Category Archives: Construction Defects

RELEASE LANGUAGE EXTENDED TO SUCCESSOR ENTITY BUT ONLY COVERED “KNOWN” CLAIMS

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A recent case contains valuable analysis that has impact on whether a “successor” entity will be bound by a settlement agreement it was not a direct party to.  This case contains arguments for contractors that can be raised in a number of different contexts if it is sued by a successor or related entity.  

 

The same case discusses the difference between releasing a party for “known” claims without releasing the same party for “unknown” claims.  This is an important distinction because unknown claims refer to latent defects so a release that only releases a party for known claims is not releasing that party for latent defects.

 

 

In MBlock Investors, LLC v. Bovis Lend Lease, Inc., 44 Fla. L. Weekly D1432d (Fla. 3d DCA 2019), an owner hired a contractor to construct a project.  At completion, the owner transferred the project to an affiliated entity (collectively, the “Owner”).  The contractor sued the Owner for unpaid work, the Owner claimed construction defects with the work, and a settlement was entered into that released the contractor for KNOWN claims.  Thereafter, the Owner defaulted on the construction loan and agreed to convey the property through a deed in lieu of foreclosure to an entity created by the lender (the “Lender Entity”). 

 

The Lender Entity sued the contractor for construction defects – in negligence (negligent construction) and a violation of Florida’s building code.   The contractor argued that such claims should be barred by its settlement agreement with the Owner.  There were two driving issues:

 

First, did the settlement agreement with the Owner extend to the Lender Entity because the Lender Entity was a successor entity to the Owner?  

 

Second, even if the Lender Entity was a successor entity to the Owner, were the construction defects latent defects because the settlement agreement only provided a release of KNOWN (or patent) defects?

 

As to the first issue, the appellate court held that the Lender Entity was a successor entity to the Owner. 

 

[I]t is rather clear that [Lender Entity] is in fact, [Owner’s] ‘successor’ for purposes of the settlement agreement with [contractor] because [Lender Entity] took over the Property and all of [Owner’s] rights with regard to the Property.  Thus, [Lender Entity] clearly met the privity requirement for the application of res judicata in this case: it has a mutual or successive relationship to the same right that [Owner] had when it settled with [contractor]: a reduction in the amount owed to [contractor] for its services in exchange for releasing [contractor] from any claims of construction defects as provided for in the [settlement agreement].

 

As to the second issue, and really the driving issue whether or not the Lender Entity was a successor, was whether the release even protected the contractor from the types of construction defect claims sought.   This is a question of fact because the settlement agreement only included a release of “known” claims and did NOT release the contractor for “unknown” claims, i.e., latent defects.    Hence, the Lender Entity will establish such claims were unknown or could not reasonably have been discovered at the time of the settlement (a latent defect).  The contractor will try to argue otherwise creating an issue of fact as to whether the settlement agreement released the contractor for the construction defects the Lender Entity is asserting.

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

SERVING THE 558 NOTICE OF CONSTRUCTION DEFECT LETTER IN LIGHT OF THE STATUTE OF REPOSE

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shutterstock_683852965Florida Statutes Chapter 558 requires a Notice of Construction Defect letter (“558 Notice”) to be served before a construction defect lawsuit is commenced.  This is a statutory requirement unless contractually waived for a completed project when latent defects or post-completion construction or design defects are pursued.  

 

A recent Florida case held that this statutory requirement is NOT intended to bar a lawsuit based on Florida’s ten-year statute of repose for construction defects IF the 558 Notice is timely served within the statute of repose period.  After the expiration of the statute of repose period, a construction defect lawsuit can no longer be commenced.  

 

In Gindel v. Centex Homes, 43 Fla. L. Weekly D2112d (Fla. 4th DCA 2018), homeowners took possession of townhomes on March 31, 2004.  The homeowners discovered construction defects and on February 6, 2014 provided the 558 Notice to the homebuilder.  This notice was served before the expiration of the ten-year statute of repose period.  The homebuilder notified the homeowners it would not cure the defect and the homeowners initiated a construction defect lawsuit on May 2, 2014, more than ten years from when they took possession of their townhomes, and outside of the statute of repose period. 

 

The issue was the application of Florida’s ten-year statute of repose in Florida Statute 95.11(3)(c). 

 

The homeowners argued that its action commenced upon serving the statutorily required 558 Notice so that its lawsuit was timely filed.

 

The homebuilder argued that the homeowners commenced their action by filing the lawsuit after the ten-year statute of repose, irrespective of when the 558 Notice was served, meaning the construction defect lawsuit should be barred.  The trial court agreed with this argument.

 

On appeal, however, the appellate court agreed with the homeowners that the presuit notice requirements called for in Florida Statutes Chapter 558 constitute an action for purposes of the statute of repose.  In other words, by the homeowners serving the 558 Notice within the ten-year statute of repose period, the homeowners timely commenced their construction defect lawsuit.  To hold otherwise would be to view Florida Statute Chapter 558 as a device to potentially bar claims when the required 558 Notice was timely served.  This position makes sense considering a claimant cannot file a construction defect lawsuit without complying with Chapter 558.  See Fla.Stat. s. 558.003.

 

When it is coming close to the ten-year statute of repose (or statute of limitations) deadline, the safer approach is to file the lawsuit and move to stay or abate the lawsuit pending compliance with the Florida Statues Chapter 558.  This way this issue is fully avoided by the lawsuit already being initiated. This approach is also supported in Chapter 558 by stating the action shall be stayed pending compliance with the requirements of the statute.  See Fla.Stat. s. 558.003.  

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

SLAVIN DOCTRINE AND DEFENSE FROM PATENT DEFECTS

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shutterstock_1094947985The Slavin doctrine is an affirmative defense primarily geared to the personal injury context designed to protect contractors from third-party negligence-type claims when an owner accepts a patent defect.  

 

The Slavin doctrine protects contractors from liability for injuries to third parties by presuming that the owner has made a “reasonably careful inspection” of the contractor’s work prior to accepting it as completed; if the owner accepts the contractor’s work as complete and an alleged defect is patent, then the owner “accepts the defects and the negligence that caused them as his own,” and the contractor will no longer be liable for the patent defect.

 

“[T]he test for patency is not whether or not the condition was obvious to the owner, but whether or not the dangerousness of the condition was obvious had the owner exercised reasonable care.” While in most cases, the patency or latency of a dangerous condition is a question of fact for the jury, thereby precluding summary judgment, there are exceptions where the undisputed material facts establish that if there was a defect, then that defect would have been patent.

Valiente v. R.J. Behar & Company, Inc., 2018 WL 2708712, *2 (Fla. 3d DCA 2018) (internal quotations omitted).

 

Valiente is a recent decision where the trial court, as affirmed by the appellate court, ruled in favor of contractors (and an engineer) as to the applicability of the Slavin doctrine in a wrongful death action.  In this case, the decedent was killed in 2008 when his motorcycle ran into another vehicle at an intersection.  The estate claimed that the shrubs in the swale create a dangerous condition by blocking the view of motorists and causing the accident.  The shrubs were planted in 2005 as part of a city’s roadway project.   The estate sued the city, the designer, the general contractor, and the nursery hired by the city to provide the landscaping for the roadway project.

 

The designer, contractor, and nursery moved for summary judgment on their Slavin doctrine affirmative defense.  They all claimed they should be relieved of liability for the accident (and, thus, the death) because the work was long completed, the City accepted the work, and the alleged defect dealing with the shrubs blocking passing motorist’s views was patent.  The evidence revealed that when the shrubs were originally planted they were 2 feet taller than the maximum height required.  

 

For purposes of patency under the Slavin doctrine, the relevant question is: if the plantings [shubs] created a visual obstruction (the alleged dangerous condition), was that dangerous condition latent or patent? And, to reiterate, the test for patency, is not what the City knew, but rather, what the City could have discovered [the dangerous condition] had the City performed a reasonably careful inspection.  

Valiente, 2018 WL at *2.

 

Here, because the it was ruled that the city accepted a patent defect, the Court granted summary judgment in favor of the defendants on their Slavin doctrine defense.  

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

SETTLING WITH SOME, BUT NOT ALL, OF THE DEFENDANTS IN A CONSTRUCTION DEFECT CASE

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shutterstock_510239200Construction defect lawsuits can be complex multi-party disputes, especially when the plaintiff is doing what is necessary to maximize recovery.  This means the plaintiff may sue multiple defendants associated with the defects and damage.  For example, the owner (e.g., plaintiff) may sue the contractor, subcontractors, design professionals, etc. due to the magnitude of the damages.  In many instances, the plaintiff is suing multiple defendants for overlapping damages.  The law prohibits a plaintiff from double-recovering for the same damages prohibiting the windfall of a plaintiff recovering twice for the same damages.  Perhaps this sentiment is straight common sense, but this sentiment is a very important consideration when it comes to settling with one or more of the defendants, while potentially trying the construction defect case as to remaining defendants.  Analysis and strategy is involved when settling with some but not all of the defendants in a construction defect case (and, really, for any type of case).  Time must be devoted to crafting specific language in the settlement agreements to deal with this issue. Otherwise, the settlement(s) could be set-off from the damage awarded against the remaining defendants.

 

The recent decision in Addison Construction Corp. v. Vecellio, 43 Fla.L.Weekly D625(a) (Fla. 4th DCA 2018) details the analysis and strategy required when settling with some but not all of the defendants in a construction defect case, and the concern associated with a trial court setting-off the settlement amount from the damage awarded against the remaining defendants.   

 

This dispute involved the sale of a high-end residential home where the buyer of the home sued numerous parties due to construction defects—the sellers, the developer, the general contractor, and subcontractors.   Before trial, the buyer settled the dispute with certain subcontractors for a sum total of $2,725,000.  The buyer then proceeded to trial with remaining defendants.  Prior to trial, the buyer filed a motion in limine to exclude the remaining defendants from mentioning these subcontractor settlements.  The trial court granted the motion.  After trial, the plaintiff was awarded approximately $3.5 Million in damages associated with the construction defects.  However, smartly, remaining defendants moved the trial court to set-off the sum total of the subcontractor settlements from the approximate $3.5 Million to reduce the overall principal judgment amount.  The trial court granted the motion in most respects reducing the judgment amount finding that that the settlements covered the same damage.  Remember, a party cannot recover double damages for the same issue.

 

An appellate issue dealt with this set-off of the subcontractor settlements from the total judgment awarded against the remaining defendants.  This is a critical strategic  legal issue, not to be taken loosely, when settling with defendants in a multi-party construction defect dispute, particularly when you may try the case against non-settling defendants. 

  

The purpose of the setoff statutes is to prevent a windfall to a plaintiff by way of double recovery. Thus, any “settlement recovery sought to be set off must be ‘in partial satisfaction for the damages sued for.’ ”  Accordingly, “[i]f the settlement funds are applicable to a claim asserted only against the settling co-defendant, the non-settling co-defendants are not eligible for a set-off in the amount of the settlement.”  In the same vein, “[w]hen a settlement recovery is allocated between claims with different and distinctive damage elements, set-off should only be allowed to co-defendants jointly and severally liable for the same claims.” 

***

Although the same-damages-sued-for prerequisite seems simple enough in theory, because settlement agreements are often so broadly worded, in practice it is not always easy to determine whether damages paid as part of a settlement overlap with damages awarded against a remaining co-defendant. To that end, the law provides that if settlement proceeds are “not apportioned between (a) claims for which co-defendants are jointly and severally liable with the settling co-defendant, and (b) claims which were only asserted against the settling co-defendant, the entire amount of the undifferentiated recovery is allowable as a set-off.”  This is the case even where some of the settlement amount may have been for different damages and the settlement amount exceeded the damages it setoff. 

Addison Construction Corp., supra, (internal citations omitted).

 

 

Clearly, while this law seems simple, it is not.  And it certainly is not in a multi-party construction defect case which is why—again—settling with some but not all defendants in a construction defect case requires analysis and strategy. Otherwise, what could happen is a trial court setting-off the total sum of the settlements from the principal damages awarded at trial.  Probably not what the plaintiff had in mind! This is what the trial court did in this case based on otherwise broad language in the respective settlement agreements.  Guess what?  The appellate court agreed:

 

In sum, because the subcontractor settlement agreements failed to differentiate the damages settled for, it is simply “impossible to know whether [Buyers] would be receiving a duplicate payment” for their breach of contract based claims. If Buyers wanted to prevent this problem, they should have allocated the damages encompassed in each subcontractor settlement. Buyers made a strategic and understandable decision not to do so, and this is the end result. We acknowledge that this may seem harsh, but it is the only pragmatic result. If courts were required to delve into the scope of undifferentiated settlement agreements for the purposes of making a setoff determination, then post-judgment proceedings would turn into a second trial. Principles of judicial economy prohibit this result.

Addison Construction Corp., supra, (internal citations omitted).

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

THE RELEVANCE AND REASONABLENESS OF DESTRUCTIVE TESTING

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shutterstock_617053133Destructive testing is a routine investigatory procedure in construction defect disputes.   The destructive testing is necessary to determine liability (causation), the extent of damage, and the repair protocol.   Destructive testing is designed to answer numerous questions:  Why did the building component fail?  Was the building component constructed incorrectly?  What is the magnitude of the damage caused by the failure? What specifically caused the damage?  What is the most effective way to fix the failure and damage?  There are different iterations to the same questions, but in many instances, destructive testing is necessary to answer these questions.

 

Claimants sometimes prohibit destructive testing.  Of course, destructive testing is intrusive.  In many instances, it is very intrusive.  But, this testing is a necessary evil.  Without this testing, how can a defendant truly analyze their potential exposure and culpability?  They need to be in a position to prepare a defense and figure out their liability.  This does not mean destructive testing is warranted in every single construction defect dispute.  That is not the case.   However, to say it is never warranted is irrational. 

 

Florida Statutes Chapter 558 (the pre-suit notice of construction defects process) addresses the issue of destructive testing when parties are participating in this obligatory pre-suit notice of construction defect process:

 

(a) If the person served with notice under subsection (1) determines that destructive testing is necessary to determine the nature and cause of the alleged defects, such person shall notify the claimant in writing.

(b) The notice shall describe the destructive testing to be performed, the person selected to do the testing, the estimated anticipated damage and repairs to or restoration of the property resulting from the testing, the estimated amount of time necessary for the testing and to complete the repairs or restoration, and the financial responsibility offered for covering the costs of repairs or restoration.

(c) If the claimant promptly objects to the person selected to perform the destructive testing, the person served with notice under subsection (1) shall provide the claimant with a list of three qualified persons from which the claimant may select one such person to perform the testing. The person selected to perform the testing shall operate as an agent or subcontractor of the person served with notice under subsection (1) and shall communicate with, submit any reports to, and be solely responsible to the person served with notice.

(d) The testing shall be done at a mutually agreeable time.

(e) The claimant or a representative of the claimant may be present to observe the destructive testing.

(f) The destructive testing shall not render the property uninhabitable.

(g) There shall be no construction lien rights under part I of chapter 713 for the destructive testing caused by a person served with notice under subsection (1) or for restoring the area destructively tested to the condition existing prior to testing, except to the extent the owner contracts for the destructive testing or restoration.

If the claimant refuses to agree and thereafter permit reasonable destructive testing, the claimant shall have no claim for damages which could have been avoided or mitigated had destructive testing been allowed when requested and had a feasible remedy been promptly implemented.

Florida Statute s. 558.004(2).

 

Under this pre-suit process, if a claimant refuses to permit reasonable destructive testing, the claimant shall have no claim for damages which could have been mitigated or avoided had destructive testing been allowed and had a feasible remedy been promptly implemented.  In my opinion, this has very little teeth as it raises too many factual issues such as 1) was the destructive testing reasonable, 2) what damages could have realistically been mitigated and how do you prove this, 3) what is a feasible remedy and how is one to know whether the defendant would have even proposed or implemented a feasible remedy, 4) is the feasible remedy a remedy that mitigates future damage or fully addresses the root of the problem, and 5) what is the quantum of damages that could have been mitigated or avoided.   Establishing the reasonableness of the destructive testing is likely easy as an expert would support this.  But the same expert would have to establish the other requirements as a basis to establish an affirmative defense that some of the claimed damages the plaintiff is seeking could have been mitigated had the claimant allowed pre-suit destructive testing.

 

Oftentimes, however, a defendant wants to undertake certain destructive testing after a lawsuit has been initiated.  What happens if the plaintiff refuses such testing in this scenario?  In a recent products liability case, Westerbeke Corp. v. Atherton, 42 Fla.L.Weekly D1741c (Fla. 2d DCA 2017), a defendant wanted to perform destructive testing on a gas generator that caused an explosion on a boat.  The plaintiff did not want this testing to be performed.   In support of the testing, the defendant relied on a federal district case that applied four factors to consider whether the destructive testing is warranted:

 

1) Whether the proposed testing is reasonable, necessary, and relevant to proving the movant’s case; 2) Whether the non-movant’s ability to present evidence at trial will be hindered, or whether the non-movant will be prejudiced in some other way; 3) Whether there are any less prejudicial alternative methods of obtaining the evidence sought; and 4) Whether there are adequate safeguards to minimize prejudice to the non-movant, particularly the non-movant’s ability to present evidence at trial.

 

 Westerbke Corp., supra, quoting Mirchandani v. Home Depot, U.S.A., Inc., 235 F.R.D. 611, 614 (D.Md. 2006).

 

The trial court did not apply these four factors and denied the defendant’s request to perform destructive testing on the gas generator.  On appeal (through a petition for writ of certiorari), the appellate court reversed.  Unfortunately, the appellate court punted without providing specific guidance as to what standard the trial should follow when granting or denying a request for destructive testing.  The appellate court simply held that the four factors above may provide guidance to the trial court, but are not controlling in Florida.  The appellate court further summarily pointed to the Florida’s Rules of Civil Procedure to address the issue:

 

The Florida law regarding discovery in general provides that a party in a civil case is entitled to discover evidence that is relevant to the subject matter of the case and that is admissible or reasonably calculated to lead to admissible evidence. Fla. R. Civ. P. 1.280(b)(1); Allstate Ins. Co. v. Langston, 655 So. 2d 91, 94 (Fla. 1995). In addition, “[a]ny party may request any other party . . . to inspect and copy, test, or sample any tangible things that constitute or contain matters within the scope of rule 1.280(b) and that are in the possession, custody, or control of the party to whom the request is directed.” Fla. R. Civ. P. 1.350(a)(2). “The discovery rules . . . confer broad discretion on the trial court to limit or prohibit discovery in order to ‘protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense.‘ ” Rasmussen v. S. Fla. Blood Serv., Inc., 500 So. 2d 533, 535 (Fla. 1987) (citing Fla. R. Civ. P. 1.280(c)). We conclude that the trial court departed from the essential requirements of the law in failing to apply the proper discovery standard…..

 

 

The four factors outlined above are reasonable factors that comport with Florida law – whether the testing is relevant to the subject matter of the case. The factors provide guidance as to how to determine relevancy of destructive testing during the course of a lawsuit.  Plus, the court can always impose limitations or restrictions to reduce any intrusion and protect the claimant’s interests while allowing testing to be performed.   By the appellate court punting and not even ruling on whether the destructive testing would be relevant in the underlying action, the court is simply inviting another appeal.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

 

SUBCONTRACTOR’S LIABILITY INSURER’S DUTY TO DEFEND THE “ADDITIONAL INSURED” GENERAL CONTRACTOR

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shutterstock_306317915Construction projects can lead to insurance coverage disputes.  One such dispute arises when a general contractor is sued for construction defects and resulting property damage and it tenders the defense of the claim / lawsuit to an implicated subcontractor’s liability insurer.  A general contractor does this because it (hopefully) will be an additional insured under the subcontractor’s liability policy.  Being identified as an additional insured under a subcontractor’s liability policy is imperative for a general contractor as part of its normal risk assessment. The issue will typically come up in any construction defect lawsuit because if the general contractor is an additional insured it will, and should, tender the defense of the lawsuit to implicated subcontractors’ insurers. 

 

Sometimes, a subcontractor’s liability insurer will deny the duty to defend the general contractor.  Yes, this happens.  When it does, the general contractor’s insurer will provide a defense to the general contractor but may pursue the subcontractor’s insurer for reimbursement of fees and costs based on the general contractor being an additional insured under the subcontractor’s liability policy.

 

For example, in Travelers Property Casualty Co. of America v. Amerisure Ins. Co., 161 F.Supp.3d 113 (N.D.Fla. 2015), the general contractor’s liability insurer (Travelers) sued a stucco subcontractor’s liability insurer (Amerisure) where the underlying issue was whether the general contractor was an additional insured under the subcontractor’s liability policy.  The subcontractor’s insurer refused to defend the general contractor in an underlying construction defect lawsuit.  The general contractor’s insurer provided a defense in the underlying lawsuit and sued the subcontractor’s insurer for reimbursement.  

 

“Under Florida law, a liability insurer’s duty to defend extends to an entire lawsuit if any claim in the lawsuit may come within the policy’s coverage.”  Travelers Property Casualty Co., 161 F.Supp.3d at 1137.    The underlying complaint against the general contractor alleged property damage caused by defective stucco installation.  This meant that the complaint triggered the duty to defend and the Court held the general contractor was an additional insured under the subcontractor’s liability policy.  For this reason, the Court maintained that the subcontractor’s insurer (Amerisure) owed the general contractor’s insurer (Travelers) the reasonable attorney’s fees incurred in the defense of the general contractor in the underlying lawsuit:

 

When Amerisure [subcontractors’ insurer] failed to step up, Travelers [general contractor’s insurer] did what Amerisure should have done: Travelers provided Yates [general contractor] a defense. The attorneys Travelers hired chose to defend the case not only by answering the claims but also by asserting third-party claims against subcontractors, including Jemco [stucco subcontractor]. Travelers paid the fees and costs incurred in connection with the third-party claims, apparently concluding that this was the best strategy for defending the claims and that its duty to defend Yates thus obligated it to pay for the third-party claims as well. There is support for that view. 

***

Had Amerisure provided a defense as it should have done, the attorneys it hired might or might not have made the  same strategic decision as the attorneys hired by Travelers. But now Amerisure can complain, at most, about unreasonable decisions, not about decisions that reasonably could have gone either way. As a leading commentator has put it, when an insurer breaches its duty to defend,

the insured is justified in assuming the defense of the action and is released from the contractual obligation to leave the management of the case to the insurer. Not only does the insurer lose the power to control the defense or dictate to the insured how the case should be handled, but the insurer cannot complain about the conduct of the defense by the insured or the negligent handling of the case by the insured’s attorney.

 

Travelers Property Casualty Co. of America, 161 F.Supp.3d at 1138-39 (internal citations omitted).

 

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

“IS THE DEFECTIVE WORK COVERED BY INSURANCE?”

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I have been asked this question quite a bit from owners, in particular:  “The contractor committed defective work, but it has insurance.  Doesn’t the insurance cover this defective work?”    Ugh, NO!    There is this misconception that liability insurance, specifically, is the be-all-and-end-all when it comes to defective work.  This could not be further from the truth.  Don’t get me wrong – liability insurance is important; it is very, very important.   However, liability insurance does not cover the risk of an insured’s defective work.  Rather, liability insurance is designed to cover the risk of resulting damage:  damage resulting from defective work.  This is a significant distinction and one that is often overlooked.  This is also why anyone encountering defective work should be working with an attorney to maximize insurance coverage or realize that the issue is not covered by insurance. 

 

Let’s give easy examples to summarize this application:

 

Example 1 – My windows are defectively installed.   They all need to be removed and replaced.   Insurance should cover this defective installation, right?  Ugh, NO!   Remember, insurance does not cover the risk of an insured’s defective work.   Removing and replacing the windows would not be covered by insurance.

 

Example 2– My windows are defectively installed and this defective installation has resulted in water intrusion and extensive water damage.  Insurance should cover the defective installation and water damage, right?  Yes and No.  As mentioned, insurance is still not going to cover the defective work.  But, the insurance should cover the water damage resulting from the defective work. 

 

Example 3 –  A spalling piece of concrete that was defectively installed fell  and substantially damaged a vehicle.  Insurance should cover the damage to the vehicle, right?  Insurance should cover this damage because the third-party damage was the result of the defective work.

 

Example 4 – The balcony waterproofing was defectively installed resulting in water getting into the balcony system.  In order to fix this defective waterproofing, the balcony concrete topping needs to be ripped out.  Insurance covers remediating the waterproofing, right?  Yes and no, perhaps.    Again, insurance is not going to cover the defective waterproofing.  But, there may be an argument that insurance should cover the removing and replacing of the concrete topping since this work had to be ripped out in order to repair the underlying defective waterproofing.

 

 

These are just easy examples to illustrate the application of insurance in different contexts.   Of course, these are not all of the contexts and most contexts are more challenging.  But, the point is that insurance, contrary to what many may believe, is not designed to insure defective work.   Insurance is more complex than it may seem and, again, it is important to consult with a practitioner that understands insurance, how to maximize insurance, and to to advise you when the issue in reality is not an insurance-coverage issue. 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

SPEARIN DOCTRINE AS AN AFFIRMATIVE DEFENSE

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The Spearin doctrine, referred to as the implied warranty of constructability doctrine, is oftentimes utilized as an affirmative defense by a contractor being sued for construction defects.  Under the Spearin doctrine (recognized in the government contract setting), a contractor is NOT liable for defects in the plans and specifications furnished by the owner if the contractor constructs the project pursuant to the plans and specifications.  This is because the owner impliedly warrants the constructability of the plans and specifications it furnishes to the contractor.  Hence, the contractor should not be liable for defective construction caused by the owner furnishing defective plans and specifications.

 

As with any affirmative defense, the contractor asserting the Spearin doctrine has the burden to prove the merits of the defense.  Specifically, the contractor has the burden to prove that there was an error in the plans or specifications and that such error was the proximate cause of the defective construction.  The contractor needs to prove this in order to sustain the Spearin doctrine as an affirmative defense.  See, e.g., Underwater Engineering Services, Inc. v. Utility Board of the City of Key West, 194 So.3d 437, n. 4 (Fla. 3d DCA 2016) (“By raising this defense [of the Spearin Doctrine] Underwater [contractor] had the burden to prove not only that there was a defect in the specifications, but that the defect in the specifications was the proximate cause of the failure of the eight [concrete] collars.”); see also Rick’s Mushroom Service, Inc. v. U.S., 521 F.3d 1338, 1344-45 (Fed.Cir. 2008) (“‘When the government provides a contractor with defective specifications, the government is deemed to have breached the implied warranty that satisfactory contract performance will result from adherence to the specifications, and the contractor is entitled to recover all of the costs proximately flowing from the breach.’”) quoting Essex Electro Eng’rs, Inc. v. Danzig, 224 F.3d 1283, 1289 (Fed.Cir.2000).

Asserting the Spearin doctrine as an affirmative defense is one thing, but proving it is another.  If relying on this defense, make sure to prove through expert testimony that there was (i) a defect in the plans or specifications furnished by the owner and (ii) that this defect proximately caused the defects or failures being asserted by the plaintiff (e.g., owner).   

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

OWNER’S OBLIGATION GIVING NOTICE TO CURE TO CONTRACTOR AND ANALYZING REPAIR PROTOCOL

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Recently, I read an informative article from another attorney addressing considerations of an owner when it receives a repair protocol in response to a Florida Statutes Chapter 558 notice of defect letter.   This is a well-written article and raises two important issues applicable to construction defect disputes: 1) how is an owner supposed to respond to a repair protocol submitted by a contractor in accordance with Florida’s 558 notice of construction defects procedure and 2) irrespective of Florida’s 558 procedure, how is an owner supposed to treat a contractual notice to cure / notice of defect requirement that requires the owner to give the contractor a notice to cure a defect. This article raises such pertinent points that I wanted to address the issues and topics raised in this article.  

 558 Procedure–Owner’s Receipt of Contractor’s Repair Protocol

When a contractor submits a repair protocol to an owner in response to a notice of construction defects letter per Florida Statutes Chapter 558, the owner should seriously consider that protocol.   The owner does this by discussing with counsel and any retained expert.   The owner needs to know whether the protocol is a reasonable, cost-effective protocol to repair the asserted defects or, alternatively, whether the protocol is merely a band-aid approach and/or otherwise insufficiently addresses the claimed defects.  Every scenario is different. 

Oftentimes, I want my client’s expert (if I represent the owner) to analyze the protocol and opine as to the deficiencies in the repair protocol, as well as problems concerning the actual logistics of implementing the protocol.  The objective would be that these opinions would come out down the road (say trial) when the contractor argues that the owner failed to mitigate damages by not promptly implementing the contractor’s repair protocol.    Sometimes, I want a tolling agreement (an agreement to extend the statute of limitations where the other side agrees not to raise the statute of limitations as a defense) so that if the repairs do not work, the owner’s rights are not prejudiced and the owner can still pursue the defect claim. 

 As the article correctly pointed out, every scenario is fact-specific, however, in each scenario, the owner should consider the repairs being proposed by the contractor in response to a Florida Statutes Chapter 558 notice of construction defects letter.

 

Contractual Notice to Cure / Opportunity to Repair

The article further discussed the case of Underwater Engineering Services, Inc. v. Utility Board of the City of Key West, 194 So.3d 437 (Fla. 3d DCA 2016).  Without getting into all of the technical facts, a public owner hired a contractor to perform certain structural repairs and, applicable here, the contract provided:

1.5 DEFECT ASSESSMENT

A. Replace the Work, or portions of the Work, not conforming to specified requirements.

B. If, at the request of the Contractor and in the opinion of the Engineer, it is not Practical to remove and replace the Work, the Engineer will direct one of the following remedies:

1. The defective Work may remain, but the Unit Price will be adjusted to a new price as agreed to by the Owner and Engineer.

2. The defective Work will be partially repaired to the instructions of the Engineer, and the Unit Price will be adjusted to a new price.

 

The public owner claimed that the contractor defectively constructed eight concrete collars.  However, the public owner failed to give the contractor an opportunity to cure / replace the defectively constructed concrete collars.   In other words, the contractor was never given an opportunity to actually cure or replace the asserted defect pursuant to the terms of the contract.  As a consequence of the public owner violating this opportunity to cure requirement, the appellate court reversed an award of damages in favor of the public owner and remanded with directions to enter judgment in favor of the contractor as to the owner’s defect claim.  Thus, by the public owner failing to give the contractor a contractual opportunity to cure–and  unilaterally fixing the defects–the owner recovered nothing from the contractor due to the defective work.

Irrespective of the requirements of Florida Statutes Chapter 558, an owner should absolutely comply with a contractual notice to cure / repair requirement.  Otherwise, the contractor has the argument that the owner’s failure to comply with this contractual requirement should preclude the owner from recovering any damages for fixing the defect.

Further, if an owner receives a repair protocol, whether in response to a contractual notice to cure requirement or Florida Statutes Chapter 558, the owner should consider the repair protocol and consult with counsel and any retained expert to analyze the reasonableness and logistics of the protocol.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

FLOWING DOWN LIABILITY IN CONSTRUCTION DEFECT LAWSUITS

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In construction defect lawsuits, third-party (or fourth-party) claims are routine to flow-down liability downstream.  Right, a general contractor sued by an owner will want to flow-down its liability to the subcontractors.  And, subcontractors will want to flow down their liability to sub-subcontractors and suppliers.   Common, and appropriate, flow-down claims are indemnification and contribution claims. 

 

In an appellate opinion with little factual discussion, Gozzo Development, Inc. v. Esker, 2016 WL 2908442 (Fla. 4th DCA 2016), the trial court entered summary judgment in favor of subcontractors dismissing the contractor’s indemnification and contribution claims.  The owner sued the contractor for a violation of building code (and corresponding defects and damage) and the contractor, in turn, sued subcontractors for indemnification and contribution.  The contractor was seeking indemnity for the statutory building code violations as well as contractual breaches that caused the construction defects and damage. 

 

On appeal, the Fourth District reversed the trial court’s summary judgment as to the indemnification claim, but affirmed the trial court’s dismissal of the contribution claim (as Florida abolished joint and several liability in negligence-based actions):

 

Further, as appellant [contractor] sought indemnity for violations of both statutory and non-statutory building standards, it was error to grant summary judgment on the indemnity claim under a provision that applies only to statutory liability. The statutory building code does not preclude liability for violating a contractual duty to adhere to local building standards.

However, we affirm the trial court’s summary judgment on the contribution claim, as appellant’s right to contribution had not arisen by the effective date of the revised statute barring joint and several liability.

Gozzo Development, 2016 WL at *1. 

  

It is important to understand the manner in which liability is flowed downstream (passed-through) in construction defect lawsuits.  It is generally this reason why construction defect lawsuits contain many parties, from the general contractor hired by the owner to the subcontractors, sub-subcontractors, and suppliers implicated by the defective work.   These articles on indemnification (common law and contractual) and contribution explain these very important flow-down claims in more detail. 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.