Tag Archives: notice

TAKEAWAYS FROM SCHEDULE-BASED DISPUTE BETWEEN GENERAL CONTRACTOR AND SUBCONTRACTOR

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A recent opinion out of the Southern District of Florida, Berkley Insurance Co. v. Suffolk Construction Co., Case 1:19-cv-23059-KMW (S.D.Fla. July 22, 2024), provides valuable takeaways on schedule-based disputes between a general contractor and subcontractor on a high-rise project.

In a nutshell, the general contractor’s original project schedule was abandoned due to project delays and the project wasn’t being built by any updated project schedule. The subcontractor claimed the general contractor was mismanaging the schedule putting unreasonable manpower and supervision constraints on it, i.e., it was working inefficiently. A bench trial was conducted and the Court found in favor of the subcontractor’s arguments. The Court found the general contractor had unrelated delays and that work activities were no longer methodical but, simply, piecemeal demands. The Court also rejected any inadequate manpower arguments finding the subcontract did not place any manpower requirements on the subcontractor.

Below are the high level takeaways from these facts which are takeaways relative to any schedule-based dispute between a general contractor and subcontractor.

  1. The Word “Reasonably” in the Subcontract Means Something

The subcontract provided that that the subcontractor was required to comply with the project schedule as it was “reasonably” amended from time to time.  This makes sense because no construction schedule is written in stone. Any project schedule will be updated and amended based on the progress of the project. Nothing unusual about this concept.

However, the Court found that the word “reasonably” means the general contractor did NOT have unfettered discretion or control over the schedule because it had to act reasonably.  The general contractor’s ability to amend the schedule was limited to reasonable changes. Hence, any manpower obligation of the subcontractor was tied to reasonable amendments to the schedule and the subcontractor was not required to bear the brunt of endless workers beyond its planned workforce unless the general contractor’s schedule amendments were reasonable.  Moreover, given the general contractor’s failure to adhere to the subcontract’s requirement of confirming changes in writing with the signatures of both parties, the Court held the general contractor’s unilateral changes to the schedule were violations to the express terms of the subcontract regarding changes.

  1. No Damage for Delay Provisions are Not Absolute

The subcontract included a no damage for delay provision. While these provisions are enforceable in Florida, they do “not preclude recovery for delays resulting from a party’s fraud, concealment, or active interference with performance under the contract.” Berkley Insurance Co., supra (citation omitted). “This restriction comports with a contracting party’s implied promise not to hinder the other party’s ability to perform its contractual obligation.” See id.

Here, the Court held that the general contractor actively interfered with the subcontractor’s ability to complete its work by failing to prepare floors for the subcontractor to work sequentially; mismanaging other trades causing active damage to work already completed by the subcontractor; and misallocating building resources and personnel creating a chaotic and unstable situation.

  1. Notice Provisions

The general contractor argued that the subcontractor did not provide formal contractual notice of claims within ten days of them arising. The Court found this argument unpersuasive as the subcontractor preserved its claims through numerous emails to the general contractor regarding delay, damage, or other impacts to the subcontractor. Indeed, the subcontractor submitted potential change orders for loss of production and informed the general contractor that labor and supervision expenses were becoming untenable due to the out of sequence work.

  1. Recovering delay and Lost Productivity (Inefficiency Damages)

While the court allowed lost productivity damages from the subcontractor, it disallowed delay damages believing it would create a windfall to the subcontractor since courts view delay damages as a subset of lost productivity damages. See Berkley Insurance Co., supra, citing JH Kelly, LLC v. AECOM Tech. Servs., Inc., 605 F. Supp. 3d 1295, 1308 (N.D. Cal. 2022) (holding “damages for the delay and disruption” were among the “five categories of lost productivity damages” at issue).

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

PROVIDING YOUR INSURER PROMPT NOTICE

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Sometimes, when it comes to insurance, you may hear the argument that you breached your insurance policy by failing to provide your insurer with prompt notice as the insurance policy requires.  Well, this is not such an absolute issue.  With that said, you should absolutely provide your insurer with prompt notice of a claim or loss. No legitimate reason not to. But, if you don’t, it is not an absolute get out of jail free card for your insurer, but it does give them a good argument, which you don’t really want to deal with.

In Gulfpoint Construction Co., Inc. v. Westfield Ins. Co., 2024 WL 1759228 (11th Cir. 2024), an insured appealed a trial court’s ruling that found it did not provide prompt notice to its property insurer as the policy required. In this case, notice was provided two years after a loss from a hurricane. The insurer denied coverage and, in doing so, relied on the insured’s failure to provide prompt notice.  Although the trial court agreed, the appellate court found this was a genuine issue of material fact.

“A notice of damage is” often, and is here, “a pre-condition to a claim.” “If an insured breaches the notice provision” of an insurance policy, “prejudice to the insurer will be presumed, but [that presumption] may be rebutted by a showing that the insurer has not been prejudiced by the lack of notice.” “Whether the presumption of prejudice to the insurer has been overcome is ordinarily” a question of fact, so, to grant summary judgment, the record must “conclusively foreclose the insured’s ability to overcome the presumption of prejudice.  So, for example, in Shapiro v. First Protective Insurance Company, a Florida court found that whether the insureds had overcome the presumption was a fact question because their engineer, “based on his inspection, opined not only that the homeowners’ roof more likely than not had been damaged as a direct result of Hurricane Irma in 2017, but also that this damage still could be observed as late as 2022, five years after Hurricane Irma.”  Conversely, in De La Rosa, “the record foreclose[d] the insured’s ability to overcome the prejudice to the insurer in evaluating the extent of the damage because of the delay in making the claim” because the insurer “would not be able to determine the damage at the time of the incident.”  De La Rosa distinguished Stark on the ground that “even though there may be disputed issues of fact as to whether the insurer was prejudiced in determining the cause of the loss, the facts … show[ed] that the insurer would be prejudiced by the passage of time in investigating the extent of the loss, and thus, the cost of repair.” 

Gulfpoint Construction Co., supra at *5 (internal citations omitted).

Here, the insured had evidence to rebut the insurer’s prejudice argument to make the issue of whether the insured breached the insurance policy by its failure to provide prompt notice a question of fact:

[The insured’s] expert testified that he “was able to formulate [his] opinions” despite reviewing the damage years after the fact, “and was in no way prejudiced by the timing of [the] inspection”—to the contrary, he said, “no other windstorm event occurred at [the property’s] location between the time of Hurricane Irma and [his inspection] which could have resulted in the damage observed to the [Gulfpoint’s] Building and its roof system.” 

Indeed, [the insurer’s] own expert, Shatto, made clear that his investigation was not prejudiced by the passage of time. Asked to explain “how having to inspect that damage almost two years after Irma negatively impacted or limited [his] ability to” determine “the cause of any portion of the damage or rule out other potential competing causes of the same damage,” Shatto said this:

if I were to inspect that roof—if I had inspected that roof hand in hand with the Crowther Roof people [who conducted the inspection and repairs days after the hurricane], my report would have been identical …. I would have found the same partially formed cracks …. my report wouldn’t have changed.

Thus, as in Shapiro, there is plainly evidence from which a jury could infer that [the insurer] did not suffer prejudice in its investigation because of [the insured’s] delay in notifying them.

Gulfpoint Construction Co., supra at *6 (internal citations omitted).

While in this case, the insured lives another day by allowing this to be decided by the trier of fact–the jury–this is an issue that can be taken off the table by merely providing PROMPT NOTICE to your insurer.

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.