Category Archives: Construction Defects

SHOULD CGL INSURER HAVE DUTY TO DEFEND INSURED DURING CHAPTER 558 NOTICE OF CONSTRUCTION DEFECTS PROCESS???

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Does a CGL insurer have a duty to defend its insured-contractor during Florida Statutes Chapter 558 notice of construction defects pre-suit process?  This answer is currently undecided and will be up to the Florida Supreme Court to decide.  (It is on appeal stemming from a federal district court saying that an insurer does not have a duty to defend its insured-contractor in the 558 process based on the definition of the word “suit” in the CGL policy.)

Why is this an important issue?

The 558 pre-suit notice of construction defects process is designed to facilitate an avenue for construction defect lawsuits to get resolved without having to file a lawsuit or, at least, have issues narrowed before a lawsuit needs to be filed.  (Check here for a summary of the 558 process.)  It requires pre-suit notifications so that implicated parties can become aware of the defects and have an opportunity to inspect the defects / damage, test the defects / damage, and respond to the notice of construction defects; it provides an avenue for beneficial pre-suit discovery.  Through participating in the 558 process, the contractor and/or design professional (and those downstream from them) can:  (i) offer to remedy the defect, (ii) settle the defect, whether through money or a combination of money and repairs, (iii) dispute the defect, or (iv) advise that available insurance proceeds will be determined by its  liability insurer.  See Fla. Stat. s. 558.004.

There are definitely some pros and cons to the 558 pre-suit process.  There is no doubt about this.  But, if the insured-contractor’s insurer is not on board with the process, then it invariably will fail (unless the defects are relatively minor in nature).  Why will it fail?  Because 558 notice of construction defect letters can contain an extensive laundry list of defects–some minor, some major and complicated.  This means that the insured-contractor really needs an expert or experts on board to truly analyze these issues from a liability and damages standpoint including the most cost effective approach to remedy the defects and corresponding damage.  This, as you can imagine, is costly.  The insured-contractor also wants to know that if a monetary settlement is made, the settlement includes insurance proceeds for damages covered by the CGL policy.  

All of this can really only effectively take place if the insurer defends the insured-contractor in this process to best assess its risk and any forthcoming lawsuit that should (hopefully) nevertheless trigger the insurer’s duty to defend its insured-contractor.   Hence, there is no reason for the insurer not be engaged in the process and defend its insured-contractor, at least under a reservation of rights.  Unfortunately, if the liability insurer disengages from the process and is not willing to defend its insured in the process, then the insured-contractor in many instances is best-off waiting for that lawsuit that will then (a) trigger the insurer’s duty to defend and (b) require the insurer to now incur the costs of the defense, including experts, to defend its insured.  By the insurer not defending its insured-contractor earlier, such as the 558 process, all it is doing is inviting an expensive multi-party lawsuit and not educating itself of the nature of the defects and damage (i.e., its risk assessment) so that efforts can be made to resolve the defect claim, narrow the issues, or develop the framework of the 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.

 

QUICK NOTE: CGL INSURER LIABLE FOR ATTORNEY’S FEES IF IT UNJUSTIFIABLY REFUSED TO PROVIDE YOU DEFENSE

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If your CGL (or liability) insurer unjustifiably refuses to provide you a defense in a lawsuit, the insurer is liable for the reasonable attorney’s fees and costs you incur in defending that lawsuit.  The operative word is “unjustifiably.”  For instance, if you get sued and your CGL insurer refuses to provide you a defense and you retain private counsel to defend you, the CGL insurer will be liable for your attorney’s fees and costs if it should have provided you a duty defend in connection with that suit.  Of course, on the other hand, if the CGL insurer justifiably refused to defend you (based on the allegations in the lawsuit / claim and coverage under the policy) then it will not be liable for your reasonable attorney’s fees and costs.

 

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.

 

FRAUDULENT NONDISCLOSURE / CONCEALMENT AND RESIDENTIAL PURCHASE-SALE CONTRACTS

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When it comes to residential purchase-sale contracts, sellers are required to disclose known defective items / facts that materially affect the value of the property.  Such residential contracts routinely include language that the “Seller knows of no facts materially affecting the value of the Real Property which are not readily observable and which have not been disclosed to the Buyer.”  If such fact is not disclosed to the buyer, the buyer may have what is commonly referred to as a fraudulent nondisclosure or concealment claim against the seller (former owner) or a Johnson v. Davis claim named after the Florida Supreme Court opinion that recognized fraudulent nondisclosure claims.

 

Many sellers try to hang their hat on the fact that the residential contract contains an “as is” provision such that they are selling the property “as is”.  Certainly, this is good language.  However, an “as is” provision in a residential purchase-sale contract will not waive the duty imposed on the seller to disclose known items / facts that materially affect the value of the property and which are not readily observable. Solorzano v. First Union Mortgage Corp., 896 So.2d 847, 849 (Fla. 4th DCA 2005).

 

A buyer (current owner) asserting a fraudulent nondisclosure claim against the seller (former owner) must prove four elements:

1. The seller must have knowledge of a defect [fact] in the property;

  2. The defect [fact] must materially affect the value of the property;

  3. the defect [fact] must be not readily observable and must be unknown to the buyer;

  4. the buyer must establish that the seller failed to disclose the defect to the buyer.

Jensen v. Bailey, 76 So.3d 980, 983 (Fla. 2d DCA 2012).

 

The first element, “the seller must have knowledge of a defect” is the most challenging for the buyer to prove because the burden requires the buyer to “prove the seller’s actual knowledge of an undisclosed material defect.” See Jensen, 76 So.3d at 983; accord Eiman v. Sullivan, 173 So.3d 994 (Fla. 2d DCA 2015).  Keep in mind, though, that this element does not require the buyer to prove the seller’s intent, only that the seller knew of a defect / fact that materially affected the value of the property and failed to disclose the defect / fact to the buyer.  To prove actual knowledge, the buyer may need to put on circumstantial evidence establishing the seller knew of the defect / fact (but is perhaps lying about his or her actual knowledge today). See Jensen, 76 So.3d 980; see also Bowman v. Barker, 172 So.3d 1013, 1016 (Fla. 1st DCA 2015) (“This evidence raises a question of fact about the appellees’ [seller] knowledge, as well as questions about their credibility and the plausibility of their denying knowledge of the property’s substantial defects and what repairs it needed.”) (For more on this case, click here.)

 

If you believe you have a fraudulent nondisclosure claim, consult a lawyer that can best assist you in (a) proving your claim based on the required elements and (b) understanding your damages associated with the nondisclosure.  Typically, this will require engaging an expert to testify as to the costs to repair the undisclosed defect(s) / fact(s) that materially impacts the value of the property. 

 

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.

OWNERS: DON’T IGNORE THE STATUTE OF LIMITATIONS IN FLORIDA STATUTE s. 95.11(3)(c) FOR CONSTRUCTION DEFECTS / DAMAGE

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If you are an owner experiencing construction defects or corresponding damage (e.g., water intrusion) please consult with counsel.  Not doing so can result in your lawsuit being forever time-barred by the statute of limitations!  Do NOT let this happen to you; this means that any valid claims you may have associated with the construction defects or corresponding damage are gone.

 

The statute of limitations for construction disputes including construction defect disputes is embodied in Florida Statute s. 95.11(3)(c), set forth at the bottom of this posting.  Please check out this article and this article for more information on the statute of limitations for construction defects. 

 

For example, in Brock v. Garner Window & Door Sales, Inc., 2016 WL 830452 (Fla. 5th DCA 2016), homeowners experienced water intrusion from their windows and sued the company that installed the windows.  The problem, however, was that the homeowners sued the window installer more than four years after the homeowners discovered the defect (the statute of limitations in s. 95.11(3)(c) as set forth below) but less than five years after the discovery of the defect.   The homeowners tried to creatively argue that the five-year statute of limitations governing written contracts should control because the window installer was not a licensed contractor and should not reap the benefit of the shorter four-year statute of limitations. The Fifth District rejected this argument. 

 

Regardless of whether your claims are against a licensed or unlicensed contractor, the four-year statute of limitations in s. 95.11(3)(c) is going to control your construction defect lawsuit.  In the case above, the homeowners waited more than four years after discovering the water intrusion to sue their window installer.  As a result, their counsel had to come up with an argument to try to circumvent the four-year statute of limitations.  Unfortunately, the argument was not successful and the homeowners potentially valid claims were time-barred.  Clearly, this is a situation you want to avoid so that you are not having to defend your valid claims with a statute of limitations defense.

 

 Florida Statute s. 95.11(3)(c)

(3) WITHIN FOUR YEARS.—

***

(c) An action founded on the design, planning, or construction of an improvement to real property, with the time running from the date of actual possession by the owner, the date of the issuance of a certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer, whichever date is latest; except that, when the action involves a latent defect, the time runs from the time the defect is discovered or should have been discovered with the exercise of due diligence. In any event, the action must be commenced within 10 years after the date of actual possession by the owner, the date of the issuance of a certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer, whichever date is latest.

 

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.

 

 

CGL INSURER LIABLE FOR ATTORNEY’S FEES JUDGMENT AGAINST INSURED

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Commercial general liability (CGL) policies contain a section called “Supplementary Payments – Coverages A and B.”   This section states in relevant part:

 

1.  We [insurer] will pay, with respect to any claim we investigate or settle, or any “suit” against an insured we defend:

            e.  All costs taxed against the insured in the “suit.”

 

In the recent decision, Mid-Continent Casualty Co. v. Treace, 41 Fla. L. Weekly D60c (Fla. 5th DCA 2015), an owner obtained a judgment against its contractor in a construction defect case.  The court then entered a judgment for attorney’s fees and costs in favor of the owner.  The owner then initiated a proceeding against the contractor’s CGL insurer to recover the judgments.  The trial court refused to allow the owner to recover its attorney’s fees against the insurer and the owner appealed.  On appeal, the Fifth District examined the above language in the contractor’s CGL policy that said the insurer would pay for “[a]ll costs taxed against the insured in the ‘suit.’”   In examining this language, the court found that the language “‘all court costs’ could be read to include attorney’s fees, especially since there was no definition of that term in the policy…[T]he insurer did not, but could have, defined ‘court costs’ to specifically exclude attorney’s fees.”  Treace, supra.    For this reason, the court held that the attorney’s fees judgment was recoverable by the owner against the contractor’s CGL insurer.

 

This case provides a strong argument for a claimant that recovers a judgment against an insured in a construction defect lawsuit that includes attorney’s fees that attorney’s fees are recoverable under the insured’s CGL policy. 

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.

 

VIOLATION OF THE BUILDING CODE IS A QUESTION OF LAW

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In construction defect disputes, oftentimes the owner (or developer or association, as may be applicable) will assert a claim against the general contractor, and perhaps, subcontractors for a violation of the building code.  Such a claim is authorized pursuant to Florida Statute s. 553.84 that provides:

 

Notwithstanding any other remedies available, any person or party, in an individual capacity or on behalf of a class of persons or parties, damaged as a result of a violation of this part or the Florida Building Code, has a cause of action in any court of competent jurisdiction against the person or party who committed the violation; however, if the person or party obtains the required building permits and any local government or public agency with authority to enforce the Florida Building Code approves the plans, if the construction project passes all required inspections under the code, and if there is no personal injury or damage to property other than the property that is the subject of the permits, plans, and inspections, this section does not apply unless the person or party knew or should have known that the violation existed.

 

A violation of the building code serves as evidence of negligence by the offending party.  See Russ v. Wollheim, 915 So.2d 1285, n.1 (Fla. 2d DCA 2005) (“A building code is designed to protect the general public rather than a particular class of individuals, and therefore, violation of a building code is merely evidence of negligence.” )

 

But who determines whether an asserted defect, error, or omission constitutes a violation of the building code?  Is this a question of law for the judge?  Or, is this a question of fact for the jury (in a jury trial)?  Remarkably, cases have held that a violation of a building code, a complicated and rather specialized issue, is a question of law for the judge to determine.

 

In Edward J. Seibert, A.I.A. Architect and Planner, P.A. v. Bayport Beach and Tennis Club Ass’n, Inc., 573 So.2d 889 (Fla. 2d DCA 1990), a condominium association filed suit against the architect among others.  The jury found that the architect was liable for violating the building code in the fire exit design even though the design had been approved by the building department upon the issuance of the building permit. To support this violation, the association had an expert testify regarding his interpretation regarding the building code. The architect testified that his design complied with the building code and had two supporting expert opinions.  The verdict form asked the jury if the fire exist design complied with the applicable code.  The Second District held that the interpretation of the code was a question of law that should not have been submitted to the jury.

 

They [the parties] instead presented conflicting opinions as to how the code should be interpreted. The jury was allowed to determine the meaning of the code and then whether Seibert [architect] violated the code by designing only one fire exit. This was error. An expert should not be allowed to testify concerning questions of law, and the interpretation of the building code presented a question of law.

 

It was the duty of the trial court to interpret the meaning of the code and instruct the jury concerning that meaning. Any conflicts in interpretation were for the court to resolve and their resolution was not a jury issue.

Edward J. Seibert, 573 So.2d at 891-9 (internal citations omitted).

 

Further, in Lindsey v. Bill Arflin Bonding Agency, Inc., 645 So.2d 565 (Fla. 1st DCA 1994), a personal injury plaintiff sued an owner for slipping on a wet spot on stairs.  The plaintiff claimed that the stairs lacked handrails in violation of the building code.  The owners relied on testimony from a building department official opining that handrails were not required based on his interpretation of the code / ordinance at-issue.   The First District, however, found:

 

Expert testimony as to the meaning of an ordinance is not appropriate when the disputed language consists of “ordinary words susceptible to being given plain effect consistent with their ordinary meaning.” The legal effect of a building code presents a question of law for the court, not a question of fact for the jury. While expert testimony may be relevant and helpful to the court where a statute or ordinance contains words of art or scientific and technical terms, even then such testimony cannot dictate the court’s construction of the enactment.

Lindsey, 645 So.2d at 568 (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.

 

COBLENTZ AGREEMENT AND ALLOCATION OF DAMAGES IN CONSENT JUDGMENT

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I previously discussed Coblentz agreements.  A Coblentz agreement is an agreement between a claimant (e.g., property owner) and a third-party (e.g., general contractor that caused construction defects and damage) when the third-party’s liability insurer denies a defense (and coverage) to the third-party.  The claimant and third-party enter into an agreement where a) the claimant obtains a consent judgment against the third-party, b) the third-party assigns its rights under its liability policy to the claimant based on the insurer’s refusal to defend and indemnify the third-party, and c) the claimant releases the third-party from any individual liability irrespective of whether the claimant recovers from the third-party’s liability insurer. (Check here for a presentation on Coblentz agreements.)

 

One of the key components of the Coblentz agreement is the consent judgment given by the third-party to the claimant.  It is always a good idea to allocate between damages covered by insurance and damages not covered by insurance.  The reason is that liability insurance is not designed to cover defective workmanship.  Rather, it is designed to cover damages resulting from defective workmanship.  In a construction defect dispute, the consent judgment should reasonably allocate the covered damage (damage caused by defective workmanship) and uncovered damage (the cost solely to repair defective workmanship).  These amounts should not be arbitrarily decided but should be supported with expert opinions since this point would be litigated against the liability insurer when the claimant tries to recover from the third-party’s liability insurer. 

 

For example, in the recent opinion of Bradfield v. Mid-Continent Casualty Company, 2015 WL 6956543 (M.D.Fla. 2015), an aspect of the opinion dealt with the lack of an allocation of damages in a consent judgment given in consideration of a Coblentz agreement.  The contractor gave the owner a consent judgment in the amount of $671,050.  But, there was no allocation of this lump sum amount for covered and uncovered damage or what this lump sum was designated for.   The consent judgment was based on an estimate prepared by an expert but the estimate included costs to repair defective work, or work that was not covered by the liability insurance policy.  The Middle District of Florida found that this failure to appropriately allocate covered verses uncovered damage was fatal to the owner’s claim against the third-party contractor’s liability insurer to recover the amount of the consent judgment. The court explained: “Florida law clearly requires the party seeking recovery…to allocate any settlement amount between covered and noncovered claims.” Bradfield, supra, at *24.

 

Even if damages were allocated, the consent judgment still needs to be reasonable and entered in good faith. The court discussed this aspect of the Coblentz agreement despite finding that the failure to allocate was fatal to the owner’s claims against the contractor’s liability insurer.  As to the reasonableness of a consent judgment, the court importantly maintained:

 

When an injured party wishes to recover under a Coblentz agreement, [t]he claimant must assume the burden of initially going forward with the production of evidence sufficient to make a prima facie showing of reasonableness and lack of bad faith, even though the ultimate burden of proof will rest with the carrier. The courts impose good faith and reasonableness requirements in these cases due to the risk that the settlement of liability and damages in a settlement agreement may have little relationship to the strength of a plaintiff’s claim where the insured may never be obligated to pay and has little to lose if he stipulates to a large sum with the plaintiff.

 

In Florida, the test as to whether a settlement is reasonable and prudent is what a reasonably prudent person in the position of the defendant [the insurer] would have settled for on the merits of plaintiff’s claim. Objective and subjective factors are considered, including the degree of certainty of the tortfeasor’s subjection to liability, the risks of going to trial and the chances that the jury verdict might exceed the settlement offer. [P]roof of reasonableness is ordinarily established through use of expert witnesses to testify about such matters as the extent of the defendant’s liability, the reasonableness of the damages amount in comparison with compensatory awards in other cases, and the expenses which have been required for the settling defendants to settle the suit. Bad faith also may be established by evidence of the absence of any effort to minimize liability.

Bradfield, supra, at 27 (internal quotations and citations omitted).

When considering a Coblentz agreement on behalf of a claimant, make sure the judgment allocates between covered and noncovered claims / damages and is reasonable.  The same experts utilized to support the allocation can be utilized to support the reasonableness of the allocation for covered claims / damages.

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 DEFENSE OF BETTERMENT IN CONSTRUCTION DEFECT DISPUTES

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There is an affirmative defense referred to as betterment in construction defect cases.  This is a defense raised to challenge the amount of damages incurred by the plaintiff when the plaintiff performs repairs BETTER than the original design / contract documents.  See Grossman v. Sea Towers, Ltd., 513 So.2d 686, 688 (Fla. 3d DCA 1987) (“It is significant on this point that neither the architectural specifications nor the structural design was deficient for the original intended purpose. The proper measure of damages, therefore, should have been the amount necessary to restore the deck to its original condition….”).

 

Say the contract documents called for cpvc water piping and as a result of an installation failure, the cpvc piping was replaced with copper piping.  A claim was asserted against the plumber for the costs incurred to replace cpvc piping with the copper piping.  But, the contract documents only called for cpvc piping which was an acceptable design requirement.  So that fact that this piping was replaced with copper piping constitutes betterment or a repair better than the contract documents.  The plumber should not be responsible for this betterment as it would give the plaintiff (such as an owner) a windfall since it is getting a repair better than what it originally bargained for in the contract documents.  Rather, the damages should be to restore the cpvc piping to its original planned condition.

 

The theory is the repairs are not intended to constitute a windfall to the plaintiff with repairs better than what the contract documents called for.  The defendant is only required to perform work pursuant to the contract documents because that is what it was paid to perform.  It was not paid to perform work that exceeds the contract documents; thus, costs of repair work that exceeds the contract documents are “unreasonable” and should constitute betterment.  The magic word is “unreasonable”  as the plaintiff will and should establish in its case-in-chief that the repairs it performed were reasonable and cost effective in light of the given defect or failure.

For example, in Arch of Illinois, Inc. v. S.K. George Painting Contractors, Inc., 288 Ill.App.3d 1080 (Ill. 5th DCA 1997), a factory owner sued a painting contractor for defective painting. The painter was only to apply one coat of primer and one coat of enamel for a contract price of $59,000.   After completion, the paint started to peel.  The owner put on evidence that the bids to repair the work were between $120,000 to $248,000 to sandblast the peeling paint, prime the surface, and repaint the factory.   The painter argued betterment.  The appellate court, however, applied this logic: “If a paint job is substantially or completely defective and peeling, then completely undoing the faulty work so that the structure can be repainted does not amount to unreasonable destruction of the contractor’s work.” Arch of Illinois, supra, at 1084.

In construction defect disputes, whether a plaintiff or defendant, consider the affirmative defense of betterment.  This consideration will help a plaintiff in putting on its case-in-chief and a defendant in putting on evidence to specifically challenge unreasonable / better repair costs.

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.

 

DID I JUST BUY THE MONEY PIT?

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You bought a house.  Congratulations! You are all excited.  You move in, get settled, and then the dreadful happens.  You discover that the new house you bought contains water intrusion or other significant construction defects.   You begin to think about the money pit you just bought; hilarious movie, by the way, so I digress with a funny scene from the movie:

 

Back to the issue.  What do you do with the perceived money pit that you know or anticipate will cost you substantial sums to repair.  First, assuming this was not new construction, you pull up the seller’s disclosure to see whether the seller (former owner) disclosed any of the water intrusion or construction defects.  The seller did not.  You believe the seller knew or reasonably should have known of these construction defects. How could they not?  So you consult a lawyer (always a good first step) to explore what is known as the Johnson v. Davis line of cases that stand for the proposition that a seller has a duty to disclose known defects with the house they are selling. See Johnson v. Davis, 480 So.2d 625 (Fla. 1985).

 

A new case, Bowman v. Barker, 40 Fla. L. Weekly D2091b (Fla. 1st DCA 2015), bolsters a buyer’s claims against a seller for not disclosing known defects in their house.  In this case, the sellers apparently purchased a dilapidated house (cheaply) and renovated the house with the intent on flipping the house to another buyer.  The house was sold.  Defects were not disclosed.  After the sale, the buyer discovered numerous construction defects.  The buyer sued the seller, amongst others, for failing to disclose these defects that the buyer contended the seller knew about or should have reasonably known about.

 

The First District explained:

 

The duty to disclose known defects under Johnson v. Daviscontinues to exist for a home sold “as is.” The sellers do not dispute this principle. Despite selling this house “as is,” the sellers had a duty to disclose what they knew about its condition, and they undertook to make disclosures to Appellant [buyer] about the condition of the house. The record demonstrates triable issues of fact about what that condition was, what the sellers knew about it, what disclosures were made, and whether those disclosures were accurate.

 

This means the buyer is able to let the trier of fact (jury or judge) determine the issue of whether the seller knew of the construction defects but failed to disclose them to the buyer.  This is a good case for a buyer since it supports the argument that these are issues to be determined by the trier of fact, putting pressure on the seller based on how the trier of facts may interpret the facts knowing the house they just sold contains numerous construction defects. For instance, in this case, the First District noted: “This evidence raises a question of fact about the appellees’ [seller’s] knowledge, as well as questions about their credibility and the plausibility of their denying knowledge of the property’s substantial defects and what repairs it needed.”

 

Consult an attorney if you purchase a house and discover construction defects, especially if you believe you just bought a money pit.  An attorney can assist you with potential recourse under the law.  

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.

 

STATUTE OF LIMITATIONS AND REPOSE FOR INDEMNIFICATION CLAIMS (STEMMING FROM CONSTRUCTION DEFECT)

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I have written articles regarding the statute of limitations and statute of repose relating to construction disputes governed under Florida Statute s. 95.11(3)(c):

 

Within Four Years.  An action founded on the design, planning, or construction of an improvement to real property, with the time running from the date of actual possession by the owner, the date of the issuance of a certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer, whichever date is latest; except that, when the action involves a latent defect, the time runs from the time the defect is discovered or should have been discovered with the exercise of due diligence. In any event, the action must be commenced within 10 years after the date of actual possession by the owner, the date of the issuance of a certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer, whichever date is latest.

 

In the construction defect context, a claimant has four years to sue from the date they knew or reasonably should have known with the exercise of due diligence the defect (e.g, the latent defect).  This is the statute of limitations.  Nonetheless, a claimant must sue no matter what on a latent defect within ten years from the project’s completion (see statute above).  This is the statute of repose.  A construction defect lawsuit cannot be initiated after the expiration of the statute of repose.

 

Let’s assume the following dates:

 

            Project completion (start of limitations)                                          2005

            First discovery of water intrusion                                                   2008

            General contractor completes repairs                                            2011

            General contractor sues subcontractor for indemnification            2013

 

In this scenario, the subcontractor may argue that the general contractor’s statute of limitations to sue the subcontractor for the defect and damage is barred by the statute of limitations since the first discovery of water intrusion was in 2008 and the general contractor waited to sue until 2013 (five years later).

 

But, wait…the general contractor is going to sue the subcontractor for indemnification (preferably, contractual indemnification based on the terms of the subcontract). In this scenario, the general contractor is suing after it completed repairs and established its liability to the owner for repairing the defects and damage. 

 

“The statute of limitations for an action seeking indemnity does not being running until the litigation against the third-party plaintiff [general contractor] has ended or the liability [against the third-party plaintiff], if any, has been settled or discharged by payment.” Castle Constr. Co. v. Huttig Sash & Door Co., 425 So.2d 573, 575 (Fla. 2d DCA 1982) (finding general contractor’s indemnity claim against subcontractor did not accrue until the owner’s litigation against the general contractor ended or the general contractor’s liability determined).  Stated differently, the statute of limitations for the general contractor’s indemnification claim did not begin to start running until 2011 when its liability to the owner for the defects was discharged / settled.

 

Now, let’s assume the following dates:

 

     Project completion (start of limitations)                                          2005

            First discovery of water intrusion                                                   2008

            General contractor completes repairs                                            2013

            General contractor sues subcontractor for indemnification            2016

 

In this instance, the subcontractor may argue that the statute of repose expired because the general contractor waited until 2016 or eleven years after the statute of limitations started to accrue in 2005.  Guess what?  The subcontractor would be right.  See Dep’t of Transp. V. Echeverri, 736 So.2d 791 (Fla. 3d DCA 1999) (explaining that the statute of repose for construction defect claims still applies to claims for indemnity).  Stated differently, even though the general contractor sued the subcontractor for indemnification within three years of establishing its liability, it was still bound by the ten year statute of repose that started accruing in 2005, meaning such lawsuits were barred after 2015.

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.