BE COGNIZANT OF THE POLLUTION EXCLUSION IN YOUR CGL POLICY

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

Be cognizant of the pollution exclusion in your commercial general liability (CGL) policy.

The non-construction decision in Evanston Insurance Co. v. Haven South Beach, LLC, 2015 WL 9459979 (S.D.Fla. 2015) illustrates the affect of the pollution exclusion.

In this case, the plaintiff was at a catered event and suffered injuries consuming a liquid nitrogen infused alcoholic beverage. The plaintiff sued the vendor. The vendor’s CGL policy contained the pollution exclusion and further defined pollutants as follows:

f. Pollution

(1) “Bodily injury” or “property damage” which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of “pollutants” at any time.

***

“Pollutants” mean any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditions or reclaimed.

The vendor’s CGL insurer argued that the liquid nitrogen constituted a pollutant; thus, there was no coverage under the vendor’s policy for plaintiff’s injuries. The Southern District Court of Florida agreed. The Court held that liquid nitrogen is an irritant (a substance causing irritation) falling into the definition of a pollutant. The Court further held that the irritant liquid nitrogen was discharged by the vendor into the plaintiff’s alcoholic beverage falling into the pollution exclusion, i.e., injury or damage which would not have occurred but for the actual discharge of a pollutant / irritant.

If you are working with products that could potentially fall within the definition of a pollutant and the pollution exclusion within your CGL policy, consider procuring pollution liability insurance to cover you for damages / injuries caused by that product.

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.

VIOLATION OF THE BUILDING CODE IS A QUESTION OF LAW

Posted on December 25, 2015December 25, 2015 by Edward Garber

In construction defect disputes, oftentimes the owner (or developer or association, as may be applicable) will assert a claim against the general contractor, and perhaps, subcontractors for a violation of the building code. Such a claim is authorized pursuant to Florida Statute s. 553.84 that provides:

Notwithstanding any other remedies available, any person or party, in an individual capacity or on behalf of a class of persons or parties, damaged as a result of a violation of this part or the Florida Building Code, has a cause of action in any court of competent jurisdiction against the person or party who committed the violation; however, if the person or party obtains the required building permits and any local government or public agency with authority to enforce the Florida Building Code approves the plans, if the construction project passes all required inspections under the code, and if there is no personal injury or damage to property other than the property that is the subject of the permits, plans, and inspections, this section does not apply unless the person or party knew or should have known that the violation existed.

A violation of the building code serves as evidence of negligence by the offending party. See Russ v. Wollheim, 915 So.2d 1285, n.1 (Fla. 2d DCA 2005) (“A building code is designed to protect the general public rather than a particular class of individuals, and therefore, violation of a building code is merely evidence of negligence.” )

But who determines whether an asserted defect, error, or omission constitutes a violation of the building code? Is this a question of law for the judge? Or, is this a question of fact for the jury (in a jury trial)? Remarkably, cases have held that a violation of a building code, a complicated and rather specialized issue, is a question of law for the judge to determine.

In Edward J. Seibert, A.I.A. Architect and Planner, P.A. v. Bayport Beach and Tennis Club Ass’n, Inc., 573 So.2d 889 (Fla. 2d DCA 1990), a condominium association filed suit against the architect among others. The jury found that the architect was liable for violating the building code in the fire exit design even though the design had been approved by the building department upon the issuance of the building permit. To support this violation, the association had an expert testify regarding his interpretation regarding the building code. The architect testified that his design complied with the building code and had two supporting expert opinions. The verdict form asked the jury if the fire exist design complied with the applicable code. The Second District held that the interpretation of the code was a question of law that should not have been submitted to the jury.

They [the parties] instead presented conflicting opinions as to how the code should be interpreted. The jury was allowed to determine the meaning of the code and then whether Seibert [architect] violated the code by designing only one fire exit. This was error. An expert should not be allowed to testify concerning questions of law, and the interpretation of the building code presented a question of law.

It was the duty of the trial court to interpret the meaning of the code and instruct the jury concerning that meaning. Any conflicts in interpretation were for the court to resolve and their resolution was not a jury issue.

Edward J. Seibert, 573 So.2d at 891-9 (internal citations omitted).

Further, in Lindsey v. Bill Arflin Bonding Agency, Inc., 645 So.2d 565 (Fla. 1^st DCA 1994), a personal injury plaintiff sued an owner for slipping on a wet spot on stairs. The plaintiff claimed that the stairs lacked handrails in violation of the building code. The owners relied on testimony from a building department official opining that handrails were not required based on his interpretation of the code / ordinance at-issue. The First District, however, found:

Expert testimony as to the meaning of an ordinance is not appropriate when the disputed language consists of “ordinary words susceptible to being given plain effect consistent with their ordinary meaning.” The legal effect of a building code presents a question of law for the court, not a question of fact for the jury. While expert testimony may be relevant and helpful to the court where a statute or ordinance contains words of art or scientific and technical terms, even then such testimony cannot dictate the court’s construction of the enactment.

Lindsey, 645 So.2d at 568 (internal citations omitted).

CALCULATING EXTENDED GENERAL CONDITIONS (FIELD OVERHEAD) ASSOCIATED WITH A DELAY

Posted on December 19, 2015December 19, 2015 by Edward Garber

You are a general contractor. The project has been delayed 200 calendar days. You contend the owner and the owner’s consultants caused delays to the critical path. You submit a claim for extended general conditions / extended field overhead associated with the 200 day critical path delay. How do you calculate the costs associated with this 200 days of compensable delay? Calculate a daily rate!

The most frequently used method [to calculate extended general conditions] is to compute a daily rate by dividing the total general conditions costs on the project by the total days of contract performance and then multiplying the result by the number of days of compensable delay. An alternative method would be to determine the actual costs curing the actual delay period.

The Clark Construction Group, Inc., GAOCAB No. 2003-1, 2004 WL 5462234 (November 23, 2004) (internal citations omitted).

Construction contractors may carry field office costs, such as project supervision and administration, as direct costs to the job where the costs are specifically identifiable with that one project. In a compensable delay situation where project supervision and administration are carried as direct costs, an equitable adjustment for extended field supervision and administration is calculated as a direct cost item. Field overhead which is charged, for example, to a G&A expense pool as indirect costs should not be commingled in the direct cost calculation. Where it is impracticable to derive actual cost data during the delay period, one recognized measure of the direct costs for extended labor supervision and administration is to compute a daily rate by dividing total labor supervision and administration costs on the project by the total days of contract performance and then multiplying the result by the number of days of compensable delay. To the extent that the contractor already has recovered some field supervision costs during the delay period as part of another equitable adjustment under the contract, those amounts must be deducted from the amount of recoverable extended field supervision costs.

MCI Constructors, Inc., DCCAB No. D-924, 1996 WL 331212 (June 4, 1996) (internal citations omitted).

For example, in the appeal of MCI Constructors, the board of contract appeals determined that a contractor incurred a total of direct time-related general conditions in the amount of $303,624.80. The total contract period was 802 days, which resulted in a daily rate of $378.58. The board multiplied this daily rate by 252 days of delay to yield extended general conditions of $95,402. The board then reduced this amount by duplicative overhead markup included in other change orders.

In another example, in the appeal of The Clark Construction Group, the contractor had an original budget for general conditions in the amount of $2,540, 727. However, shortly after contract award, the contractor realized that it underbid general conditions by $344,527. In actuality and as the result of a delay, the contractor incurred $2,910,673 in general conditions costs through the substantial completion date. But, because the contractor originally underbid this amount, its actual general conditions costs ($2,910,673) were adjusted downward by the underbid amount ($344,527) to total general conditions of $2,566,146. (The reason the general conditions were adjusted downward due to the underbid amount is to put the contractor in its original position in determining its delay costs versus giving the contractor the benefit of a windfall when it originally underbid the amount.) Then, the general conditions of $2,566,146 were divided by the duration of the project (1,066 days) to come up with a general conditions daily rate of $2,407.27. This daily rate was multiplied by the number of days of delay to determine the contractor’s extended general conditions associated with the delay.

CONSTRUCTION CONTRACTS AND APPLICATION OF PAROL EVIDENCE RULE TO CLARIFY LATENT AMBIGUITY

Posted on December 12, 2015November 6, 2022 by Edward Garber

The parol evidence rule is a need-to-know rule of law when it comes to cases that involve the rights, liabilities, and remedies of parties under a written agreement. As explained in this article, the parol evidence rule is designed to exclude the admissibility of extrinsic / parol evidence (agreements and discussions) made before or at the time a contract is executed that are used to modify or alter the actual written agreement. This is because what the parties agreed to should be embodied in the written agreement and there should be no need for parol evidence to guide the court in its interpretation of contractual provisions. Now, as explained in this article, there are exceptions to this rule. One such exception is when there is a latent ambiguity in the contract which is an ambiguity that is not clear from the face of the contract, but concerns language reasonably interpreted in more than one way, particularly when the contract fails to specify rights of parties in certain situations.

An example of the application of the ambiguity exception to the parol evidence rule in a construction contract can be found in the decision in Science Applications Intern. Corp. v. Environmental Risk Solutions, LLC, 132 A.D.3d 1161 (N.Y. 2015). While this case did not concern Florida law, the application is still germane.

In this case, a subcontractor sued a contractor and the owner of gas station sites concerning remediation of a spill / contamination it performed at the sites. The subcontractor had an existing relationship with the contractor where they previously entered into a Professional Services Master Agreement governing general rights and obligations. The subcontractor and contractor then entered into three Project Specific Scopes of Work that formed three separate subcontracts relating to the sites and contained the same remediation work for each site for a lump sum. Noteworthy here, the Scopes of Work lump sum were fixed regardless of the actual cleanup costs required for each site to achieve the designated remediation standard. At some point, the contractor terminated the subcontractor for convenience pursuant to the Professional Services Master Agreement. The subcontractor submitted its final invoicing for remediation work but was not paid leading to this action.

On appeal, the court noted various ambiguities with the Professional Services Master Agreement and Scopes of Work relative to the subcontractor’s scope of work relating to the cleanup of the spill / contamination:

Here, we agree with Supreme Court that most of the disputed terms regarding SAIC’s [subcontractor] remediation obligations under the PSSWs [Scopes of Work] are ‘a compromised hodgepodge of conflicting proposals’ susceptible to several reasonable interpretations. As an example, Lehigh’s [owner] argument that section 5(a)(1) of the PSSWs [Scopes of Work] unambiguously required SAIC to, among other things, meet a stringent, contractually defined ‘Cleanup Standard’ is belied by section 5(a)(3) of the PSSWs, which—also unambiguously—permits SAIC to remediate the sites by, among other things, achieving regulatory closure of the spill numbers from DEC [Department of Environmental Conservation], as indicated by receipt of ‘no further action’ (hereinafter NFA) letters from DEC.

As an additional example, SAIC [subcontractor] argues that Lehigh’s [owner] consent to seek spill number closures pursuant to section 5(a)(3) of the PSSWs [Scopes of Work] could be obtained passively via the review and comment procedure set forth in section 5(p) of the PSSWs. Nowhere in the PSSWs, however, does it indicate that SAIC could rely on this subsection to obtain Lehigh’s consent—passively or otherwise—to proceed with regulatory closure pursuant to section 5(a)(3). Likewise, the PSSWs fail to provide any alternative mechanism or procedure for Lehigh to review and comment on SAIC’s submissions to DEC. This failure on the part of Lehigh and SAIC to articulate an adequately defined procedure for how SAIC was to obtain Lehigh’s consent to proceed with an alternate cleanup standard left the ultimate formation of such a procedure susceptible to the varied and subjective constructions of the parties, thus creating additional [latent] ambiguity.

Further ambiguity arose with regard to section 5(g) of the PSSWs [Scopes of Work], an inherently contradictory provision governing when SAIC’s remediation work at a given site could be considered complete. In its first clause, section 5(g) references SAIC’s [subcontractor] obligations pursuant to section 5(a)(1) of the PSSWs, stating that ‘SAIC’s remediation and monitoring obligations under this PSSW shall cease upon attainment of the Cleanup Standard and receipt of NFA Status from DEC for each site as defined in section 5(a)’ . However, the very next clause contradicts the prior one, stating that, ‘upon receipt of NFA Status confirmation from DEC, SAIC’s remediation and monitoring obligations shall cease, except for re-openers to the extent found to be due to SAIC’s negligence.’ In light of these ambiguities, we find that Supreme Court [of New York] appropriately considered parol evidence to determine both the intent of the parties and whether SAIC breached the PSSWs.

Science Applications Intern, supra, at 756-757.

The last sentence quoted above—that the trial court appropriately considered parol evidence to determine the parties’ intent and whether the subcontractor breached the Scopes of Work—is telling. This was based on the court’s finding that the scope of work was susceptible to more than one reasonable interpretation by, in part, omitting adequately defined procedures applicable to the remediation work. The point of a written contract is to prevent parol evidence from being considered to determine the parties’ intent. This is why it is important for the contract and the scope of work, in particular, to be clear and unambiguous!

IMPLIED COVENANT OF GOOD FAITH & FAIR DEALING ATTACHES TO EVERY CONTRACT

Posted on December 5, 2015December 5, 2015 by Edward Garber

There is an implied covenant of good faith and fair dealing in every contract. Meruelo v. Mark Andrews of Palm Beach, Ltd., 12 So.3d 247, 251 (Fla. 4^th DCA 2009). “Its purpose is to protect the reasonable expectations of the contract parties.” Snow v. Ruden, McClosky, Smith, Schuster & Russell, P.A., 896 So.2d 787, 791 (Fla. 2d DCA 2005).

A breach of this implied covenant of good faith and fair dealing is not really an independent cause of action. This is because the implied covenant of good faith and fair dealing attaches to the performance of a contractual provision. Snow, 896 So.2d at 791. Thus, if a contractual provision has not been breached, there has not been a breach of the implied covenant of good faith and fair dealing. Id. The implied covenant of good faith and fair dealing cannot override the express terms the parties agreed to in a contract. Id.

For example, in Avatar Development Corp. v. De Pani Const., Inc., 834 So.2d 873 (Fla. 4^th DCA 2002), a developer terminated a stucco subcontractor. The subcontractor sued the developer. The trial court held that the developer violated the implied covenant of good faith and fair dealing by terminating the subcontractor. The Fourth District reversed because the implied covenant is not a tool to override the agreement of the parties:

The trial judge found that Avatar[developer] violated the implied covenant of good faith and fair dealing in terminating the contract pursuant to Article 67. However, the covenant of good faith cannot be used to create a breach of contract on Avatar’s part, where there was no breach of any express term of the contract. As this Court explained in Indian Harbor Citrus, Inc. v. Poppell, 658 So.2d 605 (Fla. 4th DCA 1995), an implied covenant of good faith cannot be used to vary the unambiguous terms of a written contract and when parties negotiate “a fully specified, unambiguous contract, this court is not at liberty to change their bargain.” Id. at 607. The “duty of good faith must relate to the performance of an express term of the contract and is not an abstract and independent term of a contract which may be asserted as a source of breach when all other terms have been performed pursuant to the contract requirements.” Hosp. Corp. of Am. v. Fla. Med. Ctr., Inc., 710 So.2d 573, 574 (Fla. 4th DCA 1998). The language of Article 67 was plain and unambiguous: Avatar could terminate the contract at any time for any reason. It was a valid contract with an enforceable termination clause.

Avatar, 834 So.2d at 875.

Typically, the implied covenant of good faith and fair dealing comes into play “when a question is not resolved by the terms of the contract or when one party has the power to make a discretionary decision without defined standards.” Speedway SuperAmerica, LLC v. Tropic Enterprises, Inc., 966 So.2d 1, 3 (Fla. 2d DCA 2007) quoting Publix Super Markets, Inc. v. Wilder Corp. of Del., 876 So.2d 652, 654 (Fla. 2d DCA 2004).

For example, in Speedway SuperAmerica, a landlord refused to give its tenant consent to assign a commercial lease. The lease provided that the tenant could not assign the lease without the prior written consent of the landlord and that any assignment without the landlord’s consent would be void allowing the landlord, at its discretion, to terminate the lease. Here, the tenant assigned the lease even after the landlord refused to provide its written consent to the assignment. The trial court ruled that the landlord had the unfettered right to refuse to provide its written consent and the tenant’s assignment constituted a material breach of the lease entitling the landlord to retake possession of the leased space. The Second District reversed because the discretion the landlord had in providing its written consent (without any defined standards as to when the landlord would or would not provide such consent) was subject to the implied covenant of good faith and fair dealing to protect the contracting parties reasonable commercial expectations.

The bottom line is that a claim that a party violated the implied covenant of good faith and fair dealing will fail without proving that the party actually violated an express contractual provision. This claim, however, is not a vehicle to rewrite contractual performance obligations and will not be used to supersede what the parties agreed to. It can be used when the contract gives a party a discretionary obligation (such as to act reasonably, or gives the party the power to do something at its option) that has no defined standards. In such circumstance, a party can argue the other party breached the contract by breaching the implied covenant of good faith and fair dealing by not exercising or exercising such discretionary obligation in good faith, thereby impacting the reasonable expectations of the contracting parties.