Tag Archives: construction defects

CGL INSURER’S (HAVE NO!) DUTIES OF DEFENSE AND INDEMNITY UNDER FLORIDA STATUTES CHAPTER 558

Posted on by


I previously wrote an article regarding Florida Statutes Chapter 558 and its pre-lawsuit application to construction defects.  In particular, I discussed a claimant’s (e.g., owner) requirement to submit a written notice of construction defects to potentially responsible parties and those parties rights under Chapter 558. 

 

When a party (e.g., contractor, subcontractor, design professional) receives a written notice of construction defects pursuant to Chapter 558, that party should notify its insurer (CGL or professional liability, as applicable) of a construction defect claim.  This is generally the prudent avenue to ensure timely notice is given to the insurer and that the insurer starts to pay defense costs as a party participates in the Chapter 558 pre-lawsuit process. 

 

But, what if the CGL insurer refuses to pay a party’s defense costs in participating in the pre-lawsuit process set out in Chapter 558?  The recent opinion in Altman Contractors, Inc. v. Crum & Foster Specialty Ins. Co., 2015 WL 3539755 (S.D.Fla. 2015) deals with this very issue.

 

In this case, a general contractor received written notices of construction defects from a condominium association per Chapter 558. The general contractor notified its CGL insurer of the written notices of defects and demanded that its insurer defend and indemnify it in connection with the notices.  The CGL insurer denied it had any duties with respect to a written notice of defects under Chapter 558 since the matter was “not in suit.”  Subsequently, the insurer claimed it would participate in the pre-lawsuit Chapter 558 process, but that it was going to hire its preferred counsel to represent the general contractor.  The general contractor objected and filed a lawsuit against its CGL insurer seeking a declaration of rights under the policy that (a) the CGL insurer’s duty to defend the general contractor was triggered upon the general contractor’s receipt of the written notice of defects per Chapter 558 and (b) the CGL insurer was responsible for paying the general contractor’s private counsel’s defense costs from the time the CGL insurer was placed on notice of the written notice of defects claim.

 

In analyzing this issue, the court examined the following language in the general contractor’s CGL policy (common language in CGL policies):

 

We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages for “bodily injury” or “property damage” to which this insurance does not apply. We may, at our discretion, investigate any “occurrence” and settle any claim or “suit” that may result.

***

“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.

Altman Contractors, supra, at *5, 6.

 

 

As reflected by the CGL policy’s language, the policy required the CGL insurer to defend the general contractor against any “suit,” and the term “suit” was defined as a “civil proceeding.”  The court looked at the ordinary definition / meaning of a civil proceeding and determined that the ordinary meaning was a judicial proceeding.  Since the court determined that a Chapter 558 written notice of defects claim did NOT constitute a “civil proceeding” under the CGL policy, it concluded that the CGL insurer had NO duty to defend or indemnify the general contractor under the Chapter 558 pre-lawsuit process.

 

Takeaways:

  • If your CGL policy contains analogous language to the policy in this case regarding the definition of “suit,” there is a strong chance that your CGL insurer has NO duty to defend or indemnify you in the Chapter 558 notice of defects pre-lawsuit process. This means a party has to incur its own defense costs in participating in Chapter’s 558 pre-lawsuit process. This also means any decision a party makes in Chapter’s 558 pre-lawsuit process is probably not reimbursable.
  • If your CGL insurer has no duty to defend or indemnify you in connection with a written notice of defects under Chapter 558, this means you need to be sued for the alleged defects in order to trigger the CGL insurer’s duty to defend and indemnify you under the policy.
  • It is still good practice to notify your insurer of a written notice of defects under Chapter 558.  And, if you are a claimant, it is still good practice to notify potentially responsible parties’ insurers of the written notice of defects.  There are insurers that will assume the defense obligation at this point even though a lawsuit has not been initiated.  But, as reflected in this case, the insurer may hire their own counsel instead of the insured’s preferred choice of counsel to do so (which also means that the insurer plans on using its preferred choice of counsel if/when a lawsuit is filed against the insured).

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 INSURANCE AND CONSTRUCTION DEFECTS (DUTY TO DEFEND; TRIGGERING OF CGL POLICY; COVERED RESULTING DAMAGE)

Posted on by


I previously wrote about insurance coverage issues in a construction defect dispute, specifically in the context of the insurer denying coverage outright and refusing to defend its insured.

 

As a sequel to this posting, a noteworthy opinion was issued by the Eleventh Circuit Court of Appeals in Carithers v. Mid-Continent Cas. Co., 2015 WL 1529038 (11th Cir. 2015) in a commercial general liability (CGL) insurance coverage dispute dealing with construction defects to a house.   This opinion discusses central issues to an insurance coverage dispute in a construction defect context: the triggering of a CGL policy, the duty to defend, the duty to indemnify, covered resulting damage stemming from construction defects, and a claimant resolving a dispute with an insured in order to pursue rights against the insured’s CGL carrier (also known as a Coblentz agreement).

 

In this case, the owners hired a general contractor to build their house.  The general contractor had CGL insurance with products completed operations coverage.  Upon discovering construction defects, the owners sued the general contractor.  The general contractor’s insurer refused to defend the general contractor, meaning the insurer denied coverage (which is the last thing the general contractor ever wants to hear).  The insurer denied coverage because the complaint alleged that the damages were not discovered until 2010; however, the general contractor did not have any CGL coverage after 2008.  Thus, if the manifestation theory applied to trigger coverage (discussed below), there would be no coverage under the CGL policy.

 

The general contractor and insurer then entered into a consent judgment in the action for $90,000 in favor of the owners that assigned to the owners the general contractor’s rights under its CGL policy.  (This forms the framework for what is known as a Coblentz agreement.)  The owners then sued the general contractor’s CGL insurer.

 

The issues in this case were (a) the insurer’s duty to defend its general contractor-insured, (b) the triggering of an occurrence under a CGL policy, and (c) resulting damage covered under the CGL policy.

 

(A) Duty to Defend

 

The insurer’s duty to defend is triggered by the allegations in the complaint.  Here, the Eleventh Circuit held that the insurer had a duty to defend because the duty to defend is broader than the insurer’s duty to indemnify and “all doubts as to whether a duty to defend exists in a particular case must be resolved against the insurer and in favor of the insured.” Carithers, supra, at *4 (quotation and citation omitted). “An insurance company must defend an action where the facts alleged against the insured would give rise to coverage, even if those facts are not ultimately proven at trial.”  Id. 

 

(B) Triggering of an Occurrence Under CGL Policy

 

The insurer wanted the manifestation theory to trigger CGL coverage.  Under this theory, the CGL policy is triggered if the damage is discovered (manifests itself) during the policy period.  

 

The reason the insurer wanted this theory to apply is because the owners admitted that they discovered the damage / defects in 2010 when the general contractor’s CGL policy was no longer in effect.

 

Conversely, the owners wanted the injury-in-fact theory to apply to trigger coverage.  Under this theory, the policy is triggered when the damage occurs even if the damage is not discovered until sometime later.  Here, the trial court found that the damage occurred in 2005 when the general contractor’s CGL carrier was in effect (although the damage was not discovered until 2010).  Because there was evidence and a finding as to when the damage occurred, the Eleventh Circuit held that the injury-in-fact theory was the correct theory to trigger CGL coverage.

 

(C) Resulting Damage Covered Under a CGL Policy

 

The cost of repairing damage to other work resulting from faulty workmanship would be covered under the CGL policy.  In other words, repairing damage to another trade’s work would be covered but repairing / replacing damage to the trade’s own work would not be covered.  The Eleventh Circuit analyzed this application to determine whether the trial court appropriately determined that certain items were resulting damage.

 

(1)  Brick

 

The trial could found that the defective application of exterior brick coating caused resulting damage to the brick itself.  If the exterior brick coating was applied by the subcontractor that installed the brick, then the brick should not be covered since the brick was the subcontractor’s own work as opposed to other work.  However, there was no evidence at the trial level whether the brick coating and installation of the brick was done by the same subcontractor or different subcontractors.  Because the plaintiff owners (who were assigned rights under the policy by the general contractor insured) had the burden of proof on this issue, which they failed to meet, the Eleventh Circuit reversed any damage awarded associated with the brick.

 

(2)  The Tile and Mud Base

 

The trial court found that defective adhesive and an inadequate base caused damage to the tile.  The trial court awarded damage to replace the tile and mud base. Similar to the brick, the issue turned on whether the installation of the tile and mud base was done by the same subcontractor or different subcontractors.  And, similar to the brick, no evidence was offered on this point so the Eleventh Circuit reversed any damage awarded associated with the tile and mud base.

 

(3)  Balcony

 

The trial court found that defects in the construction of the balcony resulted in damage to the garage. However, because the balcony had to be rebuilt in order to repair the garage, the trial court held that this work was resulting damage covered by the CGL policy.  The Eleventh Circuit agreed with the trial court holding that the cost of repairing damage resulting from defective work is covered and since repairing the balcony was part of repairing the garage, these costs would be covered.

 

Important take-aways:

  • This case provides strong arguments to an insured when its CGL carrier denies coverage, specifically based on the argument that its policy was never triggered.  Remember, the duty to defend is broader than the duty to indemnify so any doubts must be resolved in favor of the insured.
  • Don’t forget about the injury-in-fact theory to trigger CGL coverage.  If you have evidence, such as an expert opinion, as to when the damage started to occur, this theory can be valuable if the owner discovered the latent defects after the expiration of your CGL policy.  This helps an owner maximize CGL coverage and a general contractor maximize coverage under its CGL policy.
  • Make sure to meet your burden of proof to establish resulting damage or other damage caused by faulty workmanship.  Make sure to prove that the resulting damage was work performed by a different subcontractor and not the subcontractor that performed the faulty workmanship. And, to this point, make sure to include appropriate language in the consent judgment.
  • Make sure you know how to couch your coverage arguments to an insurer in order to maximize insurance coverage.
  • If your insurer denies coverage, consider entering into what is known as a Coblentz agreement with the claimant where a consent judgment is entered against you and rights under your policy are assigned to the claimant.  The benefit is that in consideration of the consent judgment and assignment of rights, the claimant gives up any rights to collect that judgment against you. 

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.

REQUESTING LIABILITY INSURANCE INFORMATION FROM RESPONSIBLE PARTIES FOR CONSTRUCTION OR DESIGN DEFECTS (FLA. STAT. s. 627.4137)

Posted on by


If you are an owner and discover construction or design defects, you are going to want consult with a lawyer to make sure you know your rights under Florida Statutes Chapter 558.  This includes sending a written notice of the construction or design defects identifying the defects with sufficient detail to the potentially responsible parties.  Likewise, if you are a contractor and receive this written notice, you are going to want to make sure you forward that letter to potentially responsible parties (subcontractors or suppliers). 

 

Coupled with this written notice of defects letter should be a written request on the parties and their known insurance agents and insurers for their liability insurance information.  Start with culling Certificates of Insurance you have on these parties to obtain (some) of this information as to whom to send the request to.  This request can be in a separate letter or the same letter (as the notice of defects letter) and should reference Florida Statute s. 627.4137 and request the information in the below statutory language:

 

(1) Each insurer which does or may provide liability insurance coverage to pay all or a portion of any claim which might be made shall provide, within 30 days of the written request of the claimant, a statement, under oath, of a corporate officer or the insurer’s claims manager or superintendent setting forth the following information with regard to each known policy of insurance, including excess or umbrella insurance:

(a) The name of the insurer.

(b) The name of each insured.

(c) The limits of the liability coverage.

(d) A statement of any policy or coverage defense which such insurer reasonably believes is available to such insurer at the time of filing such statement.

(e) A copy of the policy.

In addition, the insured, or her or his insurance agent, upon written request of the claimant or the claimant’s attorney, shall disclose the name and coverage of each known insurer to the claimant and shall forward such request for information as required by this subsection to all affected insurers. The insurer shall then supply the information required in this subsection to the claimant within 30 days of receipt of such request.

 

As discussed in prior articles, insurance is an important aspect of construction and design defect disputes. 

 

If you are an owner, you want to understand potential insurance coverage so that you know how to best maximize any claim for insurance coverage against potentially liable parties.  This includes knowing the limits of liability in any commercial general liability (CGL) or professional liability / errors & omissions policy, as applicable, and whether there is any umbrella / excess policy.  This also includes understanding the exclusions in the policies and whether there are endorsements that add or modify exclusions in the policy.

 

If you are a general contractor, you also want to understand potential insurance coverage from subcontractors and other entities you are looking to flow-down an owner’s defect claims (ideally, through contractual indemnification language in your subcontract).  Also, you are going to want to make sure you have additional insured status under these parties’ liability policies so that they contribute to the fees and costs incurred in your defense.  For this reason, you also want to obtain copies of subcontractor insurance polices including all endorsements.  Besides the limits of liability, you want to see the additional insured endorsement in the policy, and any endorsements that add or modify exclusions in the policy. 

 

If you are a subcontractor, if you subcontracted aspects of your scope of work or there is a claim associated with deficient material you furnished, you also want to obtain this insurance information from these potentially liable entities because you are also going to try to flow-down liability (ideally, through contractual indemnification language in your subcontract).

And, if you are a manufacturer, if a claim is asserted against you arising out of the installation of that product, you also want to obtain insurance information from any authorized dealer or installer (perhaps through any agreement you have with that dealer or installer that would require this entity to indemnify you and name you as an additional insured).  

 

One of the underlying reasons for s. 627.4137 is so that parties can obtain insurance coverage information and make reasonably informed decisions about settling a matter.  In other words, you don’t want to settle a dispute for policy limits if you have damages that may exceed policy limits and find out the responsible party has additional or excess insurance to cover the excess damages. See, e.g., Schlosser v. Perez, 832 So.2d 179 (Fla. 2d DCA 2002) (in non-construction case, noncompliance with s. 627.4137 rendered settlement unenforceable). But, this statute does not create a private cause of action by a third-party if an insurer fails to timely provide this information. Any potential recourse the third-party would have, if any, against the insurer would have to be after the third-party obtains a judgment against the underlying insured. Lucente v. State Farm Mut. Auto. Ins. Co., 591 So.2d 1126, 1127-28 (4th DCA 1992) (“[T]he statute does not contain an implicit cause of action for a third-party against an insurance company.”);  see also Brannan v. Geico Indemnity Co., 569 Fed.Appx. 724, 728 (11th Cir. 2014)  (“But Brannan fails to point to any legal authority to show that s. 627.4137 creates a first-party private cause of action against an insurer [for failure to comply with the statute.]”).

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.

 

CONSTRUCTION / DESIGN DEFECTS AND RIGHTS UNDER FLORIDA STATUTES CHAPTER 558

Posted on by


Construction / design defects are an unfortunate byproduct of construction.  If you are an owner or association and experience defects, you will become familiar with Florida Statutes Chapter 558 since this Chapter deals with defects and serving a written notice of the defects.  Likewise, if you are a contractor, design professional, supplier, or subcontractor and defects are asserted against you, you will also become familiar with Chapter 558.  This Chapter requires a claimant to serve written notice of the defects (identifying the defects with sufficient detail) to the responsible parties as a condition precedent before filing a construction / design defect lawsuit against those parties.

 

A party experiencing construction / design defects or the recipient of a written notice of defects should engage counsel to assist with preserving rights under Chapter 558 and drafting a written notice or response, as applicable.  Below is a synopsis of important time limitations requirements for claimants serving a written notice of defects and parties receiving a written notice of defects:

 Florida Statutes Chapter 558 Procedure

1)    Claimant 60 days before filing construction defect / design defect lawsuit shall serve written notice on contractor, design professional (or others, as applicable) of the defects. The written notice shall reference Florida Statutes Chapter 558 and shall describe the defects with sufficient detail.  This written notice tolls the statute of limitations relating to the party and any applicable bond until the later of 90 days after service of the written notice (or 30 days after any repair or payment period settlement option).

2)    The party receiving the written notice is entitled to perform a reasonable inspection within 30 days of receiving the written notice.  The party may undertake destructive testing under reasonable terms and conditions set forth in more detail in Florida Statute s. 558.004(2).

3)    The party receiving the notice may serve a copy of the written notice to each party it believes responsible for the defect within 10 days of receiving the written notice from the claimant (e.g., subcontractors).  This notice is not to be construed as an admission by the party. The party receiving the notice may conduct an inspection per section 2).

4)    The party receiving a copy of the written notice per section 3) must serve a written response to the party it received the written notice from within 15 days after service of the copy of the notice. The response shall include whether the party is willing to make repairs and, if so, what repairs or whether the claim is disputed.

5)    The party receiving the initial written notice per section 1) shall serve a written response to the claimant within 45 days after service of the claim. The response shall include: 1) whether the party is willing to make repairs and, if so, what repairs; 2) a monetary offer; 3) a combination of money and scope of repairs; or 4) a dispute of the claim.  If a party disputes the claim or fails to timely respond to the written notice, the claimant can proceed with a lawsuit against the party. If the claimant accepts or rejects a repair or monetary settlement option, it must do so within 45 days after receiving the option.

 

Notably, if the claimant is an association representing more than 20 parcels the time limitations identified above are extended, but everything else remains the same:

1)    Claimant shall give the written notice at least 120 days before filing the lawsuit.  This written notice tolls the statute of limitations relating to the party and any applicable bond until the later of 120 days after service of the notice  (or 30 days after any repair or payment period settlement option).

2)    The party receiving the written notice is entitled to perform a reasonable inspection within 50 days.

3)    The party receiving the notice may serve a copy of the written notice to each party it believes responsible for the defect within 30 days of receiving the written notice from the claimant.

4)    The party receiving a copy of the written notice per section 3) must serve a written response to the party it received the written notice from within 30 days after service of the copy of the notice of claim.

5)    The party receiving the initial written notice per section 1) shall serve a written response to the claimant within 75 days after service of the claim.

 

There is more to Chapter 558 than what is set forth above.  Again, a party experiencing defects or provided a written notice of defects should consult counsel to ensure their rights are protected moving forward.

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.

DESIGN PROFESSIONAL’S DUTY OF CARE NOT EXTENDED TO SUBCONTRACTORS

Posted on by


In construction defect lawsuits, subcontractors responsible for the alleged deficient work or damage are third-partied into the lawsuit by the general contractor that hired them.  And, sometimes, an owner (or association) tries to assert a claim directly against responsible subcontractors.   There are times where subcontractors have the defense that the deficiencies and damages complained of are the result of design errors and omissions.  A question becomes whether a subcontractor can assert a negligence claim directly against that design professional as a way to flow any potential exposure to the design professional.

 

Unfortunately, there is case law that says that a supervising design professional does NOT owe any duty of care to a subcontractor.  See Spancrete, Inc. v. Ronald E. Frazier & Associates, P.A., 630 So.2d 1197 (Fla. 3d DCA 1994) (duty of care that supervising architect owed to general contractor did not extend to subcontractors); McElvy, Jennewein, Stefany, Howard, Inc. v. Arlington Electric, Inc., 582 So.2d 47 (Fla. 2d DCA 1991) (trial court erred in allowing case to go to jury because architect’s duty of care could not have been extended to subcontractors); E.C. Goldman, Inc. v. A/R/C Associates, Inc., 543 So.2d 1268 (Fla. 5th DCA 1989) (consulting engineering/expert firm hired by owner to inspect and advise owner about roof owed no duty of care to roofing subcontractor).  Without this duty of care, a subcontractor would NOT be able to pursue a negligence claim against the design professional because this duty of care is the very first element required to prove a negligence claim.  (In order to prove a negligence claim, a plaintiff needs to prove that 1) the defendant owed the plaintiff a duty of care, 2) the defendant breached that duty of care, 3) that breach proximately caused damages/injuries to the plaintiff, and 4) the plaintiff was damaged/injured.)  This does mean the subcontractor cannot assert the design professional’s errors and omissions as a defense, it just means that it will be an uphill battle for a subcontractor to assert an affirmative claim against the design professional.

 

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.

CONDOMINIUM ASSOCIATION RIGHTS REGARDING CONSTRUCTION DEFECTS & THE STATUTE OF LIMITATIONS FOR STATUTORY IMPLIED WARRANTIES

Posted on by


Contractors, subcontractors, suppliers, developers, and design professionals that are involved in the design and construction of condominiums need to appreciate three items relating to the construction of condominiums and the rights of condominium associations:

 

(1) The condominium association, upon turnover from the developer to the unit owners, may sue for matters affecting the common elements or matters of common interest concerning most or all of the unit owners (Fla. Stat. s. 718.111)

 

(2) The condominium association’s statute of limitations to assert construction defect claims does not begin to accrue until the developer has turned over control of the association to the unit owners (Fla. Stat. s. 718.124); and

 

(3) The developer, the contractor, subcontractors, and suppliers owe certain statutory implied warranties to the unit owners that can be asserted by the association as a class representative (Fla. Stat. s. 718.203). For instance, under Fla. Stat. 718.203(2): “The contractor, and all subcontractors and suppliers, grant to the developer and to the purchaser of each unit implied warranties of fitness as to the work performed or materials supplied by them as follows: (a) For a period of 3 years from the date of completion of construction of a building or improvement, a warranty as to the roof and structural components of the building or improvement and mechanical and plumbing elements serving a building or an improvement, except mechanical elements serving only one unit.”

 

A.  THE STATUTE OF LIMITATIONS FOR STATUTORY IMPLIED WARRANTY CLAIMS

 

A topic that comes up is the statute of limitations for an association to assert a statutory implied warranty claim since the statutory implied warranties kick in from the completion of the building (i.e., the Certificate of Occupancy) and are of a shorter time period than the four year statute of limitations period from the time the defect was discovered (or should have been discovered with the exercise of due diligence).

 

This issue was addressed by the Florida Supreme Court in Charley Tropino & Sons, Inc. v. Seawatch at Marathon Condominium, Ass’n, Inc., 658 So.2d 922 (Fla.1994). In this case, three condominium buildings were constructed and the last building received its Certificate of Occupancy in April 1983. The association was turned over from the developer to the unit owners more than two years later in August 1985. The association then asserted a construction defect lawsuit that included claims for breach of statutory warranties against the general contractor, developer, etc., (over defective concrete and metal decking) in May 1988: more than five years from the Certificate of Occupancy of the last building and almost two years from when the association was turned over to the unit owners.

 

The Florida Supreme Court was asked to determine whether the turnover of the association from the developer to the unit owners extended the time for unit owners to assert a breach of statutory implied warranty claim.  (Based on the facts of the case, the question was whether the association in 1988 could assert breach of statutory warranty claims against the developer, general contractor, etc., when the Certificate of Occupancy was issued more than five years earlier for the last building and unit owners obtained control of the association approximately two years earlier.) The Court answered this question “Yes,” maintaining:

 

“[A] condominium association has a statutory right to file suit on behalf of its unit owners for breach of implied warranty of fitness and merchantability for construction defects affecting the common interest. Such a suit must be filed within the general time limits set out in chapter 95, but the commencing of this limitations period shall be tolled until control of the association passes from the developer to the unit owners.”
Charley Tropino, 658 So.2d 925.

 

This means that the statutory implied warranty period is not a statute of limitations. Rather, it is simply the time period in which the life of the warranty applies to cover defects that occur within that time period. However, these claims are then tolled until the association is turned over to the unit owners at which time the association has four years to assert its breach of statutory warranty claims. See Saltponds Condominium Ass’n v. Walbridge Aldinger Co., 979 So.2d 1240 (Fla.3d DCA 2008) (a condominium association was turned over in August 2002 and had until August 2006 to preserve its rights to sue for breach of statutory implied warranty claims).

 

Let’s apply this law to hypotheticals because it is confusing:

 

Hypothetical 1: A Certificate of Occupancy was issued for a condominium tower in March 2005. The condominium association was turned over to the unit owners on April 2008. Due to construction defects, the association filed a lawsuit against the general contractor for structural defects in February 2012 that included breach of statutory warranty claims.

 

Under s. 718.203, as referenced above, the contractor owes to the association an implied warranty for structural components from three years from the completion of the building (defined as the Certificate of Occupancy date). This means that a breach of this implied warranty should have taken place between March 2005 (Certificate of Occupancy date) and March 2008 (three years from that date). But, and this is an important but, the condominium association does not need to file suit on this breach of the implied warranty until April 2012 (four years from the April 2008 date the condominium association was turned over to the unit owners since the statute of limitations is tolled until an association is turned over to the unit owners).

 

Hypothetical 2: An interesting twist to the above hypothetical is if the association did not file its lawsuit until March 2014-nine years from the Certificate of Occupancy date and six years from the turnover date. Under these dates, the association will have to assert that it did not discover the defects until on or after March 2010 in order to fall within the four year statute of limitations. However, by doing this, the condominium association really should NOT have a breach of statutory warranty claim against the general contractor because the life of the warranty would have expired before the breach of that duty was actually discovered.

 

Hypothetical 3: Now, let’s assume the association did not file suit until March 2016 or eleven years from the Certificate of Occupancy date and argues that it did not discover the defects until March 2014. Under this context, the association should not have any claims since the turnover of the association to unit owners has no bearing and does not toll the ten year statute of repose period to file suit (i.e., the last date a lawsuit must be filed-not matter what). See Sabal Chase Homeowners Ass’n, Inc. v. Walt Disney World Co., 726 So.2d 796 (Fla. 3d DCA 1999) (finding that turnover of condominium association to unit owners did not extend the statute of repose).

 

B.  TIDBITS FOR CONTRACTORS CONSTRUCTING CONDOMINIUMS

 

General contractors constructing condominiums need to operate under the presumption that there is a strong likelihood that the association will assert construction defect related claims including breach of statutory warranty claims. Many condominium associations retain engineers at turnover or shortly thereafter to perform a comprehensive analysis of the plans, as-built plans, submittals, and condition of the condominium to determine if there are any design / construction defects. Associations will want to do this to ensure they preserve warranty-related items / claims and provide parties notice of those items sooner than later. Contractors, knowing claims are forthcoming, need to be proactive:

 

  • They will want to hire subcontractors that do not have residential or condominium exclusions in their policies, or an exclusion in a liability policy that excludes coverage for condominium projects.
  • They will want to ensure that they maintain the appropriate liability coverage with completed operations coverage and are identified as an additional insured under subcontractor policies.
  • They may want to account for the presumed claim in their price knowing that certain overhead may be devoted to addressing claims long after completion.
  • I have also seen escrow provisions included in the developer-contractor contract where an escrow account is to be funded and maintained during the statute of repose period to offset claims. I have never been a big fan of this since (i) parties prefer to have the money instead of having that money fund an account for ten years, (ii) it could, perhaps, serve as motivation that there is money to fund claims that are not otherwise insurable claims, and (iii) it could lead to disputes down the road as to the allocation of that money in the event a dispute is initiated and fingers are pointed as to the cause of the defect.
  • If the contractor and the developer are in a dispute over certain defects and a settlement is reached, the settlement should reflect that the developer is entering into this agreement on behalf of the association (assuming it is still in control of the association) and accepts money, etc., for the specific items in consideration for a full and final release for the defects. This way, at a minimum, the contractor could create an argument in the event the association later files suit against the contractor for the same exact defects that the defects were already resolved and accepted by the developer on behalf of the association.

 

For more on condominium statutory warranties, please see https://floridaconstru.wpengine.com/florida-condominium-acts-statutory-warranties-difference-between-manufacturer-and-supplier/

 

https://floridaconstru.wpengine.com/statutory-implied-warranties-for-condominium-associations/

 

For more on the statute of limitations and statute of repose, please see: https://floridaconstru.wpengine.com/watering-down-the-10-year-statute-of-repose-period-for-construction-disputes/

 

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.

WATERING DOWN THE 10 YEAR STATUTE OF REPOSE PERIOD FOR CONSTRUCTION DEFECT DISPUTES

Posted on by


Yes, it appears that the Second District Court of Appeals in Clearwater Housing Authority v. Future Capital Holding Corp., 38 Fla. L. Weekly D2323a (2nd DCA 2013), just entered an opinion that has watered down the ten year statute of repose for construction disputes. That is right – watered down the statute of repose. This is excellent for owners with construction latent defect disputes, but bad for contractors and design professionals.

 

The statute of limitations for construction disputes is governed by Florida Statute s. 95.11(3)(c):

 

(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.

 

The bolded language above is the ten year statute of repose language, which means that a lawsuit brought after this date is forever barred even if it is otherwise filed within four years from the date an owner discovered a latent defect (the statute of limitations period). In other words, after this repose period, latent defects become moot.

 

However, the Second District in Clearwater Housing Authority gave owner an excellent argument to extend the repose period. In this case, an owner hired a contractor and design professionals for purposes of building an apartment project in Clearwater. The property was then purchased by Clearwater Housing Authority. The Certificate of Occupancy was issued in 2000 and this was when Clearwater Housing Authority took possession of the property. However, a final plat was not submitted by the engineers on the project until 2003.

 

In 2009, Clearwater Housing Authority initiated a dispute for construction defects against various parties. But, in 2011, it amended its complaint to assert a claim against Future Capital Holding Corporation (“Future Capital”). Future Capital did the right thing and moved for summary judgment due to the expiration of the statute of repose. The math was simple. The Certificate of Occupancy occurred in 2000 and it was brought into the lawsuit in 2011, more than 10 years after-the-fact. The trial court agreed and summary judgment was entered in favor of Future Capital.

 

Clearwater Housing Authority creatively argued that the engineer did not submit the final plat until 2003 and this marked the date that triggered the beginning of the repose period; thus, it had until 2013 to assert claims for construction defects. This argument was based on the repose language: “[T]he 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.” Stated differently, “the [ten year] repose period commences on the latest date that any of the listed entities—the professional engineer, registered architect, or licensed contractor—completed or terminated their contract.” Clearwater Housing Authority, supra.

 

The Second District reversed the summary judgment based on Clearwater Housing Authority’s argument and because an issue of fact remained as to when the contract was completed.

 

What effect does this have? A huge effect! An owner can sue a contractor or design professional outside of ten years from the issuance of the Certificate of Occupancy and argue that the repose period did not run based on the following arguments: (a) the contractor’s contract was not completed until well after the Certificate of Occupancy date because the contractor was doing endless punchlist work or (b) the design professional had not completed its contract because it was required to submit as-built plans (or some relatively minor task) which it did not do until well after the Certificate of Occupancy. Therefore, based on this holding, owners can be very creative as to when contracts were arguably completed to create questions of fact to postpone the repose period, especially if they are concerned with this defense. On the other hand, contractors and design professionals sued for construction defects that otherwise have a statute of repose argument, like Future Capital seemed to have in the Clearwater Housing Authority case, need to appreciate that a creative owner will be able to create a question of fact to preclude the entry of summary judgment.

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.

STATUTORY IMPLIED WARRANTIES FOR CONDOMINIUM ASSOCIATIONS

Posted on by


Statutory implied warranties are a valuable tool for condominium associations (as well as purchasers of units) of newly formed condominiums.  The warranties provide the association with direct claims to assert against the developer, the general contractor, subcontractors, and even suppliers, if there is defect with the condominium.  The specifics of the implied warranties, and the timing as to when these statutory warranty claims must be brought, can be found in Florida’s Condominium Act, specifically Fla. Stat. s. 718.203.

 

Recently, in Harbor Landing Condominium Owners Association, Inc. v. Harbor Landing, L.L.C., 2012 WL 254971 (Fla. 1st DCA 2012), a condominium association initiated a lawsuit that included a breach of the statutory implied warranty claims provided for in Fla. Stat. s. 718.203.  The association sued, amongst other entities, the manufacturers of coating that was applied on the exterior railings.  The association argued that the statutory implied warranties extended to the manufacturer because the manufacturer was a supplier (and a statutory implied warranty claim extended to suppliers).  While there are certainly situations whereby a manufacturer could also be a supplier, in this case, the manufacturer of the coating did not supply the exterior railings.  Rather, a separate entity supplied the railings.  For this reason, the court said that the statutory implied warranties could not extend to the manufacturer of the coating applied to the railings (since a different entity supplied the railings). This ruling simply means that the association could bring the statutory warranty claim against the supplier of the railings, just not the manufacturer of the coating.

 

The relevance of this case is that if there are defects with a condominium, particularly a recently built condominium, it is important for the association (or unit owner) to seek legal counsel to best preserve rights in seeking recourse based on the defects.  This includes the appropriate entities to sue as well as the arguments / claims to include against the entities based on the asserted defects.

 

 

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.