CONSTRUCTION / DESIGN DEFECTS AND RIGHTS UNDER FLORIDA STATUTES CHAPTER 558

imagesConstruction / 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.

GENERAL UNDERSTANDING OF THIRD-PARTY AND FIRST-PARTY BAD FAITH INSURANCE ACTIONS

UnknownInsurance is a large part of the construction industry.  Whether you are a contractor, subcontractor, design professional, supplier, or owner, you (should) have insurance to cover risks inherent in the industry and the particulars of a project. 

 

There are instances in a dispute involving insurance coverage that either an insured or third-party claimant will become frustrated with an insurer.  The frustration may stem from the insurer not considering or initiating settlement opportunities to resolve the dispute.  When this occurs, the insured and/or third-party claimant consider preserving rights to what is known as a bad faith action largely based on the insurer “[n]ot attempting in good faith to settle claims when, under all the circumstances, it could and should have done so, had it acted fairly and  honestly toward its insured and with due regard for her or his interests.”  See Fla. Stat. s. 624.155(1)(b)(1).

 

There are two types of bad faith actions: (1) third-party bad faith actions and (2) first-party bad faith actions.

 

 Third-Party Bad Faith Actions

 

A third-party bad faith action arises when a third-party asserts a claim against the insured and the insured is exposed to damage exceeding the coverage / policy limits of its insurance policy.  Naturally, the insured would be responsible for any judgment that exceeds the policy limits of its insurance policy.  

 

But, what if the insurer had the opportunity to settle the claim for the policy limits or under the policy limits but did not and exposed the insured to a monetary judgment exceeding the policy limits?  It is this opportunity to settle a covered claim within coverage limits but refusing to do so that triggers the bad faith action.  To this point, the Florida Supreme Court stated that “the essence of a third party bad faith cause of action is to remedy a situation in which an insured is exposed to an excess judgment because of the insurer’s failure to properly or promptly defend the claim.”  Macola v. Government Employees Ins. Co., 953 So.2d 451, 458 (Fla. 2006) (internal citations omitted).

 

On the other hand, if the insurer effectuates a resolution with the third-party that includes a release of the insured, there is no third-party bad faith action considering the insured would not be exposed to a judgment in excess of the policy limits. See Fidelity and Cas. Co. of New York v. Cope, 462 So.2d 459 (Fla. 1985).

 

A third-party can bring a third-party bad faith action directly against the insured’s insurer only if it obtains a judgment against the insured in excess of the policy limits. State Farm Fire & Cas. Co. v. Zebrowski, 706 So.2d 275 (Fla. 1997).

 

A third-party bad faith action can be based on Florida Statute s. 624.155 or the common law.  A difference is that a statutory bad faith action under s. 624.155 requires what is known as a civil remedy notice identifying the insurer’s violation to be submitted to the Florida Department of Financial Services as a condition precedent to initiating the bad faith action.  See Fla.Stat. s. 624.155(3)(a).  The insurer is given 60 days to cure the violation before the bad faith action can be initiated.

 

A common law third-party bad faith action does not require the civil remedy notice.  See Macola 953 So.2d 451 (insurer tendering policy limits to insured in response to civil remedy notice and in accordance with Florida Statute s. 624.155 which did not eliminate underlying third-party action would not eliminate a common law third-party bad faith action.) 

 

However, it is important to understand that a party (whether the insured or third party) initiating a third-party bad faith action will not be able to obtain a judgment for both the common law and statutory bad faith causes of action and will ultimately have to choose the cause of action it wants to pursue.  Fla. Stat. s. 624.155(8). The statutory third-party bad faith action is probably more commonly pursued and parties should serve the civil remedy notice before initiating the bad faith action.

 

 First-Party Bad Faith Actions

 

A first-party bad faith action is not based on a third-party action but based on the insured’s own claim against its insurer (such as with a first-party property insurance policy or for uninsured motorist coverage). This may occur when the insured submits a claim against its own insurance policy and the insurer denies the claim or otherwise refuses or delays in paying the full covered amount of the claim. Unlike the third-party bad faith action, a first-party bad faith action has nothing to do with an insurer exposing an insured to a judgment in a third-party claim in excess of the policy limits.

 

A first-party bad faith claim is a statutory action under s. 624.155 that requires the civil remedy notice as a condition precedent to initiating the bad faith action.  However, unlike a third-party bad faith action, there is no common law first-party bad faith action.   QBE Ins. Corp. v. Chalfonte Condominium Apartment Ass’n, Inc., 94 So.3d 541, 545 (Fla. 2012).

 

Before a bad faith action can be initiated in a first-party action, there needs to be a determination that there is coverage, i.e., that the insurer is liable to the insured under the insurance contract, and what the covered damages are. See Liberty Mut. Ins. Co. v. Farm, Inc., 754 So.2d 865 (Fla. 3d DCA 2000) (first-party bad faith action was premature prior to coverage dispute); see also State Farm Florida Ins. Co. v. Seville Place Condominium Ass’n, Inc., 74 So.3d 105 (Fla. 3d DCA 2011) (first-party bad faith action was premature until both coverage and extent of insured’s loss has been adjudicated).

 

(Notably, there is no statutory bad faith action against a surety issuing a payment or performance bond in Florida.  Fla.Stat. s. 624.155(9).)

 

 

Bad faith actions are complicated actions and involve a host of issues (such as discovery-related issues, burdens of proof, and damages) that are not discussed in this article.   The point of this article is for parties to understand the difference between third-party bad faith actions and first-party bad faith actions and to ensure their rights are protected if there is an insurance coverage dispute, whether it is a dispute involving an insured’s first-party insurance policy or a third-party claim that triggers an insured’s liability policy.

 

 

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.

BE CAREFUL AND APPRECIATE THE RISK WHEN EXECUTING A RELEASE IN ADVANCE OF AN EVENT OR SITUATION

imagesThe Florida Supreme Court in a non-construction case recently issued an opinion regarding the scope of a release.  Parties expecting releases (“releasee”) need to ensure that the release they are giving others to execute (“releaser”) clearly and unambiguously reflects the scope of the release they are seeking.  Regardless of the reasoning for getting a release, the release will not serve the releasee’s purpose if it is ambiguous. 

 

In Eric Sanislo v. Give Kids the World, Inc., 2015 WL 569119 (Fla. 2015), the Florida Supreme Court answered the question whether a release that does not contain express language of the releaser releasing the releasee for negligence or negligent acts was enforceable to actually release the releasee for negligence claims. 

 

This case involved a non-profit company that organizes vacations for sick children and their families. In advance of the vacation participants need to execute a release in favor of the non-profit company that reads:

 

I/we hereby release Give Kids the World, Inc. [releasee] and all of its agents, officers, directors, servants, and employees from any liability whatsoever in connection with the preparation, execution, and fulfillment of said wish, on behalf of ourselves, the above named wish child and all other participants. The scope of this release shall include, but not be limited to, damages or losses or injuries encountered in connection with transportation, food, lodging, medical concerns (physical and emotional), entertainment, photographs and physical injury of any kind….

 

I/we further agree to hold harmless and to release Give Kids the World, Inc. [releasee] from and against any and all claims and causes of action of every kind arising from any and all physical or emotional injuries and/or damages which may happen to me/us….

 

During a vacation, the mother of a child injured herself due to a malfunction of a wheelchair lift they were on.  The family sued for negligence and the non-profit organization argued that such a negligence claim was barred by virtue of the release the family executed that released the non-profit company “from any liability whatsoever…”  which would be broadly understood to include all negligence claims.  The non-profit further argued if the release did not cover negligence claims, it would essentially be worthless since the obvious intent of the release was to bar these types of claims.  Conversely, the family argued that the release did not bar negligent acts because nowhere in the release does it even use the words “negligence” or “negligent acts.”

 

The Florida Supreme Court agreed with the non-profit company and the broad language that released the non-profit company “from any liability whatsoever…” expounding:

 

[W]e are reluctant to hold that all exculpatory [release]  clauses that are devoid of the terms “negligence” or “negligent acts” are ineffective to bar a negligence action despite otherwise clear and unambiguous language indicating an intent to be relieved from liability in such circumstances. Application of such a bright-line and rigid rule would tend to not effectuate the intent of the parties and render such contracts otherwise meaningless.

***

The wish request form and liability release form signed by the Sanislos [plaintiff] released Give Kids the World [non-profit company] and all of its agents, officers, directors, servants, and employees from “any liability whatsoever in connection with the preparation, execution, and fulfillment of said wish….” The language of the agreement then provided that the scope of the agreement included “damages or losses or injuries encountered in connection with transportation, food, lodging, medical concerns (physical and emotional), entertainment, photographs and physical injury of any kind….” This agreement clearly conveys that Give Kids the World would be released from any liability, including negligence, for damages, losses, or injuries due to transportation, food, lodging, entertainment, and photographs. With regard to Give Kids the World and the wish fulfilled for the Sanislos, it is unclear what this agreement would cover if not the negligence of Give Kids the World and its agents, officers, directors, servants, and employees, given that exculpatory clauses are unenforceable to release a party of liability for an intentional tort.

Sansislo, supra.

 

What exactly does this ruling mean?

 

It means, be careful, really careful, when executing a release, especially a release given in advance of an event or situation.  Naturally, when a release is given in advance of an event or situation, the release is routinely executed without a lot of consideration given to when the release would apply.  Before the event or situation, you do not foresee the other party committing a negligent act and/or getting hurt by such negligence.  But, it certainly could happen which is why the releasee wants to give you an advance release to execute.   Further, but for the execution of the release, the releasee (or company that wants the release) will probably not allow you to participate or attend the event, etc.  This is another reason the release is routinely executed without a lot of consideration given to the context of the release.

 

But, as demonstrated by the Florida Supreme Court, this advance release can come back to haunt a person that is injured by the negligence of the releasee simply because that person executed an advance release or release given BEFORE the negligence occurred.  Thus, be careful, and appreciate this risk, when executing a release in advance of an event or situation.

 

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.

 

CHALLENGES USING THE TOTAL COST OR MODIFIED TOTAL COST METHODS TO PROVE DELAY / LOST PRODUCTIVITY DAMAGES

imagesSubcontractor delay claims are oftentimes in the form of lost productivity / inefficiency claims.  These claims are premised in large part on additional, unanticipated field labor / manpower or equipment usage that was incurred due to an event that impacted the subcontractor’s performance. 

 

One way a subcontractor proves these damages is through a total cost or modified total cost method comparing its actual costs to its bid, with a portion of the cost overrun forming the subcontractor’s damages. This methodology, however, is not always a favored methodology because it is not the most reliable way to prove cost overruns.  Courts typically prefer parties to itemize the direct costs incurred by an impact, but this is not always practical on a complex construction project.

 

The opinion in Hill York Service Corp. v. Critchfield Mechanical, Inc., 2015 WL 410009 (S.D.Fla. 2015) illustrates the challenges in proving lost productivity / inefficiency with the total cost or modified total cost methodology.  In this case, a mechanical subcontractor subcontracted a portion of its scope of mechanical work to another subcontractor (the “Sub-subcontractor”).   The Sub-subcontractor sued the mechanical subcontractor for delays causing it to incur, among other damages, additional, unanticipated manpower. The mechanical subcontractor moved for a summary judgment to preclude the Sub-subcontractor from using the total cost or modified total cost method to prove its delay / inefficiency damages.

 

The opinion provides a good discussion on the total cost and modified total cost methodology:

 

The modified total cost approach is a variation of the total cost approach. Under the total cost approach,  the original bid cost is subtracted from the actual cost of the entire project. Essentially, the difference between the two amounts, after various modifications and adjustments, is the amount of damages incurred as a result of the owner or construction manager’s breach. The modified total cost approach allows for the adjustment of the amount calculated under the total cost approach to compensate for bid errors, specific costs arising from the subcontractor’s actions, and specific costs arising from actions of parties other than the party against whom damages are sought.

***

A jury may consider the total-cost approach when [1] the nature of the excess costs is such that there is no other practicable means of measuring damages, [2] the original bid was realistic, [3] the actual costs were reasonable, and [4] the plaintiff is not responsible for any of the additional expense. The modified-total-cost approach imposes the same requirements, except that it subtracts any identifiable costs for which the plaintiff contractor is responsible. Thus, to establish the fourth element above, the plaintiff must show that it is not responsible for any of the additional expenses, or has otherwise reasonably accounted for that portion of the total costs for which it is responsible.

 

Hill York Service Corp., supra, at *4 (internal quotations and citation omitted).

 

Here, the Sub-subcontractor wanted to use the modified total cost methodology to capture is additional manpower but failed to account for additional manpower and expenses it was responsible for (the fourth factor in establishing the reliability of this methodology).  The mechanical subcontractor was able to establish that there were items caused by the Sub-subcontractor that contributed to the delay and would have increased the Sub-subcontrator’s costs, but were never quantified and subcontracted from the Sub-subcontractor’s damages.  For this reason, the trial court granted the mechanical contractor’s motion for summary judgment preventing the Sub-subcontractor from proving its damages based on this methodology.

 

If you experienced cost overruns associated with delaying events, it is important to discuss with a lawyer and, depending on the quantum of the damages, a construction consultant in order to best calculate, present, and prove your damages.   Typically, you will want a construction consultant to serve as an expert witness to assist in proving these damages.  Lost productivity / inefficiency claims are challenging damages to prove based on the reliability factors discussed in the case. But, this methodology is used in many instances because it is not always practical to track the direct costs incurred for each event that impacted performance.  Before exploring the total cost / modified total cost methodology, a different methodology known as the measured mile approach should be explored.  Under this approach, the party compares its labor production for a scope of work that was not impacted with its labor production for that scope when it was impacted, with the delta forming the party’s inefficient manpower.  Basically, the objective is to compare productive periods of work (which forms the baseline or measured mile) with impacted, unproductive periods of work to determine the cost overrun for the delaying event.

 

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.