Real Estate Developers

Real estate developers and construction companies are another group with potentially significant personal liability. When a project is developed and sold, there may be liability to purchasers and subsequent purchasers for many years to come. Damages caused by latent (unseen) construction defects may be either uninsurable or may surface only after a policy has expired. As an example, California law states that a builder remains legally responsible for latent defects for up to ten years after the completion of the building. With potential liability having a "tail" of up to ten years, no builder is immune from a crippling lawsuit which may have been caused by the faulty workmanship of a subcontractor who has long since disappeared.

During periods when real estate prices are declining, lawsuits against developers and general contractors will be inevitable. Homeowners who lose a significant amount of equity due to depressed market conditions often attempt to recover their investment by filing lawsuits, alleging construction defects against everyone involved in the project. That includes the geologists, engineers, architects, and the building tradespeople as well as the developer. These types of cases are enormously costly and time consuming to defend, and unless there is an insurance company involved to pay the costs, it is difficult for all but the largest companies to survive such lawsuits.

Another problem faced by developers is that each project requires a significant amount of cash, most of which is borrowed from a lending institution. The developer puts up the land as security and must also sign a personal guarantee for the entire amount. If the project is not successful, the developer must repay the loan out of his own pocket. As a result, one bad deal can wipe out many years of hard work.

Because of the high degree of lawsuit risk from these activities, the owners of these businesses are placing their entire net worth in jeopardy every single day. Each time a doctor performs surgery, he is literally betting the house on a successful outcome. Anytime something goes wrong, someone will sue. Every patient, client, or customer is a potential legal adversary.

In addition to risks faced by professionals and business owners, it is important to understand the particular types of liabilities that arise out of various commercial and personal relationships.