Evolving Skylines: Litigation on the Rise – The Hidden Driver of Total Cost of Risk for Real Estate & Construction

Legal disputes in construction and real estate development are surging—and for many firms, the financial impact reaches far beyond attorneys’ fees. Litigation now touches nearly every aspect of a contractor’s or developer’s Total Cost of Risk (TCOR): the combined cost of retained losses, insurance premiums, administrative overhead, and the indirect costs that quietly accumulate with each dispute.

Why Litigation Is Surging

Several converging forces are fueling this rise:

Economic strain: Higher borrowing costs and building material prices are leading to tighter margins and increased friction between owners, lenders, and contractors.

Complex projects: Multi-party developments heighten the risk of miscommunication and scope disputes, which can lead to delays and allegations of breach of contract.

Regulatory shifts: As states enact new regulations to combat extreme weather and energy consumption, stricter codes and enforcement mechanisms are expanding exposure.

Defect and delay claims: The combination of high demand and skilled labor shortages increases the risk of problems, and owners and tenants may turn to lawsuits to recover losses. According to Risk & Insurance, construction defect claims have been increasing.

These trends were echoed in the recent Q2 2025 P/C Market Survey from the Council of Insurance Agents & Brokers, which highlights how nuclear verdicts—jury awards exceeding $10 million—are driving up liability rates and leading to reduced limits and capacity. In the second quarter of 2025, umbrella liability rates were up by an average of 11.5%, even while other lines showed rate moderation.

 

How Litigation Impacts Total Cost of Risk

Litigation doesn’t just drain legal budgets, it reshapes the entire risk
profile of a firm:

Insurance premiums and deductibles:
A history of claims drives up premiums and retentions, compounding
long-term costs.

Uninsured expenses:
Attorney’s fees, out-of-coverage settlements, and internal labor
costs erode financial stability.

Opportunity costs:
Time spent defending claims means lost productivity, strained
relationships, and delayed projects.

Reputational risk:
Legal disputes can damage credibility with lenders, investors, and
prospective clients.

 

Reducing Litigation’s Share of Your Risk Costs

Proactive strategies can mitigate litigation’s impact and reduce its hidden costs:

1. Contract precision:
Clear, consistent language reduces ambiguity and dispute potential

2. Documentation discipline:
Robust project records strengthen defense strategies and accelerate resolution.

3. Risk transfer:
Well-structured insurance programs and subcontractor agreements allocate liability appropriately.

4. Early resolution mindset:
Addressing conflicts early prevents escalation into costly litigation.

5. Holistic risk reviews:
Aligning legal, insurance, and operational teams around TCOR helps firms treat litigation as a systematic cost driver and not an isolated event.

 

Strategic Takeaway

Litigation isn’t just a legal matter. It’s a strategic risk management issue. Every dispute that escalates into court feeds directly into Total Cost of Risk, often in ways that are hard to measure until margins are squeezed. Firms that prioritize proactive risk controls and view litigation through the lens of their Total Cost of Risk will not only better withstand disputes—they’ll gain a competitive edge in an increasingly litigious market.

Propel’s Real Estate and Construction Practice Groups are helping clients rethink their Total Cost of Risk by addressing the growing impact of litigation before it affects margins, project timelines, and insurability. From contract precision and documentation discipline to risk transfer strategies and program structure, our team helps you identify vulnerabilities early and strengthen your position long before a dispute escalates. Whether it’s aligning liability limits with exposure, navigating rising deductibles, or structuring your program to withstand today’s legal climate, we’re here to help you mitigate risk and stay competitive in an increasingly litigious market.

Please feel free to contact Propel to learn more about how we can provide value to your program.