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Creative Claims

Timothy R. Hughes, Esq.
Hughes & Associates, P.L.L.C.

Early in my practice, the overwhelming majority of cases were pure breach of contract cases. In some instances, negligence counts were added as were breach of warranty counts. Nevertheless, most construction litigation properly focused on contracts, contract terms and contract damages.

Over the last several years, the "simple" world of construction contract litigation appears more and more muddied by creative new claims. Some claims are purely statutory. Others are common law claims sounding in misrepresentation. These claims often are poorly defined by statute. Most importantly, many of these more creative claims dramatically increase potential damages or permit the award of attorney's fees.

Fraud and Constructive Fraud/Negligence Misrepresentation

Fraud, constructive fraud and negligent misrepresentation claims are becoming a staple in construction litigation. A plaintiff suing for fraud generally must demonstrate that a party made an intentional misrepresentation that was reasonably relied upon, and that the reliance caused damage. A constructive fraud or negligent misrepresentation claim involves unintentional misrepresentations.

The damages available for these claims depend on your state's common law. Many states permit the award of punitive damages for actual fraud. In addition, many states permit recovery of attorney's fees in fraud cases.

Deceptive Advertising

Reacting to consumer unhappiness over goods and services being misrepresented, many states have enacted legislation to combat these practices. In concert, many states now permit civil cases to be filed for false or deceptive advertising.

Unlike common law fraud claims, deceptive advertising claims tend to be creatures of statute. Unless there has been a significant number of appellate decisions construing the applicable statute, the nature of the claim may be relatively undefined. It should be noted that many of these statutes are passed with broad, sweeping language but very little direction to the courts defining the prohibited conduct. This situation presents a tremendous amount of latitude to a jury and thus a great deal of risk to a defendant.

As with fraud cases, the available damages will vary from state to state. Many states permit not only actual damages, but possibly attorney's fee recovery and additional penalties.

Consumer Protection Acts, Unfair Trade Practices and Civil Conspiracy

Like deceptive advertising, many states have enacted legislation against unfair consumer practices in general. Similarly, many states have passed legislation against unfair commercial practices. Finally, common law or statutory claims for civil conspiracy may exist.

As with the other statutory claims, these claims tend to permit recovery of attorney's fees and damages. Under Virginia law, the Consumer Protection Act and Civil Conspiracy statutes permit recovery of triple damages for willful violations. Thus, even on smaller projects, bad construction cases can quickly become crippling if you are exposed to statutory penalties and attorney's fees.

A Note on Insurance Coverage

You may be aware of potential insurance coverage issues relating to your work. Indeed, the topic of coverage litigation on construction projects could fill an entire book, let alone a short column. Suffice it to say, construction projects often present difficult and complex insurance coverage issues.

These issues become further complicated with regard to many or all of the claims discussed above. Many of these creative claims we are now seeing involve claims of misrepresentation. Misrepresentation-based claims raise a potential argument that you have no insurance coverage because they are intentional torts. Thus, these claims not only dramatically increase the ante in terms of potential damages, they also complicate the coverage situation of a case and may present claims of uncovered risks. These factors further dictate that you need to know the potential claims in your area as well as their impact on insurance coverage and defense responsibilities for your insurance carrier.

Minimizing Risk

With the possibility of attorney's fee recovery, punitive damages or even triple damages with respect to some of these creative claims, it is clear that you need to be aware of the specific potential claims in your area. Next, you must have clear and accurate documentation and communication to protect against misrepresentation-style claims.

There is no panacea or guaranteed inoculation against a suit being filed, let alone how a trial court will react when facing claims that remain poorly defined by the law. The best protection against such risk is clear documentation, training and communication on your projects. A consistent chain of documentation reduces the risk of suit through clear communication and dramatically increases your chance of prevailing in front of a judge or jury if you do face the creative new claims being raised in construction cases.