SLAVIN DOCTRINE LIVES AND BREATHES (FOR THE BENEFIT OF CONTRACTORS, SUBCONTRACTORS, AND DESIGN PROFESSIONALS)

Posted on January 30, 2015January 30, 2015 by Edward Garber

The Slavin doctrine lives and breathes for the benefit of contractors, subcontractors, and even design professionals! The Slavin doctrine is a widely used defense in Florida by contractors in personal injury disputes where the contractor is being sued by a third party for injuries the third party suffered caused by defects in the contractor’s work. This doctrine emanates from the Florida Supreme Court’s case, Slavin v. Kay, 108 So.2d 462 (Fla. 1959), which stands for the proposition that a contractor’s liability in negligence—the duty of care owed to third parties—terminates if the owner accepts the contractor’s work with patent defects.

The Slavin doctrine was recently applied in favor of a traffic signal design subconsultant (subcontractor) hired to design traffic signals at an intersection in McIntosh v. Progressive Design and Engineering, Inc., 2015 WL 71931 (Fla. 2015). The design subconsultant was sued in negligence for a defective traffic signal that caused an accident that killed the plaintiff’s father. The subconsultant argued that the Slavin doctrine applied because a patent defect with the traffic signal was accepted by the Florida Department of Transportation (owner of the project). Although the jury found that the subconsultant was negligent in the design of the traffic signal, the jury held the subconsultant’s liability was terminated because the defect was patent and accepted by the owner.

The plaintiff appealed. On appeal, the Fourth District affirmed the trial court explaining the application of the Slavin doctrine:

The Slavin doctrine was born of the need to limit a contractor’s liability to third persons….The Slavin doctrine considers the respective liability of an owner and contractor, after the owner has resumed possession of the construction, for injuries to a third person for negligence of the contractor in the construction of the improvement.

***

Under Slavin, the liability of a contractor is cut off [terminated] after the owner has accepted the work performed, if the alleged defect is a patent defect which the owner could have discovered and remedied. The contractor’s work must be fully completed before the owner becomes liable and the contractor is exonerated. The rationale is that [b]y occupying and resuming possession of the work the owner deprives the contractor of all opportunity to rectify his wrong.

McIntosh, 2015 WL at *3 (internal quotations and citations omitted).

For a contractor to be relieved of liability under the Slavin doctrine, the defect MUST (1) be patent and (2) accepted by the owner of the project. The Slavin doctrine would extend to subconsultants and subcontractors as long as a patent defect in their work was accepted by the owner.

A patent defect is a defect that is known or obvious, or a defect reasonably discoverable with the exercise of due diligence / reasonable care. On the other hand, if the defect is a latent defect (a defect not reasonably discoverable with the exercise of due diligence / reasonable care), the Slavin doctrine does not apply. As reflected by the Fourth District in McIntosh, it is up to the jury to determine whether the defect is a patent defect or a latent defect. McIntosh, 2015 WL at *4.

Acceptance occurs if the owner accepts the contractor’s work. McIntosh, 2015 WL at *5. “Acceptance is the term applied for shifting the responsibility to correct patent defects to the party in control [of the work].” Id.

Here, the jury found the defect with the traffic signal was patent and accepted by the owner. Evidence apparently revealed that an employee of the owner discovered the defect before the car accident. Evidence further supported the subconsultant’s position that the owner (Florida Department of Transportation) accepted the defect. The subconsultant’s design was accepted and put out to competitively bid by the owner. At this point, the subconsultant had no control over construction or when the traffic signal would be operational. And, when the accident occurred, the project had just been completed with the traffic signal in operation.

In a personal injury case against a construction professional (whether a contractor, subcontractor, design professional, or subconsultant) the Slavin doctrine remains a viable defense. Most courts, as exemplified by this case, will let the jury determine the two fundamental components to the Slavin defense: 1) whether the defect was patent and 2) whether the owner accepted the contractor’s work with the patent defect. In this case, the design subconsultant got the huge benefit of the jury’s verdict, rightfully or wrongfully. This means that design professionals sued in negligence in a personal injury case should rely on the Fourth District’s application of the Slavin doctrine in this case to get this defense determined by a jury. The design professional should always be able to argue the owner accepted the design and put the design out to bid; the owner knew the design was not perfect and accepted patent errors and omissions in the design; the design professional had no control over construction or when construction would be completed such that the project would be operational / utilized by the owner; and the owner accepted the work by allowing the project to be utilized even though it had control to remedy the patent defect.

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.

WAIVER OF CONSEQUENTIAL DAMAGES AND LOSS OF USE DAMAGES (IN CONSTRUCTION / DESIGN DEFECT DISPUTE)

Posted on January 24, 2015January 24, 2015 by Edward Garber

In construction / design defect cases, a plaintiff (party proving defect) may assert a category of damages referred to as loss of use damages. Importantly, if your contract includes a waiver of consequential damages, these types of damages will not be recoverable. This is a significant issue to consider when entering into a construction contract, especially when you are the owner of the project, because if you do not want to waive a party you hire of consequential damages (such as loss of use damages), then you do not want to include a waiver of consequential damages in your contract or, at a minimum, you want to carve out exceptions to the waiver of consequential damages. Stated differently, this is an issue and risk you want to consider on the front end because even though construction / design defects are not anticipated, they do occur.

In a construction / design defect scenario, an owner’s consequential damages would generally be those damages unrelated to repairing the defect. For instance, loss of use of the property or lost rental income to an owner during the implementation of the repairs would be a consequential damage that would be waived by a waiver of consequential damages provision in an owner’s contract.

An example of a waiver of consequential damages provision found in the AIA A201 (general conditions of the construction contract between an owner and contractor) is as follows:

The Contractor and Owner waive Claims against each other for consequential damages arising out of or relating to this Contract. This mutual waiver includes

.1 damages incurred by the Owner for rental expenses, for losses of use, income, profit, financing, business and reputation, and for loss of management or employee productivity or of the services of such persons; and

.2 damages incurred by the Contractor for principal office expenses including the compensation of personnel stationed there, for losses of financing, business and reputation, and for loss of profit except anticipated profit arising directly from the Work.

This mutual waiver is applicable, without limitation, to all consequential damages due to either party’s termination in accordance with Article 14. Nothing contained in this Section 15.1.6 shall be deemed to preclude an award of liquidated damages, when applicable, in accordance with the requirements of the Contract Documents.

(See AIA A201-2007, s. 15.1.6)

Now, if loss of use damages are not contractually waived, the recent decision in Gonzalez v. Barrenechea, 40 Fla. L. Weekly D258a (Fla. 3d DCA 2015), illustrates how an owner can recover these types of damages when there is a construction / design defect. In this case, an owner sued its architect for design errors with the HVAC system in a newly constructed home. The owner was forced to engage a new design professional to address the deficiencies. It took the owner 20 months to repair the deficiencies during which the owner claimed he could not live (or use) his new house. Although the owner did not live in the house, there was evidence that the owner had some use of the house. For instance, the owner’s son slept in the house on an intermittent basis, the owner docked his boat at the dock behind the house, furniture was stored in the house, and the owner had cars parked in the garage.

Notwithstanding some use of the house, the owner put on testimony of an expert real estate appraiser that testified that the owner incurred lost rental value of approximately $15,500 per month during the 20-month repair period. The architect argued that this rate was flawed because the expert failed to factor in the use the owner had of the house during the 20-month period. The trial court agreed and denied the owner the loss of use damages.

The Third District Court reversed the trial court finding that the owner was entitled to loss of use damages:

Under Florida law, a homeowner that loses the use of a structure because of delay in its completion is entitled to damages for that lost use. Florida courts have held that “[d]amages for delay in construction are measured by the rental value of the building under construction during the period of delay.”

Gonzalez, supra, quoting Fisher Island Holdings, LLC v. Cohen, 983 So.2d 1203, 1204 (Fla. 3d DCA 2008).

Furthermore, because the architect failed to put on any evidence as to what the rental value of the house should have been during the 20-month period factoring in the owner’s use of the house during this period, there was nothing to refute the owner’s rental rate.

This case touches upon important take-aways:

Consider the risk of a waiver of consequential damages provision on the front end, especially if you are an owner. Likewise, if you are a contractor or design professional, you want to consider the risk of not having such a waiver of consequential damages.
Loss of use damages are recoverable in a construction / design defect case absent a contractual waiver of consequential damages.
An owner can introduce evidence of loss of use damages through an expert real estate appraiser that can testify as to the rental rate of the property during the repair period.
A contractor or design professional defending a loss of use damages claim should engage its own expert to counter an owner’s expert. In this case, if the design professional had an expert real estate appraiser, it would have put on evidence of a rental rate much lower than the $15,500 per month factoring in the owner’s limited use of the house during this time period.

MAKE SURE TO HAVE THE RIGHT WITNESS IN A CONSTRUCTION DEFECT CASE TESTIFY AS TO THE ESTIMATE

Posted on January 23, 2015January 23, 2015 by Edward Garber

In construction defect disputes, the plaintiff (or party proving the defect) oftentimes relies on an estimate instead of actual costs. The reason being is that the plaintiff is awaiting money from the dispute in order to fund the repairs. I have previously discussed that there is nothing wrong with a plaintiff relying on an estimate to support its damages in a construction defect dispute.

However, it is important when relying on an estimate to ensure that you have the right person or expert testifying so that there is NOT an issue with that estimate being introduced as evidence during trial. If the estimate forms the basis of your damages, you want to ensure that estimate is admissible evidence at trial.

Recently, I wrote an article about the application of the business records exception to the hearsay rule. This article discussed a case where a plaintiff owner tried to introduce its estimate / damages through its architect. The problem was that while the architect generated the repair scope of work (which is common), the architect did not generate the cost / pricing information. Rather, the owner’s general contractor generated the cost estimate / pricing information with input from subcontractors (which is common). Thus, the cost estimate / pricing information was hearsay as it pertained to the architect that was not properly admissible under the business records exception to the hearsay rule. But, this evidence would likely be deemed admissible if the general contractor testified as to the cost estimate.

WRAP-UP INSURANCE ON LARGE CONSTRUCTION PROJECTS: OCIP OR CCIP

Posted on January 17, 2015January 17, 2015 by Edward Garber

Wrap-up insurance is commonplace on large, complex construction projects. There are two types of wrap-up insurance programs routinely utilized: (1) Owner’s Controlled Insurance Program (“OCIP”) or (2) Contractor’s Controlled Insurance Program (“CCIP”). Under either wrap-up program, the objective is that most (if not all) of the construction participants (such as the contractor and subcontractors) are wrapped-up or covered under one insurance coverage program.

When a construction project has wrap-up insurance, whether OCIP or CCIP, there will be an insurance manual that will explain certain aspects to the construction participants such as (a) what type of insurance is included in the wrap-up program, (b) how premiums are to be determined for the wrap-up program including the required close-out audit, (c) who is responsible for any deductibles for claims, (d) the type of insurance the participant still needs to procure and/or the type of insurance not covered under the program (and, if not in the manual, it should be outlined in the contract), and (e) how to submit and handle claims under the wrap-up program. The manual will also identify the administrator of the wrap-up program.

In my experience, wrap-up coverage includes builder’s risk coverage, worker’s compensation coverage, commercial general liability (CGL) coverage, and umbrella coverage. Insurance not routinely included in a wrap-up program is pollution liability, errors & omissions / professional liability, automobile liability, equipment coverage such as boiler and machinery insurance, and coverage for a contractor’s off-site operations. This will be applicable insurance the contractor and subcontractors will still need to procure as may be required by the wrap-up program or underlying contracts.

The advantage of a wrap-up program is ideally to streamline risk management issues including additional insured status, (higher) limits of liability and excess (umbrella) liability coverage, products completed operations (applicable to CGL coverage so that products completed operations ideally runs through the applicable statute of repose for construction defects), waiver of subrogation concerns, and the claims process since major construction participants will be covered under the same global insurance policies (as opposed to many different carriers). Another advantage is that there ideally is a cost benefit since the program should reduce overall insurance costs by all of the enrolled participants which corresponds to a reduction in overall construction costs.

There are, however, perceived disadvantages to wrap-up programs too. There is an administrative burden in having to deal with these programs which is why there is often a third party administrator engaged to handle the administrative process associated with ensuring that major construction participants are properly enrolled in the program, insurance costs that are routinely included in bids / proposals are backed-out to avoid duplication in insurance costs, claims are properly and timely handled, and enrolled participants are audited during the close-out of their contracts to determine their final, allocated premium. Also, as mentioned above, the wrap-up program does not relieve the enrolled participant from obtaining other required insurance coverage not included in the program but required of the participant through the wrap-up program’s manual or contract. And, there is the concern that even if there is an insurable construction defect claim, the claim is still going to flow downstream irrespective of the fact that there is a wrap-up program designed to cover that type of claim. (For example, with OCIP, there is concern that such a claim will be formally asserted against the contractor and then subcontractors instead of perhaps tendering the claim to the OCIP administrator so that the carrier can make a determination as to the claim since the contractor and subcontractors would have the same insurance through OCIP. Thus, any duty to defend obligation would be owed to all from the same OCIP carrier which will hopefully reduce protracted litigation.) See, e.g., Southeast Wisconsin Professional Baseball Park District v. Mitsubishi Heavy Industries America, Inc., 304 Wis.2d 637 (Wis. Ct. App. 2007) (finding that in a multi-party litigation regarding deficiencies with a retractable roof, the OCIP carrier owed duty to defend obligation to all of the parties).

UTILIZING EXPERT WITNESSES FOR CONSTRUCTION DISPUTES

Posted on January 14, 2015January 14, 2015 by Edward Garber

Expert witnesses are an integral part of construction disputes. An expert assists a party in proving or disproving liability or damages. In construction disputes, an expert could be used relating to a construction or design defect, a delay, an inefficiency, the standard of care, building code violations, the repair protocol, etc. Irrespective of the basis for retaining an expert, oftentimes the expert generates a report with his/her opinions (and documentation relied on to form those opinions), is deposed, and, if the case proceeds to trial, is relied on to provide expert opinion testimony.

Recently, I wrote an article about the Daubert test which is a court’s gatekeeping test to determine whether the expert opinion testimony is admissible. Parties utilizing experts in construction disputes need to understand this Daubert test. Please take a look at this article to familiarize yourself with Daubert to ensure you are engaging and preparing the right expert.

Additionally, I wrote another article on expert opinion testimony including the standard of appellate review if a court strike’s expert opinion testimony or allows an expert to testify subject to an objection. Please take a look at this article because it is common for a party prior to trial to move to strike an opposing expert or portions of that expert’s opinion testimony.

DESIGN PROFESSIONAL’S DUTY OF CARE NOT EXTENDED TO SUBCONTRACTORS

Posted on January 8, 2015January 8, 2015 by Edward Garber

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. 5^th 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.

PREMISE LIABILITY CLAIMS AND THE DUTY OF CARE OWED TO CONTRACTORS

Posted on January 3, 2015January 3, 2015 by Edward Garber

Unknown Premise liability claims are a concern to persons engaging a contractor (a business invitee) to perform renovation, maintenance, or repair work on property they own or lease. These are claims where a person injures himself / herself on another’s premises and sues the owner (and/or tenant) under theories grounded in negligence. “The crux of a cause of action for premises liability is not the ownership of the premises, but the negligence of the possessor in permitting [business] licensees and invitees to come unwarned to an area where they could foreseeably be injured by a dangerous condition which is not readily apparent.” Phillips v. Erican Manufacturing & Machine, Inc., 40 Fla. L. Weekly D103a (Fla. 5^th DCA 2014) quoting Houssami v. Nofal, 578 So. 2d 495, 496 (Fla. 5th DCA 1991).

In a negligence case, a plaintiff needs to prove the following four elements:

the defendant owes the plaintiff a duty of care;
the defendant breached that duty;
the defendant’s breach of that duty proximately caused damage / injury to the plaintiff; and
the plaintiff suffered damage / injury.

In premise liability claims, an issue oftentimes turns to the very first element, that being whether the defendant (e.g., property owner or tenant) owed the plaintiff (e.g., injured person) a duty of care. If the defendant did NOT owe the plaintiff a duty of care, there can be no negligence claim.

The Duty of Care in a Premise Liability Claim

In Phillips, a company was hired to clean and paint a warehouse’s corrugated metal roof that included cleaning and caulking skylights on the roof. As a worker was working on the roof, he fell through a skylight that had been concealed as it was painted the same color as the roof. While the skylight at-issue was visible from inside the warehouse, it was not visible from the exterior due to the paint. The injured worker sued the owner (amongst others) in a premise liability claim.

As reflected in a prior posting also dealing with an injury from a skylight, an owner that hires an independent contractor is typically not liable for injuries to the contractor’s employees unless: a) the owner was actively participating in the construction in that the owner directly influenced the manner in which the work was performed or b) the owner failed to warn the independent contractor of latent defects / perils that were either known or should have been known to the owner and which were not known by the independent contractor and could not have been discovered by the contractor through the exercise of due care.

This goes to the duty (first element in a negligence action) that an owner owes an independent contractor or any business invitee that an owner invites on his/her premises.

Because the painted skylight was not visible from walking on the roof, the issue was whether locating skylights solely from the roof was a reasonable inspection or whether the contractor should have also located skylights from inside the warehouse. If the contractor should have located skylights from inside the warehouse, then the contractor could have discovered the concealed peril (painted skylight) with due care, thereby defeating his premise liability claim. The Fifth District found that this was an issue for the jury.

What about this twist. The warehouse was leased to a company the owner was an officer of. Could the tenant be liable for premise liability claims? How about the owner if the tenant is the one utilizing the property and invited the contractor on the property? This is important because if a party does NOT possess or have control over the premises, and specifically the requirement to perform maintenance and repairs to the premises, then that party owed no duty of care and should not be liable for a premise liability claim. The Fifth District explained:

“In cases like this, where the facts involve a leased premises, the extent of responsibility for injuries occurring on the leased premises during the term of the lease depends on the extent the owner of the property maintains control over the premises. When the landlord and tenant have a lease that expressly sets forth which party has the power to possess and control the property during the term of the lease, the issue of control is a matter of law.”

Phillips, supra (quotations and internal citations omitted).

Notably, if a lease allows the tenant to make improvements or repairs subject to the owner’s approval, the owner will be deemed to have sufficient possessory interest or control over the leased property to owe a duty to a business invitee. See Russ v Wollheim, 915 So.2d 1285 (Fla. 2d DCA 2005).