CONSIDER THE RISKS ASSOCIATED WITH AN EXCULPATORY CLAUSE

Posted on August 25, 2019August 25, 2019 by Edward Garber

An exculpatory clause in a contract is a clause aimed at relieving another party from certain liability. A disclaimer and insulation from liability. Obviously, if you are the party relieving the other party from liability, you want to consider this risk including the potential enforceability of this risk if something goes wrong. If you are the party asking for the insulation from liability, you do not want to create an exculpatory provision that disclaims and insulates you of all liability arising from the contract as it may create an illusory effect – that the agreement is nothing but a naked promise on your end because your promise is fully disclaimed and you are insulated from liability if you break your promise. This could result in an unenforceable contract.

The validity of such an exculpatory clause was at-issue in Pier 1 Cruise Experts v. Revelex Corp., 2019 WL 3024618 (11^thCir. 2019). Although not a construction dispute, the exculpatory clause in this case was with two fairly sophisticated parties and expressly insulated one of the contracting parties from “any…damages regardless of kind or type…whether in contract, tort (including negligence), or otherwise.” Pier 1 Cruise Experts, 2019 WL at *7. This is a powerful exculpatory clause because it could be broadly construed to insulate that party from its own breaches of the contract.

In Florida:

[A]n exculpatory clause is enforceable so long as (1) the contracting parties have equal bargaining power and (2) the clause’s provisions are clear and unambiguous. With respect to the latter requirement, ‘the intention to be relieved from liability [must be] made clear and unequivocal and the wording must be so clear and understandable that an ordinary and knowledgeable person will know what he is contracting away.” In the same vein, exculpatory clauses are ‘strictly construed against the party seeking to be relieved of liability.’

Pier 1 Cruise Experts, 2019 WL at *7 (internal citations omitted).

Here, the exculpatory clause was clear and was entered into with parties that had equal bargaining power. The issue turned on the enforceability under Florida law and how the clause should be construed.

One interpretation is that the clause is enforceable and fully bars all of the parties’ claims against the other party that received this immunity from liability. Period.

Another interpretation is that because of the broad sweeping application of the clause, it renders the entire contract illusory and void ab initio (i.e., void from the beginning).

A final interpretation could be that the clause will be construed to bar all negligence claims, but not breach of contract claims as it is the insulation from breach of contract claims that creates the illusory nature of the contract.

The Eleventh Circuit Court of Appeal certified this issue to the Florida Supreme Court with the following questions:

Is a contractual ‘exculpatory clause’ that purports to insulate one of the signatories from ‘any…damages regardless of kind or type…whether in contract, tort (including negligence), or otherwise’ enforceable? Or, alternatively, does the clause confer such sweeping immunity that it renders the entire contract in which it appears illusory? Or, finally, might the clause plausibly be construed so as to bar some but not all claims and thus save the contract from invalidation?

Pier 1 Cruise Experts, 2019 WL at *12.

Any answer to these questions can have worthy implications. Notwithstanding, you need to consider that the intent of a clear exculpatory clause is to relieve and insulate another party from liability and that party will rely on the clause if a potential issue or claim arises. The clause operates as a full disclaimer of sort. Consider the enforceability of the provision and clearly negotiate the parameters of the provision and appreciate any corresponding risk associated with the provision.

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.

Release Language Extended to Successor Entity But Only Covered “Known” Claims

Posted on July 5, 2019August 8, 2019 by Edward Garber

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.

RELEASE OF “UNKNOWN” CLAIM DOES NOT BAR RELEASE OF “UNACCRUED” CLAIM: FAIR OR UNFAIR?

Posted on May 27, 2019April 23, 2020 by Edward Garber

A general release of “unknown” claims through the effective date of the release does NOT bar “unaccrued” claims. This is especially important when it comes to fraud claims where the facts giving rise to the fraud may have occurred prior to the effective date in the release, but a party did not learn of the fraud until well after the effective date in the release. A recent opinion maintained that a general release that bars unknown claims does NOT mean a fraud claim will be barred since the last element to prove a fraud had not occurred, and thus, the fraud claim had not accrued until after the effective date in the release. See Falsetto v. Liss, Fla. L. Weekly D1340D (Fla. 3d DCA 2019) (“The 2014 [Settlement] Agreement’s plain language released the parties only from “known or unknown” claims, not future or unaccrued claims. Because there is a genuine issue of material fact as to whether the fraud claim had accrued — that is, whether Falsetto [party to Settlement Agreement] knew or through the exercise of due diligence should have known about the alleged fraud at the time the 2014 Agreement was executed — the trial court erred in granting summary judgment on those fraud claims.”).

Fair or unfair? In certain contexts, perhaps fair — such as when the facts giving rise to the fraud took place after the effective date of the release. In other contexts, perhaps unfair — such as when the facts giving rise to the fraud occurred prior to the effective date in the release but were unknown.

What are your thoughts? However, modifying a release to now include “unaccrued” claims may not be the answer as this could have broad implications relating to future claims, which a party may be cautious about releasing in light of current or future relations between the parties.

THE CONTINGENCY FEE MULTIPLIER (FOR INSURANCE COVERAGE DISPUTES)

Posted on August 25, 2018April 24, 2020 by Edward Garber

The contingency fee multiplier: a potential incentive for taking a case on contingency, such as an insurance coverage dispute, where the insured sues his/her/its insurer on a contingency fee basis.

In a recent property insurance coverage dispute, Citizens Property Ins. Corp. v. Agosta, 43 Fla.L.Weekly, D1934b (Fla. 3d DCA 2018), the trial court awarded the insured’s counsel a contingency fee multiplier of two times the amount of reasonable attorney’s fees. The insurer appealed. The Third District affirmed the contingency fee multiplier.

Of interest, on appeal—which is reviewed under an abuse of discretion standard of appellate review–the Third District analyzed the state of Florida law on contingency fee multipliers.

To begin with, Florida has adopted the lodestar approach for determining reasonable attorney’s fees based on the following factors to consider (known the Rowe factors based on the Florida Supreme Court case):

(1) The time and labor required, the novelty and difficulty of the question involved, and the skill requisite to perform the legal service properly.

(2) The likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer.

(3) The fee customarily charged in the locality for similar legal services.

(4) The amount involved and the results obtained.

(5) The time limitations imposed by the client or by the circumstances.

(6) The nature and length of the professional relationship with the client.

(7) The experience, reputation, and ability of the lawyer or lawyers performing the services.

(8) Whether the fee is fixed or contingent.

Agosta citing Florida Patient’s Compensation Fund v. Rowe, 473 So.2d 1145 (Fla. 1985).

Based on the consideration of these factors, the trial court determines through an evidentiary hearing a reasonable hourly rate to multiply by a number of reasonable hours expended in the litigation. This is referred to as the lodestar amount or lodestar figure. However, the court may add to this lodestar amount by tacking on a contingency fee multiplier. For example, assume the trial court found 100 reasonable hours were incurred at the reasonable hourly rate of $300. This would result in an attorney’s fees award of $30,000. But, with the contingency fee multiplier, the trial court can add to this. A multiplier of 2 would result in an attorney’s fees award of $60,000, hence the incentive for moving for the multiplier.

In determining whether to add a contingency fee multiplier, the trial court must consider competent, substantial evidence in the record (offered at the evidentiary hearing) of these three factors:

(1) whether the relevant market requires a contingency fee multiplier to obtain competent counsel;

(2) whether the attorney was able to mitigate the risk of nonpayment in any way; and

(3) whether any of the factors set forth in Rowe are applicable [the factors mentioned above], especially, the amount involved, the results obtained, and the type of fee arrangement between the attorney and his client.

Agosta citing Standard Guarantee Ins. Co. v. Quanstrom, 555 So.2d 828 (Fla. 1990)

There has been a debate as to whether the contingency fee multiplier only applies in rare and exceptional circumstances. The Florida Supreme Court (hopefully) put this issue to bed rejecting the argument that the contingency fee multiplier only applies in rare and exceptional circumstances. Agosta citing Joyce v. Federated National Ins. Co., 228 So.3d 1122 (Fla. 2017).

Just as important, and perhaps the most important to me, the Florida Supreme Court held that a “fee multiplier ‘is properly analyzed through the same lens as the attorney when making the decision to take the case,’ as it ‘is intended to incentivize the attorney to take a potentially difficult or complex case.’” Id. quoting Joyce, 228 So.3d at 1133. This is important because the complexity of a case is not determined at looking at a case in hindsight based on the actual outcome of the case, but looking at a case through the same lens as the attorney at the time the decision is made to handle the case. Id. citing Joyce.

The Florida Supreme Court also stated that the first contingency fee multiplier factor—the relevant market factor—is based on whether there are attorneys in the relevant market who have the skills to effectively handle the case and would have taken the case absent the availability of a contingency fee multiplier. Id. citing Joyce.

Finally, the Florida Supreme Court stated that the third contingency fee multiplier factor that considers the results obtained is not based on the amount of recovery, even a recovery not exceptionally large—“the Florida Supreme Court held that the trial court correctly analyze the ‘outcome’ of that case when it found that ‘[a]lthough the amount involved [$23,500] was ‘not exceptionally large,’ it was material to the Joyces [plaintiffs].” Id. quoting Joyce, 228 So.3d at 1125.

The contingency fee multiplier adds incentive to handle certain insurance coverage disputes on contingency. If a multiplier is obtained, it definitely rewards the risk of taking a case on contingency (and certainly one of the reasons I explore such contingency fee options!).

STATUTORY BAD FAITH AND AN INSURED’S 60-DAY NOTICE TO CURE

Posted on March 30, 2018March 30, 2018 by Edward Garber

A recent case came out in favor of an insured and against a first-party property insurer in the triggering of a statutory bad faith action. Florida’s Fifth District Court of Appeal in Demase v. State Farm Florida Insurance Company, 43 Fla. L. Weekly D679a (Fla. 5th DCA 2018) held that if an insurer pays a claim after the 60-day notice to cure period provided by Florida Statute s. 624.155(3), this “constitutes a determination of an insurer’s liability for coverage and extent of damages under section 624.155(1)(b) even when there is no underlying action.”

Before a statutory bad faith claim is brought, an insured must file a Civil Remedy Notice giving the insurer written notice of the violation and 60 days to cure the claimed violation.

There are three requirements to sue for a statutory bad faith claim: “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 notice is filed pursuant to section 624.155(3).” The third requirement is the filing of the Civil Remedy Notice pursuant to s. 624.155 giving the insurer a safe harbor to cure the claimed violation.

The first and second requirement are oftentimes determined in litigation, arbitration, or settlement in a coverage lawsuit against an insurer. However, as this court demonstrates, that does not always have to be the case. If the insurer pays a claim outside of the 60-day cure period, this establishes (1) a determination of the insurer’s liability for coverage and (2) a determination of the extent of the insured’s damages. In other words, if an insurer is going to pay a claim, they really need to think carefully about doing so within the 60-day statutory bad faith cure period. Paying afterwards supports the first two requirements of a statutory bad faith claim.

BAD FAITH IN THE CONTEXT OF PROPERTY INSURANCE CLAIMS (WEBINAR)

Posted on December 16, 2017December 16, 2017 by Edward Garber

Recently, I participated in a national webinar involving insurance bad faith in the property insurance context. My section of the webinar dealt with the elements and burden of proof in demonstrating bad faith by an insurer in various jurisdictions. If you are dealing with a property insurance claim, or believe there may have been bad faith by the insurer, make sure you are working with counsel equipped to handle the jurisdictional nuances in advising you of your rights and proving such a claim.

[gview file=”https://floridaconstru.wpengine.com/wp-content/uploads/2017/12/Bad-Faith-Presentation.pdf”]

CGL INSURER’S DUTY TO DEFEND INSURED DURING PRE-SUIT 558 PROCESS: MAYBE?

Posted on December 14, 2017December 14, 2017 by Edward Garber

In earlier postings, I discussed the issue of whether Florida Statutes Chapter 558’s pre-suit construction defects process triggers a CGL insurer’s duty to defend. The issue was whether Florida’s 558 pre-suit notice of a construction defect and repair process met the definition of “suit” within a standard CGL policy.

A standard CGL policy defines the term “suit” as:

“Suit” means a civil proceeding in which damages because of “bodily injury,” “property damage” or “personal and advertising injury” to which this insurance applies are alleged. “Suit” includes:

a. An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent; or

b. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.

The Florida Supreme Court in Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., 42 Fla. L. Weekly S960b (2017) held that Florida’s 558 process is an “alternative dispute resolution proceeding” within the definition of suit in a CGL policy. However, since it falls within an “alternative dispute resolution proceeding,” the insurer’s consent is required to invoke its duty to defend its insured during this pre-suit process. This is especially true since a recipient’s participation in the pre-suit 558 process is voluntary and not mandatory and this process does not produce any binding results.

Accordingly, an insured-contractor or subcontractor that receives a 558 notice of a construction defect should absolutely tender the notice to its CGL insurer. No doubt about it. In doing so, the insured should inquire and perhaps encourage the insurer to participate in the process and defend the insured’s interests. If the insurer is not willing to participate in this process, this does not mean the insured should refuse too. Rather, the insured simply needs to recognize that it will be responsible for its own fees and costs in doing so. The insurer’s consent is required to invoke its duty to defend the insured during this process.

This opinion, unfortunately, doesn’t provide a whole lot of value (in my opinion) because if an insurer does not consent to participating in the process and defending its insured, it puts the insured in a position where it may be better off being sued where the insurer will now defend it and engage the consultants to investigate the claimed defects. Many insurers, however, will capitalize on the 558 process by providing a defense to its insured as opposed to simply waiting for the inevitable construction defect lawsuit.

MAKE PRUDENT DECISIONS REGARDING YOUR HURRICANE IRMA PROPERTY DAMAGE CLAIMS

Posted on September 11, 2017September 11, 2017 by Edward Garber

Hurricane Irma barreled down on us with all of her forceful winds and torrential rains. She was scary and relentless. There was mass evacuation. Commercial flights were booked. Trains were booked. There was gridlock with the concern as to whether gas would even be available. There were many people that did not evacuate, uncertain as to the eventual path Irma would take. Originally projecting an easterly course, people on the east coast evacuated to the west coast, central Florida or out-of-state. She then shifted to a westerly course forcing people on the west coast to evacuate to the east coast, central Florida, or out-of-state. It was chaos stemming from the total unpredictability of Mother Nature. It was chaos stemming from the dreadful images of Hurricane Harvey. Mother Nature and all of her uncertainty is undoubtedly frightening, as proven by her devastation throughout the amazing state of Florida.

We are fortunate. We made it through her wrath. We have our life and our health. This is the most important. I repeat — the most important. Sure, there may be property damage at our house or in our community, but it could always be worse. I repeat again — it could always be worse. Assets are replaceable. Life and health is not replaceable.

When it comes to property damage, perspective is important. Do not forget perspective. Please do not engage in an emotional knee jerk reaction and hire the first person that comes your way to assist with the damage and fallout of Irma. Disaster unfortunately causes others and the unqualified to prey on vulnerabilities. Take a deep breath and do not neglect to digest your damage and do your due diligence on your course of action and hiring someone you will trust and know will assist in your needs. Here are some tips I encourage:

1) Survey the damage. After you have initially digested and assessed the damage, do another walk-through of your property and survey and notate the damage you are observing. Either get a pen and pad and write down your assessment or use your phone, ipad, or laptop to memorialize your observations.

2) Persuasively photograph the damage. Sure, everyone tells you to do this. But, I am telling you to look at the photos you take to ensure you are capturing the damage to the best of your ability. This means to focus on the elevation of your photo and the proximity of your camera or phone (in the case of a camera phone) to the damage or item you are capturing. The reason for this is to persuasively capture the damage – take photos from various elevations, angles, and distances to capture the water damage and hurricane-caused damage. Correlate the photo with your written survey. If you use a camera that is not a camera phone, date stamp the photograph.

3) Persuasively video the damage. Similar to above, if you have a systemic leak, do not just photograph that leak. Take a video of it that captures the water intrusion and movement of the leak. Correlate your video with your written survey. You can also take a video of the damage and narrate that damage as you are observing it.

4) Obtain a copy, if you can, of your property insurance policy or your declaration page so that you can submit a claim ASAP. If you have a property insurance policy, have this handy. Insurance is complex and it is always advisable that you work with a professional when submitting a claim under your policy for hurricane-related damage. You will want to submit an insurance claim soon to report the damage caused by Irma. Your property insurer is anticipating claims caused by Irma.

5) Hire a trustworthy and qualified professional. There will be a lot of lawyers and/or public adjusters soliciting your business. Lots of them. They will be offering to help. Some will have good intentions. Others will not. They will want you to pay them a contingency percentage of anything you receive from your property insurer (oftentimes, a minimum of 20% or more based on the issue). You want someone QUALIFIED and you can TRUST – that you know will not take advantage of the situation and will keep you informed and give you the best advice so that you can make the most informed decisions. This is very important and based on the severity of the damage you may want to explore different options to compensate a professional.

6) If you hire a contractor, make sure they are licensed. If you hire a contractor to implement immediate repairs and remediate water intrusion, make sure they are licensed and read what you sign. A reason to engage a professional is to ensure you are properly notifying your property insurer and you are not being taken advantage of by hiring a qualified professional. Also, make sure you save all contracts, invoices, and payments you make to preserve a basis for reimbursement from your property insurer.

7) Do not unilaterally discard any damaged contents or otherwise. Do not start throwing things away or discarding damage before you engage in items 1 – 5 above. A reason you want to hire a professional is so that you do not prejudice your rights by discarding potential evidence before notifying your insurer.

The key is not to act haphazardly based on your emotional reaction to the damage. I know it is emotional. I get it. But, because it is emotional, you want to make sure that you are implementing prudent decisions moving forward to maximize your property insurance. You want to make sure you are implementing a path that benefits YOU!

NEED CONTINUING EDUCATION CREDIT IN FLORIDA? CONSIDER THESE COURSES

Posted on May 14, 2017May 14, 2017 by Edward Garber

Are you a contractor and need continuing education credit? I recently got three one-house courses approved by Florida’s Construction Industry Licensing Board. These one-hour courses are designed for live breakfast-and-learn or lunch-and-learn sessions. They are designed for practical application on key issues facing all in construction. The courses are as follows:

1) Delay! The Project is Late – What do You do and how do You Allocate the Delay?;

2) Contract Risk Considerations; and

3) Effective Project Documentation & Management.

Please reach out to me if you are interested in learning more about these live presentations including whether you think your employees can benefit from a breakfast-and-learn or lunch-and-learn.

CONSULT WITH COUNSEL WHEN PREPARING CONSTRUCTION LIENS

Posted on April 8, 2017April 8, 2017 by Edward Garber

All too often entities prepare their own construction liens. Sure, it is an effective way to save a few bucks. No doubt about it. But, by doing so, you are (i) not relying on advice of counsel that is important when it comes to lien preparation and (ii) not relying on strategy that goes along with the preparation of a lien. When you are liening, the reason you are doing so is because you have not been paid. You therefore want to collateralize your nonpayment against the real property—the leverage of a construction lien. This is a very beneficial statutory tool if implemented correctly, so it only makes sense to do it “strategically” right.

A construction lien is a statutory form. So, how hard can it be? Filling out the “form” is not hard, however, there is legal significance to the information and amounts included in a lien. For instance:

There is significance to the amount you are liening. Are you liening for disputed change order work? Are you liening for amounts unrelated to base contract work?
There is significance to the final furnishing date. Are you liening within 90 days of performing base contract work unrelated to punchlist or warranty work?
There is significance to date the Notice to Owner was served (if you are not in privity with the owner). Was the Notice to Owner served within 45 days of initial furnishing?
There is significance to the legal description identified in the lien. Are you liening the right property based on the type of project you are working on?
There can even be significance to the initial furnishing date. Assuming you are the general contractor, what was your initial furnishing date in comparison with when the Notice of Commencement was recorded? If you are not a general contractor, when was the initial furnishing date in comparison with when you served the Notice to Owner?

And, there is legal significance to extraneous issues unrelated to the information in the lien. For instance:

There is legal significance to when the lien is served on the owner and others identified in the Notice of Commencement. Did you look at the Notice of Commencement to ensure the lien is served on those identified therein? Did you serve your lien within 15 days of recording?
There is legal significance to the timing of the recordation of the lien. Is the Notice of Commencement still in effect at the time the lien is recorded? Has there been an amended Notice of Commencement?

All of these are important considerations when dealing with a construction lien. There is value, however, consulting with counsel relating to all of the pertinent facts that surround the lien and having counsel prepare the lien for you. There is authority that consulting with and providing counsel all pertinent facts and relying on counsel in the preparation of the lien can serve as a lienor’s evidence of good faith to otherwise refute an owner’s fraudulent lien defense/claim. See Iberiabank v. Coconut 41, LLC, 984 F.Supp.2d 1283, 1302 (M.D.Fla. 2013).

Further, there is strategy that goes along with preparing a lien. Sometimes, there is value, in the case of a contractor in privity with the owner, with a lienor serving a Final Contractor’s Payment Affidavit along with the construction lien. Also, sometimes there is value serving a Request for a Sworn Statement of Account along with a lien.

Too many times, all of the issues and strategy that goes hand-in-hand with the preparation of a lien is lost when a lienor prepares its own lien. This is why there is value consulting with counsel in the preparation of construction liens.