answer is simple: There is not enough insurance coverage out there to compensate victims of natural disasters. Therefore, creative plaintiff attorneys are looking for other avenues to fund the next generation of claims.
When you combine a sympathetic jury pool (influenced by widespread media coverage) with a lack of resources for recovery, it’s easy to see how the biggest emerging trend in 2019 is litigation related to climate change-driven natural disasters, the panel stated.
The question then becomes: Was a property loss caused by an “act of God” or was it caused, at least in part, or exacerbated by design or construction defects?
Some very intriguing — and frightening — case studies were presented:
- Following Hurricane Andrew in 1992, an argument was made that even if a builder meets the minimum standards required by building code, consideration should be given to potential natural disasters.
- Smoke damage from fires has led to toxic tort claims for owners and residents of homes that weren’t even touched by fire.
- One insurer has already become insolvent following the Paradise Fire, and Pacific Gas & Electric, the utility provider named at fault in a number of highly visible property losses, is in Chapter 11 bankruptcy.
- An attorney discussed the difficulty in resolving a claim following the collapse of a concert stage at the Indiana State Fair as a result of winds that exceeded what was reasonably anticipated by the applicable codes. “Sometimes horrible things happen even when everyone does everything correctly.”
- Lack of sufficient transportation capacity in and out of communities during a disaster can lead to loss of life. We are now seeing an erosion of immunity to government planning officials as a result.
The bottom line is sobering: Claims will likely only increase in their cost and complexity in the years ahead and we can blame lack of adequate insurance coverage, increased natural disasters, and high visibility resulting from 24/7 news coverage and social media amplification.
When Your Smart Home Isn’t So Smart — The Perils of Automated and Smart Properties
Another intriguing panel discussion at this year’s event included Brian Kahn, Andrew Morgan, Stephen Weber, Michael Busto, Jim Cole and Thomas Plunkett, focusing on the risks associated with the dramatic increase in various “smart home” technologies.
As one panelist stated, the fictional home of the Jetsons is finally becoming a reality. The estimated 22 million smart homes in place at the end of 2018 are projected to grow to over 35 million by 2021. What makes a home smart? It may simply be the presence of an Alexa-type device, or internet-connected thermostats like Nest, app-connected lighting products, or keyless door locks that can be activated electronically or even remotely.
What’s the big deal? As more millennials become homeowners, technology-enabled home conveniences are increasingly becoming standard, and less of a gimmick to attract sales. Many major builders are responding by including off-the-shelf smart home devices in their projects. Others, such as KB Home, are developing an infrastructure to house and connect smart home technologies (see PCBC 2019 recap for more).
Those of us experienced in IT know all too well that connecting devices — whether it’s a computer, phone or doorknob — to the internet exposes them to vulnerabilities to malicious attack.
Some examples of the risks associated with smart home and Internet of Things (IoT) devices in the built environment:
- Just as a home’s network allows multiple devices to connect to one another to share information, it can also be used to share malware and spread infection. All it takes is one device getting hacked to expose the other devices on the network to infection.
- In one study, 58% of Android devices were found to be vulnerable to known threats.
- Smart door locks, such as those being installed at hotels, apartments and other locations with increasing frequency, can be hacked and compromised from up to a quarter-mile away.
- A security conference three years ago demonstrated a hack to smart thermostats that could result in fire or other risks to occupants.
One recent study found that 30% of home networks had at least one device that was vulnerable and subsequently hacked.
The risk is clearly there, so what about liability? On the one hand, it could be argued that smart home tech is no different than any other manufactured appliance. That would likely mean such devices would fall under the same requirements and regulations as other appliances for right-to-repair laws now found in multiple states. Thus, manufacturer warranty would likely take precedence, unless a failure resulted in damage to other components. On the other hand, a creative plaintiff attorney might be able to convince a sympathetic jury that a builder should have reasonably anticipated that an Alexa-enabled device connected to the HVAC system or front door could become hacked, and thus causing harm to the owner or occupant.
The real issue at hand is the lack of established standards of care. One might argue that a builder is required to provide owners with proper care and use instruction, which is already required under California’s SB800, for example. But is that enough?
The panelists suggested that in addition to all the normal liability coverage, including commercial general liability and errors and omissions, builders and other professionals may want to consider additional coverage to address cyber risk. Proactive measures could include loss mitigation practices like anti-virus protection, password management and changing default passwords, phishing and white hat intrusion detection. Bottom line: keep software and hardware up to date, be vigilant and stay informed.
26 Years and Still Going Strong
As always, the quality of educational content and attendees at West Coast Casualty was excellent. Dave Stern and the rest of the WCC team once again succeeded in assembling the best gathering of professionals working in the crazy and dynamic world of construction defect litigation. See you all next year.