THERE ARE CONSEQUENCES TO EXECUTED DOCUMENTS SUCH AS THE ACCORD AND SATISFACTION DEFENSE

Posted on September 22, 2024September 22, 2024 by David Adelstein

A federal government contractor in Jackson Construction Co., Inc. v. U.S., 62 Fed.Cl. 84 (Fed.Cl. 2024) sought delay damages against the government. It lost. The reason for the loss is a crucial reminder that documents parties sign ALWAYS matter. ALWAYS!!

In Jackson Construction Co., the contractor’s delay claim was premised on relocating a waterline. The contractor, however, received additional money for relocating the waterline, but no additional time, and this was memorialized in a modification to the contract (i.e., a change order). In executing the modification for the additional work, the contractor did NOT reserve rights for time or money. Indeed, the modification reflected that the monetary adjustment constitutes full compensation for the additional work including delay, namely:

The contract period of performance remains the same. It is further understood and agreed that this adjustment constitutes compensation in full on behalf of the contractor and his subcontractors and suppliers for all costs and markup directly or indirectly, including extended overhead, attributable to the change order, for all delays related thereto, and for performance of the change within the time frame stated.

Jackson Construction Co., supra, at 90.

The contractor made a few arguments to try to overcome the modification it agreed to. All failed.

An “executed bilateral modification with a release provision usually constitutes an accord and satisfaction unless that release is either ambiguous or limited in scope.” Jackson Construction Co., supra, at 92.

An ‘accord’ is a contract under which both parties agree that one party will render additional or alternative performance in order to settle an existing claim made by the other party, and ‘satisfaction’ is the actual performance of the accord. The party asserting an accord and satisfaction defense must establish four elements: (1) proper subject matter; (2) competent parties; (3) a meeting of the minds; and (4) consideration.

Id. (internal citation omitted).

The contractor could reserve rights in a modification to avoid the accord and satisfaction defense. Without the reservation of rights, “the Court must focus on whether or not the parties’ objective manifestations of intent demonstrate that they reached a meeting of the minds with respect of additional claims.” Id. at 93.

Here, the contractor did not reserve its rights in the modification it executed. Thus, the contractor did not preserve its delay claim for the additional waterline relocation. To this point, there was no evidence that the contractor intended to reserve rights to assert a delay claim at the time it executed the modification.

While the contractor looked to avoid the accord and satisfaction defense by arguing the release in the modification was ambiguous and procured through government misrepresentation, the court was having none of this. There was no evidence of any misrepresentation or ambiguity.

The contractor further argued that it signed the modification due to economic duress.

A party asserting economic duress must show more than economic tension or financial harm. Jackson Construction Co., supra, at 95. “A party asserting economic duress must prove that: (1) its acceptance of the other party’s terms was involuntary; (2) the circumstances permitted no alternative but to accept the terms; and (3) the acceptance resulted from the coercive acts of the other party.” Id. The contractor could not prove any of those elements.

The key takeaway is that parties need to appreciate what they execute and that there are consequences to executing documents. The contractor could have reserved rights. It did not. As a result, the contractor had to rely on weak arguments that it had no evidence to support…all because of the consequences of the modification the contractor signed.

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.

IMPROPER MEANS EXCEPTION AND TORTIOUS INTERFERENCE CLAIMS

Posted on July 9, 2023July 9, 2023 by David Adelstein

Last week, I discussed a case (here) that involved a federal district court (trial court) denying a motion to dismiss on a negligent supervision claim.

In this same case, the plaintiff, a subcontractor/fabricator, also sued the defendants–parent company of a prime contractor and two entities the prime contractor hired to inspect the subcontractor’s fabricated units–for tortious interference of the subcontractor’s contract with the prime contractor. The defendants moved to dismiss this tortious interference claim which gave rise to another interesting discussion by the trial court relating to the burden to plead and prove tortious interference claims. This discussion is worthy to remember the next time you not only want to plead a tortious interference claim, but want to be in a position to put on evidence to prove the claim at trial.

“Under Florida law, the elements of a tortious-interference-with-contract claim are: ‘(1) the existence of a contract, (2) the defendant’s knowledge of the contract, (3) the defendant’s intentional procurement of the contract’s breach, (4) absence of any justification or privilege, and (5) damages resulting from the breach.’” Bautech USA, Inc. v. Resolve Equipment, 2023 WL 4186395 (S.D.Fla. 2023) (citation omitted).

With respect to the fourth element underlined above, “absence of any justification or privilege,” the tortious interference must be UNJUSTIFIED meaning the third party “must be a third party, a stranger to the business relationship.” Id. (citation omitted). “[A] defendant is not a stranger to a business relationship, and thus cannot be held liable for tortious interference, when it has a supervisory interest in how the relationship is conducted or a potential financial interest in how a contract is performed.” Id. (citation omitted).

Notwithstanding, this does NOT mean there is an absolute privilege to interfere with a contract even if you are not a stranger to the business relationship. Bautech, supra (citation omitted).

In those circumstances in which there is a qualified privilege to interfere with a business relationship, the privilege carries with it the obligation to employ means that are not improper. In the case of officers or employees of a contracting party, the privilege is ‘destroyed where an employee acts solely with ulterior purposes, without an honest belief that his actions would benefit the employer, and the employee’s conduct concerning the contract or business relationship is not in the employer’s best interest.’ Put another way: the ‘privilege to interfere with a third party’s conduct does not include the purposeful causing of a breach of contract.”

Id. (internal citations omitted).

This exception is referred to as the “improper means exception.” Id.

However this “improper means exception” does not apply to an agent of the party to the contract. Id. (citation omitted).

Here, the defendants were not strangers to the subcontractor’s contract with the prime contractor as they were involved in the supervision of the subcontract or, regarding the parent entity of the prime contractor, had a financial interest. But this does not mean the tortious interference claims fails because the plaintiff alleged (and would need to prove withe evidence) the defendants acted with improper means to satisfy the improper means exception, and the plaintiff did not allege that any of the defendants were agents of the prime contractor. Based on the improper means exception, the trial court found the plaintiff did assert a viable tortious interference claim against the defendants…to be decided at a later date.

BREACH OF DUTY OF GOOD FAITH AND FAIR DEALING PACKAGED WITH CONTRACT DISPUTES ACT CLAIM

Posted on March 12, 2023March 12, 2023 by David Adelstein

An interesting opinion on a motion to dismiss came out of the United States Court of Federal Claims dealing with the claim that the government breached its duty of good faith and fair dealing in administering the prime contract. The contractor’s argument was that the government breached its duty of good faith and fair dealing by denying the contractor’s claim under the Contract Disputes Act (CDA). This was a creative claim and argument that deserves consideration because it tied in the contracting officer’s denial of the CDA claim for additional money with a breach of the duty of good faith and fair dealing.

In this case, Aries Construction Corp. v. U.S., 2023 WL 2146598 (Fed. Cl. 2023), a prime contractor was hired for a water pipeline construction project. The contractor encountered unexpected difficult site conditions that required additional equipment and labor. The contractor informed the contracting officer and alleged it was instructed to proceed with the additional equipment and labor. The contractor submitted a claim under the CDA but the contracting officer denied the claim. The contractor pursued the claim in the United States Court of Federal Claims arguing the government breached the contract and, of interest, breached its duty of good faith and fair dealing.

The government moved to dismiss the breach of good faith and fair dealing claim arguing that besides failing to state a cause of action the Court of Federal Claims had no jurisdiction because the breach of the duty of good faith and fair dealing was not properly presented to the contracting officer under the CDA. The Court of Federal Claims denied the government’s motion.

Jurisdiction

For a CDA claim to the contracting officer to be ‘the same’ as a claim in this Court, the claims must be based on the same basic theory, arise from the same operative facts, and seek the same relief. By the same token, this Court ‘treat[s] requests as involving separate claims if they … assert grounds that are materially different from each other factually or legally. [The government] does not appear to dispute that [the contractor] presented the same operative facts to the contracting officer and sought the same relief. The question, rather, is whether [the contractor] presented the same basic legal theory to the contracting officer.

Aries Construction, supra, at *2 (internal citations omitted).

The Court of Federal Claims held that it has jurisdiction if the claim in the Court arises from the same operative facts and claims basically the same relief as the CDA claim submitted to the contracting officer even if different legal theories of recovery are sought by the contractor. Id. (quotations omitted). “If the contracting officer was on notice of the factual and legal substance, the contractor may assert a ‘slightly different legal theory[y] when he sues.” Id.

Breach of Duty of Good Faith and Fair Dealing

For purposes of a breach of good faith and fair dealing claim against the government, the contractor must show:

[T]hat ‘a specific promise’ in the contract was ‘undermined by the government. The promise must be grounded in the terms of the contract, because ‘what the duty entails in part on what the contract promises (or disclaims). [The contractor] must also show ‘subterfuge[]’ or ‘evasion[],’ such as ‘evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, [or] interference with or failure to cooperate in the other party’s performance. Against the government, such claims ‘typically involve some variation on the old bait-and-switch’ or ‘government action … specifically designed to reappropriate the benefits the other party expected to obtain from the transaction[.]’

Thus, a claim for breach of good faith and fair dealing must include (1) a specific promise that was undermined, plus some combination of (2) subterfuge, evasion, or dishonesty, and (3) reappropriation of a reasonably expected benefit. If the [contractor] presented such facts to the contracting officer with a claim for money, then the contracting officer had sufficient notice of a good faith and fair dealing claim, even if the current legal packaging is ‘slightly different.”

Aries Construction, supra, at *3.

Denying Government’s Motion to Dismiss

The contractor’s CDA claim was premised on an equitable adjustment due to it being instructed to perform additional work to overcome unexpected site conditions. “The contracting officer was therefore on notice that if he denied an equitable adjustment to which [the contractor] was entitled, [the contractor] could allege that the government reappropriated the contract’s promised benefits. That, in turn, meant the contracting officer was on notice of the facts and general legal basis that could support a claim for breach of duty of good faith and fair dealing.” Aries Construction, supra, at *3.

DON’T PUT YOURSELF IN THE POSITION OF DEFENDING AGAINST AN ACCORD AND SATISFACTION DEFENSE

Posted on September 10, 2022November 12, 2023 by Edward Garber

The doctrine of accord and satisfaction lives and breathes in disputes including construction disputes. Unfortunately, a contractor, in the case discussed below, found out the hard way after it cashed checks that were accompanied with a letter that clearly indicated the checks were final payment. Once those payments were cashed, there was no “buyer’s remorse” that would allow it to still pursue disputed amounts. Remember this the next time you accept and cash a payment that says on the check it is full and final payment OR is accompanied by a letter that makes clear the payment is full and final payment. If you cash it, there is no second bite out of the apple, so to speak. If you are not interested in the payment being full and final payment, return the check. If you are not sure, either return the check or inquire and get that response in writing. Don’t put yourself in the position of defending against an accord and satisfaction defense.

Even without the doctrine of accord and satisfaction, the contract between the contractor and owner discussed below made clear that contractor’s acceptance of final payment meant that contractor was unconditionally waiving other claims against the owner, further reinforcing that there would be no second bite out of the apple.

The morale:

(1) read the letter that accompanies a check and do NOT cash a check that indicates it is for final payment unless you are prepared to accept that amount; and

(2) read your contract to understand any contractual obligation that kicks-in with the acceptance of final payment.

In Construction Consulting, Inc. v. The District Board of Trustees of Broward College, 47 Fla.L.Weekly D1847a (Fla. 4^th DCA 2022), a contractor (construction manager) was in a payment dispute with a public owner regarding separate projects under a master services agreement. The owner sent the contractor a letter with three checks. The letter identified itself as a reconciliation report for the projects and stated it was a summary of the final agreement to reconcile final payment for outstanding invoices. While the checks did not identify any “payment in full” language, the reconciliation report that accompanied the checks made clear the checks were for final payment. There was no ambiguity in this regard. The master services agreement also stated, “Construction Manager’s acceptance of Final Payment shall constitute an unconditional waiver and release of all claims by Construction Manager for additional compensation beyond that provided in the Final Payment.”

The contractor cashed the checks and filed a lawsuit against the owner for the delta it disputed. The owner moved for summary judgment under an accord and satisfaction defense. Summary judgment was entered in favor of the owner. The appellate court affirmed. The appellate court, in affirming, provided a valuable synopsis on the law of accord and satisfaction that is worthy of sharing so that you are not put in the same position as this contractor if you truly dispute a final payment:

Accord and satisfaction is a legal doctrine that has long been a part of Florida contract law.

“An accord and satisfaction results when: (1) the parties mutually intend to effect a settlement of an existing dispute by entering into a superseding agreement; and (2) there is actual performance in accordance with the new agreement.” Compliance with the new agreement discharges the prior obligations.” Thus, “if an offer clearly serves as an accord and satisfaction, and the other party accepts the offer, then he or she is bound to the conditions attached.”

The Florida Supreme Court has declared that “when a claim in controversy is open and unliquidated and the party to whom it is due accepts payment in full it will operate as an accord and satisfaction even though the party to whom paid declares that he takes it only in part satisfaction.” Thus, a party who so accepts a payment tendered in full cannot cabin the legal effect of its acceptance.

By contrast, where the facts do not demonstrate that the parties agreed to resolve a dispute by payment of a set amount, “a partial payment of a legal obligation does not act to satisfy and discharge that obligation.”

The language used by the parties in a transaction is crucial to the creation of an accord and satisfaction. “An accord and satisfaction results as a matter of law only when the creditor accepts payment tendered on the expressed condition that its receipt is deemed to be a complete satisfaction of a disputed issue.” “When a creditor negotiates the tendered check with knowledge of the debtor’s intent, whether through discussions, correspondence, or unambiguous language on the check, he is then bound to the agreement and cannot later turn around and sue for the remaining balance due under the former dispute.” Therefore, “[i]f a creditor does not assent to the condition, then the proper course of action is to return the check. Simply put, the creditor cannot have his cake and eat it too.”

***

Florida courts have thus recognized that a creditor’s acceptance of payment results in an accord and satisfaction where the check itself or an accompanying writing expressly indicates that the check constitutes payment in full of the debtor’s obligations.

Cases finding no accord and satisfaction have focused on ambiguities in transmittal letters and a lack of clarity as to the matters that a tender was supposed to cover.

Construction Consulting, Inc., supra (internal citations omitted).

For more on accord and satisfaction, please review this posting.

JUST BECAUSE I MAY BE AN “EXPERT” DOES NOT MEAN I AM GIVING EXPERT TESTIMONY

Posted on January 8, 2022January 8, 2022 by Edward Garber

On a construction project, it’s hard to argue that the involved parties — whether an architect, engineer, contractor, subcontractor, developer, etc. — are not experts in their field, i.e., they all some scientific, technical, or specialized knowledge or skill particular to their industry. However, this does NOT mean when they testify in trial, at an arbitration, or at a deposition regarding the construction project they are offering expert opinions / testimony as it pertains to that project. Testifying as to facts based on personal knowledge or involvement on a project makes you a fact witness and is different than evaluating and rending an after-the-fact opinion as to the work of others. This does not minimize your knowledge or expertise; it simply means that relative to the construction project you are involved with, your testimony is that of a fact witness and not of an expert. (It is possible to wear both the fact witness and expert witness hat, but that depends on your subsequent role in the litigation or arbitration.)

A good discussion on this premise can be found in a non-construction case, Buzby v. Turtle Rock Community Association, Inc., 47 Fla. L. Weekly D99a (Fla. 2d DCA 2022), dealing with whether a lawyer was testifying as an expert regarding his own fees. The attorney thought he should be paid for his testimony because he was a professional testifying as to his own attorney’s fees. Yet, his testimony was not actually in the form of expert testimony, but factual testimony as to his own fees. The appellate court held the lawyer was NOT entitled to an expert fee (being paid for this time as an expert), and this rationale can equally be extended to parties testifying on construction projects:

This distinction between testimony (i) describing historical facts from personal knowledge and (ii) evaluating the work of others is not limited to doctors; it applies to attorneys as well.

Thus, the question of whether a witness testifies as an expert – and is thereby entitled to an expert fee – depends not only on the witness’s credentials, but also on whether the witness actually gives expert testimony.

***

Like a treating physician, [the attorney] testified to facts within his personal knowledge about acts that he either took or supervised. Even though the acts [the attorney] described involved technical matters, [the attorney’s] recollections of them “are facts nonetheless.”

***

[The attorney’s] decision to volunteer an opinion about his own work did not transform the nature of the deposition or his purpose of testifying.

Buzby, supra (internal citations omitted).

ADDITIONAL ELEMENTS A PLAINTIFF MUST PLEAD AND PROVE TO ENFORCE RESTRICTIVE COVENANT

Posted on March 21, 2021March 21, 2021 by Edward Garber

Florida Statute s. 542.335 is a statute that deals with restrictive covenants in contracts that impose a restraint on trade. It is an important statute to determine invalid restraints on trade that unreasonably or unfairly prevent competition. Any invalid restraint on trade is unenforceable. Restrictive covenants–or covenants in agreements that restrict you or prevent you from doing something–may unsuspectingly be included in contracts or the impact of the restrictive covenant may not be appreciated at the onset.

A party seeking to enforce a restrictive covenant in a contract has the additional burden of PROVING the validity and reasonableness of the restrictive covenant:

Under section 542.335, three requirements must be satisfied for a restrictive covenant to be enforceable: (1) the restrictive covenant must be “set forth in a writing signed by the person against whom enforcement is sought”; (2) the party seeking to enforce the restrictive covenant “shall plead and prove the existence of one or more legitimate business interests justifying the restrictive covenant”; and (3) the party seeking to enforce the restrictive covenant “shall plead and prove that the contractually specified restraint is reasonably necessary to protect the legitimate business interest or interests justifying the restriction.”

“Any restrictive covenant not supported by a legitimate business interest is unlawful and is void and unenforceable.” However, “[s]ection 542.335 commands courts to modify, or blue pencil, a non-competition agreement that is ‘overbroad, overlong, or otherwise not reasonably necessary to protect the legitimate business interest,’ instructing courts to ‘grant only the relief reasonably necessary to protect such interest.’ ”

Rauch, Weaver, Norfleet, Kurtz, & Co, Inc. v. AJP Pine Island Warehouses, Inc., 46 Fla.L.Weekly D591a (Fla. 4^th DCA 2021) (internal citations omitted).

For instance, in a non-construction case, a real estate broker entered into a six-month exclusive listing agreement to sell commercial property. The broker reached out to a prospective buyer (a neighbor of the seller) but asked the buyer to enter into a confidentiality agreement. The confidentiality agreement provided that the prospective buyer would not disclose financial information to any other person and would not negotiate with the owner (seller) of the property, i.e., a restrictive covenant. The prospective buyer made an offer but the seller rejected the offer. Subsequently, the exclusive listing agreement expired and the seller engaged a new broker. The new broker reached out to the same prospective buyer and, after further negotiation, the prospective buyer made another offer that the seller accepted.

When the original broker learned of the transaction, it sued the buyer for breaching the confidentiality agreement. The buyer argued that section 542.335 applied to render the confidentiality agreement unenforceable. The trial court and appellate court agreed that section 542.335 dealing with restraints on trade applied to govern the enforceability of the restrictive covenant – “The threshold requirements of section 542.335 [referenced above] are essential elements in any cause of action [that a party must plead and prove] concerning enforcement of a restrictive covenant.” Rauch, Weaver, Norfleet, Kurtz, & Co, Inc., supra.

Here, the confidentiality agreement was not signed, which was problem number one. Other problems included that its restrictive covenant was indefinite in time. While the court could modify this, any reasonable length of time would be the original broker’s six month listing agreement and the buyer did not violate the confidentiality agreement during this period. Putting all of this aside, when dealing with a restrictive covenant, it is imperative to consider the requirements of s. 542.335 and the additional burdens a party must plead and prove to enforce a restrictive covenant.

STATUTORY BAD FAITH CLAIM NOT TOLLED MERELY BECAUSE PROPERTY INSURER INVOKES APPRAISAL PER THE POLICY

Posted on February 28, 2021February 28, 2021 by Edward Garber

A statutory bad faith claim is NOT tolled merely because the property insurer invoked the appraisal process in the property insurance policy. Zaleski v. State Farm Florida Ins. Co., 46 Fla.L.Weekly D416b (Fla. 4^th DCA 2021). A statutory bad faith claim requires the insured to comply with Florida Statute s. 624.155 and submit a civil remedy notice with Florida’s Department of Financial Services identifying the bad faith violations. The insurer is given sixty days to cure the asserted bad faith violations (typically involving non-payment or the payment of a lowball amount due to failure to settle a claim in good faith).

A statutory bad faith claim under s. 624.155 “is ripe for litigation when there has been (1) a determination of the insurer’s liability for coverage; (2) a determination of the extent of the insured’s damages; and (3) the required [civil remedy] notice is filed pursuant to section 624.155(3)(a).” Zaleski, supra (citation omitted).

In Zaleski, the property insurer argued that the sixty-date statutory cure period under section 624.155 should be tolled when it invokes the appraisal process within this sixty-day window; and because the insurer timely paid the award rendered by the appraiser, there can be no statutory bad faith. This argument was rejected:

The appraisal award is not a condition precedent to [the property insurer’s] obligation to pay Homeowners a fair amount due under the policy. To allow the sixty-day cure period to toll at the invocation of the appraisal process would allow insurers to cause delay or otherwise act in bad faith while escaping liability as long as it makes payment within the sixty-day time period of the appraisal award. This would negate and frustrate the purpose of the statute.

Zaleski, supra.

Of importance, when an insurer receives a statutory bad faith claim (i.e., the civil remedy notice), it

[M]ust evaluate a claim based upon proof of loss required by the policy and its expertise in advance of a determination by a court or arbitration. In other words, when an insurer receives a claim, it has an independent duty to evaluate the claim in advance of a determination of damages and take timely, independent action. Thus, the focus in a bad faith case is not whether the insurer ultimately paid the amounts due under the policy, but whether it acted reasonably in evaluating a claim prior to the determination of damages.

For example, “[a] fair evaluation would be evidence that an insurer did not action in bad faith. But a lowball offer made in bad faith is not cured by an insurer ultimately paying what it is later found to owe via appraisal process.” The determination of good faith or bad faith, however, “is usually a question for the finder of fact.”

Zaleski, supra, (internal citations omitted).

As I have mentioned in prior articles, it is key to work with qualified counsel when pursuing a property insurance claim and, of course, a bad faith insurance claim. Counsel can ensure all rights are preserved when it comes to preserving a bad faith claim and preparing and submitting the required civil remedy notice that starts the clock for the sixty-day cure period. Notably, in Zaleski, the insurer recognized coverage and paid what the insured believed, and what turned out to be, a lowball amount. The insured filed its civil remedy notice to start the cure period. The insurer then invoked the appraisal process hoping it would cure the sixty-day cure period; it did not. The appraiser determined the insured was entitled to almost the amount the insured’s adjuster valued the claim, which the insurer paid. However, as discussed, the invocation of the appraisal process and the timely payment of the appraiser’s award had NO bearing on whether the insurer committed bad faith based on its initial lowball payment.

DISPUTE RESOLUTION PROVISION IN SUBCONTRACT THAT SAYS OWNER, ARCHITECT OR ENGINEER’S DECISION IS FINAL

Posted on February 19, 2021February 19, 2021 by Edward Garber

In subcontracts, it is not uncommon to see a provision that says something to the effect:

Should any dispute arise between the parties respecting the true construction or interpretation of the Plans, Specifications and/or the Contract Requirements, the decision of the Owner or the Owner’s designated representative as set forth in the General Contract shall be final.

This is a provision in a subcontract dealing with dispute resolution, typically when there is a dispute as to whether the subcontractor is performing extra-contractual or base contract work regarding an “interpretation of the Plans, Specifications, and/or the Contract Requirements.” It is not uncommon for there to be a dispute as to whether certain work is within the subcontractor’s scope of work or outside the subcontractor’s scope of work and subject to a change order.

This language, however, is not a get out of jail free card for a contractor just because the owner or the architect render a decision adverse to the subcontractor.

For instance, in F.H. Paschen, S.N. Nielsen & Associates, LLC v. B&B Site Development, Inc., 2021 WL 359487 (Fla. 4^thDCA 2021), the subcontract contained the same provision discussed above. During construction, a dispute arose as to whether a 561 square yard asphalt area was required to be demolished by the subcontractor and replaced with concrete. The subcontractor claimed this area was not within its base scope of work that only required it to demolish concrete areas and replace such areas with new concrete. The subcontractor was directed to perform this disputed work and submitted its costs to the contractor. The contractor submitted the subcontractor’s costs to the architect and the architect decided that the 561 square yard asphalt area was included in the contractor’s scope of work. The contractor used the architect’s decision to argue the subcontractor was not entitled to the additional costs because the asphalt area was included in the subcontractor’s scope of work.

Unfortunately for the contractor, the court disagreed based on the express terms of the subcontract. The subcontract did not use the term asphalt or require the subcontractor to demolish asphalt areas. It did require the subcontractor to demolish concrete or pavement areas. The court found that:

[T]he only reasonable interpretation of the subcontract is that the scope of work did not include the removal and replacement of asphalt [area] of the parking lot. ‘Asphalt’ and ‘concrete’ are not synonymous terms. Nothing in the subcontract stated that the Sub was required to remove any asphalt from the parking lot. The subcontract did not say that the Sub was required to remove pavement from the ‘entire’ parking lot. Nor did the subcontract describe the specific square footage of pavement that the Sub was to remove.

B&B Site Development, supra, at *3.

Well, what about the validity of the decision of the architect that found the demolition and replacement of this asphalt area to be within the contractor’s scope of work?

While there are certainly times such a provision is governing, “construction contracts cannot leave the arbitrary or fraudulent decision of an architect or engineer or the like to operate as a conclusive settlement of matters in controversy.” B&B Site Development, supra, at *4 (quotation and citation omitted). Stated differently, “[t]he law does not allow a third party’s arbitrary decision concerning the scope of a contract’s specifications ‘to operate as a conclusive settlement of matters in controversy.’” Id. (citation omitted).

Here, the court found that the subcontract was clear as to the subcontractor’s scope and allowing the architect’s decision to be conclusive would “unfairly allow the revision of the explicit scope of a subcontract after work has commenced, to the detriment of the subcontractor.” B&B Site Development, supra, at *4.

It was clear that the 561 square yard asphalt area was included in the contractor’s scope of work. However, it was also clear that this scope of work was not clearly included in the subcontractor’s scope of work. As a result, it would be arbitrary for the architect to find this scope of work was included in the subcontract (when the architect never reviewed the subcontract) just because the contractor was always responsible for this work. Clearly defined scopes of work are important. This case illustrates why because had the subcontract included language that suggested the asphalt area was within the subcontractor’s scope of work, the ruling would have been different because the architect’s decision as to what was included in the contractor’s scope of work would have presumably been passed to the subcontractor.

MEASURE OF DAMAGES FOR A CHATTEL INCLUDING LOSS OF USE

Posted on October 10, 2020October 10, 2020 by Edward Garber

In a non-construction case, but an interesting case nonetheless, the Second District Court of Appeals talks about the measure of damages when dealing with chattel (property) including loss of use damages. Chattel, you say? While certainly not a word used in everyday language, a chattel is “an item of tangible movable or immovable property except real estate and things (such as buildings) connected with real property.” Equipment, machinery, personal items, furniture, etc. can be considered chattel.

With respect to the measure of damages for a chattel:

“Where a person is entitled to a judgment for harm to chattels not amounting to a total destruction in value,” the plaintiff may make an election out of two theories of recovery in addition to compensation for the loss of use. Badillo v. Hill, 570 So. 2d 1067, 1068 (Fla. 5th DCA 1990) (quoting Restatement of Torts § 928 (Am. Law Inst. 1939)). In addition to compensation for the loss of use, the plaintiff may elect either “the difference between the value of the chattel before the harm and the value after the harm” or “the reasonable cost of repairs or restoration where feasible, with due allowance for any difference between the original value and the value after repairs.” Id. (quoting Restatement of Torts § 928).

Sack v. WSW Rental of Sarasota, LLC, 45 Fla.L.Weekly D2306a (Fla. 2d DCA 2020).

Sack is a good example of a case dealing with the measure of damages with a chattel, here, an aircraft, including loss of use damages.

An owner rented its aircraft to a pilot. The pilot had an accident landing the aircraft causing damage to the aircraft and resulting in it resting in mud. The owner of the aircraft and its managing member sued the pilot for damage to the aircraft including loss of use of the aircraft. At trial, there was evidence that the aircraft incurred $219,106.81 in damages of which $40,000 remained unpaid (the balance being paid by insurance). Furthermore, there was evidence that the value of the aircraft before the accident was $550,000 and the value of the aircraft after repairs was $350,000. Thus, the appellate court held the measure of damages was $240,000 ($40,000 in unpaid repair costs + $200,000 associated with the diminution in value of the pre-accident aircraft to the repaired post-accident aircraft) plus loss of use damages. (Loss of use damages was awarded at trial of $165,000 calculated “by multiplying the reasonable hourly rate of renting the [a]ircraft ($1500) by the reasonable length of time [the owner] was without the [a]ircraft (11 months) by the reasonable number of hours per month [the owner] used the [a]ircraft (10).” Sack, supra.)

Of interest, loss of use damages were properly awarded “despite the fact that [the owner] testified that he had never chartered or rented another aircraft while this aircraft was out of use.” Sack, supra. Hence, the fact that the owner did not rent or charter another aircraft during the eleven months its aircraft was out of use did NOT preclude the owner from pursuing and being awarded loss of use damages. The Second District did, however, state that loss of use damages was properly awarded to the owner—the entity that owned the aircraft—but not the managing member that was not the registered owner.

“OTHER INSURANCE” PROVISIONS TO LIMIT INSURER’S RISK

Posted on February 22, 2020February 22, 2020 by Edward Garber

Insurance policies often contain an “Other Insurance” provision to limit or control an insurer’s risk if another insurer covers the same risk / loss. See Pavarini Construction Co. (Se) Inc. v. Ace American Ins. Co., 161 F.Supp.3d 1227, 1234 (S.D.Fla. 2015) (“Other Insurance” provisions apply “when two or more insurance policies are on the same subject matter, risk, and interest.”). This is an important provision to insurers and may be modified by an endorsement to your insurance policy. It is designed to determine whether the policy, as discussed below, should serve as a primary policy or excess policy. It is important to understand this “Other Insurance” provision and its application because it will come up, particularly in a multi-party construction defect dispute.

An example of an “Other Insurance” provision in a commercial general liability (CGL), subject to any modification through an endorsement to the policy, may provide something to the effect:

4. Other Insurance

If other valid and collectible insurance is available to the insured for a loss we cover under Coverages A or B of this Coverage Part, our obligations are limited as follows:

a. Primary Insurance

This insurance is primary except when b. below applies. If this insurance is primary, our obligations are not affected unless any of the other insurance is also primary. Then we will share with all that other insurance by the method described in c. below.

b. Excess Insurance

This insurance is excess over:

1. Any of the other insurance, whether primary excess, contingent, or on any other basis:

(a) That is Fire, Extended Coverage, Builder’s Risk, Installation Risk or similar coverage for “your work”;

2. Any other primary insurance available to you covering liability for damages arising out of the premises or operations for which you have been added as an additional insured by attachment of an endorsement.

c. Method of Sharing

If all of the other insurance permits contribution by equal shares we will follow this method also. Under this approach, each insurer contributes equal amounts until it has paid its applicable limit of insurance or none of the loss remains, whichever comes first.

If any of the insurance does not permit contribution by equal shares, we will contribute by limits. Under this method, each insurer’s share is based on the ratio of its applicable limit of insurance to the total applicable limits of insurance of all insurers.

If a policy is deemed as excess coverage, than “liability attaches only after a predetermined amount of primary coverage has been exhausted.” Tudor Ins. Co. v. American Casualty Co. of Reading Pennsylvania, 274 F.Supp.3d 1278, 1283 (N.D.Fla. 2017) (quotation and citation omitted). Hence, the “Other Insurance” provision allows an insurer to limit or control its risk by turning the policy into an excess policy. Id. (when excess provision applies than limits of the primary policy need to first be exhausted).

When deciding the priority of coverage among multiple insurers, Florida courts generally rely on the language of the several policies, with careful attention to the other insurance clauses. Where two insurance policies contain conflicting excess other insurance clauses, those clauses cancel one another out…. [W]here a court must allocate between two policies at the same level that contain incompatible excess clauses, the majority rule is that the two excess clauses cancel each other out, and the loss is pro-rated between the two policies. The proper method of allocation is to disregard the other insurance clauses, treat the two excess insurers as co-excess insurers, and pro-rate the loss between the two policies.

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Florida law recognizes an exception to the rule governing competing “Other Insurance” provisions where a right of indemnification exists between the parties insured under the respective policies of insurance, especially where … one of the policies happens to cover the indemnity obligation. In this circumstance, a clear majority of jurisdictions give controlling effect to the indemnity obligation of one insured to the other insured over the ‘other insurance’ or similar clauses in the policies of insurance. Florida cases have consistently recognized that where a loss is covered by two or more primary policies of insurance, the operation of an indemnification agreement between the common insureds has the result of shifting responsibility for the entire loss to the carrier for the indemnitor. [U]nder Florida law an indemnity agreement control[s] all the rights and obligations of the parties and their privies (the insurers), and the fact that the parties carried insurance did not ‘detract from or modify’ their indemnity agreement.

Amerisure Ins. Co. v. Auchter Company, 2017 WL 3601387, *24 (M.D. 2017) (internal quotations and citations omitted). See also Pavarini Construction Co. (Se) Inc., 161 F.Supp.3d at 1235 (“Courts disregard “Other Insurance” provisions where…there is a contractual right or indemnification.”).