ARGUMENTS TO RECOVER ATTORNEYS’ FEES AGAINST A MILLER ACT PAYMENT BOND

Posted on March 31, 2013March 31, 2013 by Edward Garber

For those subcontractors and suppliers providing labor, services, or materials to federal construction projects, understanding your rights under the Federal Miller Act (40 USC s. 3131 et seq.) is important. Among other things, the Miller Act advises what a subcontractor and supplier need do to preserve a right against the prime contractor’s payment bond, from providing the prerequisite notice of nonpayment to the surety within 90 days from final furnishing / performance (if there is no privity of contract with the prime contractor) to ensuring suit is filed in federal court within a year from final furnishing / performance. Obtaining a copy of the payment bond and understanding these timeframes is critical to an unpaid subcontractor or supplier; otherwise, their claim will be barred against the payment bond.

One of the downsides to Miller Act bond claims is that there is no statutory right to the recovery of attorneys’ fees under the Federal Miller Act. This means that every dollar spent on lawyers is potentially reducing the amount in recovery because there is no avenue to recoup those attorneys’ fees under the Miller Act. Unless this claim is significant, this downside often demotivates a supplier or subcontractor from filing suit in federal court against a Miller Act payment bond.

There are, however, arguments to recover attorneys’ fees in a Miller Act action. The first argument is if there is an underlying contract involving the claimant relating to the project that provides for attorneys’ fees (such as the contract between the subcontractor and prime contractor), the claimant can recover its attorneys’ fees. See, e.g., U.S. f/u/b/o Southeastern Mun. Supply Co., Inc. v. National Union Fire Ins. Co. of Pittsburg, 876 F.2d 92 (11th Cir. 1989) (finding that attorneys’ fees provision in contract between supplier and subcontractor was enforceable to enable supplier to recover attorneys’ fees against Miller Act surety).

There is also a second argument that attorneys’ fees should be recoverable in Florida against a Miller Act bond under a 1968 Fifth Circuit Court of Appeal’s decision in United States Fidelity and Guaranty Co. v. Hendry Corp., 391 F.2d 13, 20-21 (5th Cir. 1968). This case analyzed Florida law to fill in the gap to determine whether attorneys’ fees were recoverable under the Miller Act (since the Act is silent on the issue). In doing so, the Fifth Circuit analyzed Florida’s Insurance Code and maintained that provisions in Florida’s Insurance Code (still in effect today) allow for the recoverability of attorneys’ fees in a Miller Act bond dispute.

Parties pursuing Miller Act actions for Florida-based federal projects should plead for attorneys’ fees whether through a contractual provision and/or the Fifth Circuit’s ruling in Hendry Corp. Now, it is uncertain whether the Fifth Circuit’s ruling would still apply today; however, it is an argument that should still be pursued in furtherance of trying to recover attorneys’ fees in an action against a Miller Act payment bond, especially if there is not an underlying contract that provides for attorneys’ fees.

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.

UNDERSTANDING YOUR RIGHTS AS AN ADDITIONAL INSURED

Posted on March 9, 2013March 9, 2013 by Edward Garber

Being an additional insured is a topic discussed, and it absolutely should be, in the negotiation of construction contracts. It is an important part of risk management in construction. An owner wants its contractor and consultants to name it as an additional insured under their liability policies. A contractor, likewise, wants its subcontractors, etc. to name it as an additional insured under their liability policies.

Let’s say a general contractor wants its window/glazing subcontractor to name it as an additional insured under the subcontractor’s commercial general liability (CGL) policy. The window subcontractor would be the primary or named insured under its CGL policy. The general contractor, smartly, wants the window subcontractor’s CGL policy to have an endorsement that identifies the general contractor as an additional insured under that policy (ideally, for both ongoing and completed operations). By adding the general contractor as an additional insured, the window subcontractor is protecting / providing coverage to the general contractor for the window subcontractor’s negligence. It is not designed to protect the general contractor for its negligence — so the general contractor will still need its own liability insurance; rather, it is again designed to provide coverage to the general contractor for the window subcontractor’s negligence.

Let’s also say that during the subcontractor’s operations or after, an incorrectly installed window simply fell and caused an injury to a person or damage to property other than the window. (Yes, an extreme example!) As a result of the injury / damage, both the general contractor and the window subcontractor get sued. The general contractor will seek indemnification from the window subcontractor and the subcontractor’s CGL policy as an additional insured under the subcontractor’s policy. The reason being is that the general contractor wants to be indemnified by the subcontractor and have the subcontractor’s insurer provide it a defense and coverage because the window fell out due to the subcontractor’s negligence.

In this situation, either the window subcontractor’s CGL insurer should provide (pay for) a defense for both the window subcontractor (named insured) and the general contractor (additional insured) subject to the insurer’s reservation of rights. This can be done by the insurer retaining counsel for both the named insured or additional insured or, which may be the case in a multi-party litigation such as a multi-party construction defect case, contributing to the general contractor’s defense.

Importantly, in the recent decision of University of Miami v. Great American Insurance Co., 38 Fla. Law Weekly D392a (Fla. 3d DCA 2013), the Third District maintained that where both the named insured and additional insured have been sued in negligence with allegations that both caused the injury / damage to the plaintiff, the insurer (for the named insurer) is required to provide separate defense counsel for each in order to avoid conflicts of interest with one defense counsel. This is done to ensure that the additional insured has independent counsel to represent its interests.

Understanding rights of an additional insured is a must for any construction project in order to maximize insurance coverage and indemnification rights.

THE SLOW OR NOT SO SLOW DEATH OF THE ECONOMIC LOSS RULE

Posted on March 9, 2013March 9, 2013 by Edward Garber

What is the economic loss rule in Florida? The answer — who really knows anymore.

The economic loss rule was a rule that applied in two scenarios. Under the first scenario, the economic loss rule said that if parties were in contractual privity, one party cannot sue the other party under tort theories (such as negligence) for damages that arise out of the contract. In other words, a party cannot get around the contractual remedies and damages by suing for tort instead of for breach of contract. However, over the years, this scenario has been watered down by various exceptions that allows a party to sue in tort if their damages were independent from the contract (such as damages from being fraudulently induced into the contract, etc.) or the party they were suing was a professional (such as an architect, engineer, etc.). Nevertheless, the rule still applied to prevent a majority of contracting parties from suing in tort instead of for breach of a contract, thereby maintaining the integrity of contract law.

The second scenario the economic loss rule applied was in the products liability context. Under this scenario, a manufacturer cannot be sued by a non-contracting party, in particular, for a defect in a product unless that product causes personal injury or damage to other property. However, if the product just damages itself (in other words, the product is simply defective), then the economic loss rule could apply to bar a tort claim against a manufacturer.

Confusing? Yes! To add confusion, the Florida Supreme Court in Tiara Condominium Association, Inc. v. Marsh & Mclennan Companies, Inc., 38 F. L. Weekly S151a (Fla. 2013), eliminated the the first scenario in which the economic loss rule applied. In this case and in eliminating the first scenario, the Florida Supreme Court maintained that an insured’s tort claims (negligence and breach of fiduciary duty) against its insurance broker that it was in contractual privity with was not barred by the economic loss rule.

What exactly does this ruling mean? Ultimately, it means that parties that are in contractual privity could sue each other under tort theories such as negligence to potentially recoup damages in excess of the recoverable breach of contract damages and/or to get around contractual provisions and remedies. Thus, tort claims are now available, and quite frankly, will be pursued and argued, against contracting parties. If the Florida Supreme Court finds that tort claims between an insured and the insured’s broker (where the parties were in contractual privity) are permissible, then just think of the arguments and tort claims that could be made to dilute contract law.