Red Giant Settlements - Part 1

Don Thompson, Chair of Bradley & Riley PC's Construction Law Practice Group recently testified as an expert witness on behalf of the purchaser of a large apartment complex in West Des Moines, IA. The purchaser bought the complex before the owner-developer had completed the construction of the project. The purchase price was approximately $21 million. The purchaser planned to sell the units as condos rather than operating the property as a rental complex.

After purchasing the complex, the purchaser discovered significant and widespread construction defects that led to water intrusion and other problems. The purchaser sued the owner-developer and the general contractor (a wholly owned subsidiary of the owner-developer) and sought damages totaling $13,664,638 which included money spent on temporary repairs, the estimated cost of future repairs, losses from rental activities, and lost profits on sales of condo units.

The defendants' primary insurer ($1 million in coverage) hired defense counsel and the secondary insurer ($20 million in coverage) sat on the sideline until late in the litigation process. The secondary insurer filed a lawsuit seeking a determination of the insurance coverage issues while the defective construction suit was still pending. Shortly before trial of the defective construction lawsuit, the parties attempted to settle at mediation. While unsuccessful, all parties other than the secondary insurer agreed to a Red Giant settlement soon after the mediation that involved the payment of $1 million by the primary insurer, and a smaller payment by some of the individuals involved with the owner-developer. The defendants had demanded that the secondary insurer settle the suit within policy limits, but the secondary insurer did not agree to pay an amount necessary to settle the case. As permitted by the Iowa Supreme Court in the Red Giant case, the defendants agreed to a consent judgment in favor of the purchaser in the amount of $15.6 million and the purchaser agreed to seek payment from the secondary insurer after receiving an assignment of the owner-developer's claims against its secondary insurer.

Don Thompson testified as one two expert witnesses for the purchaser in the trial against the secondary insurer in a trial in March 2014 in Des Moines. Don testified that a reasonable and prudent person in the position of the insureds (the owner-developer and the general contractor) would have paid as much as $15.6 million to settle the first lawsuit considering the facts bearing on the liability of the insureds, the damage aspects of the purchaser's claims, and the risks of going to trial. The expert witness on the other side of the case testified that that a reasonable and prudent person in the position of the insureds would not have paid more than $2.5 million to settle the first lawsuit.

The case was tried to a jury over a two-week period in March 2013. The jury deliberated only 44 minutes and agreed that the $15.6 million consent judgment was reasonable, resulting in a verdict for the purchaser. In a later blog post, Don will explain how the Red Giant process works when a company is sued and its insurance company refuses to settle the case within policy limits.

For more information regarding this case or other aspects of construction litigation , please contact Don Thompson.