OWNERS BOUND BY ARBITRATION CLAUSE ON ROOFING SHINGLES PACKAGING

shutterstock_1084249700In today’s age, you are probably familiar with terms such as a shrinkwrap contract (terms and conditions), which is a boilerplate contract included with a retained product, or a clickwrap contract (terms and conditions), which is generally a boilerplate contract that is digitally accepted when purchasing software or an electronic product. These are are boilerplate terms from manufacturers or vendors of products or software.  Arbitration provisions in these types of agreements have generally found to be enforceable.

 

In the recent ruling by the Eleventh Circuit Court of Appeals in Dye v. Tamko Building Products, Inc., 2018 WL 5729085 (11th Cir. 2018), the court held that an arbitration provision included in a product-purchase limited warranty agreement on the package of every roofing shingles binds a homeowner to arbitrating disputes over the opened and retained product with the manufacturer, irrespective of whether the shingles were purchased by an owner’s roofer.   The shingles do not have to be purchased and opened by the owner for the arbitration provision to apply. If the roofer uses or retained the shingles for purposes of the owner’s home, such knowledge of the product-purchase limited warranty agreement on the packaging of the shingles is imputed to the owner (end-user of the shingles).  In this manner, the court summarized:

 

 

At the end of the day, the point is simply this: modern consumers are on notice that products come with warranties and other terms and conditions of purchase.  And they are free to research (or not), request (or not), and read (or not) those terms before unwrapping their purchases.  As to the case before us, Florida law makes clear that providing conspicuously printed product packaging is an OK way to convey purchase terms.  Florida consumers who purchase, open, and retain a product are thus bound in accordance with warranty terms conspicuously printed on that product’s packaging, whether they actually take the time to read them or not. 

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To summarize, then, acceptance of Tamko’s [roofing manufacturer] purchase terms—arbitration clause and all—was incidental to, and reasonably necessary to accomplish the homeowner’s express grant of agency authority to their roofers to purchase and install shingles, and in any event, the roofers’ notice of the terms printed on the shingle wrappers in properly imputed to the homeowners. 

Dye, supra. 

 

Arbitration clauses are favored.  So, the next time you purchase or download a product and receive a boilerplate contract with terms and conditions, such as a limited warranty document that contains an arbitration provision, remember, the arbitration provision will likely be deemed enforceable.

 

 

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.

INDEMNIFICATION PROVISIONS DO NOT CREATE RECIPROCAL ATTORNEY’S FEES PROVISIONS

shutterstock_121868692In a good, recent decision, the Eleventh Circuit in International Fidelity Insurance Co. v. Americabe-Moriarity, JV, 2018 WL 5306683 (11th Cir. 2018), held that Florida Statute s. 57.105(7) cannot be used to shift attorney’s fees in a contractual indemnification clause in a dispute between a general contractor and subcontractor’s performance bond surety, when the dispute does not involve an actual indemnification claim stemming from a third-party.

 

In this case, a prime contractor terminated a subcontractor and looked to the subcontractor’s performance bond surety to pay for the completion work.  The subcontractor had a standard AIA A312 performance bond that requires the prime contractor to comply with the terms of the bond, as well as the incorporated subcontract, in order to trigger the surety’s obligations under the bond.  The surety filed an action for declaratory relief against the prime contractor arguing that the prime contractor breached the terms of the performance bond through non-compliance thereby discharging the surety’s obligations.  The trial court agreed and the surety moved for attorney’s fees. 

 

The surety’s argument for attorney’s fees was threefold: (1) the indemnification provision requiring the subcontractor to indemnify the prime contractor required the subcontractor to indemnify the prime contractor for, among other things, attorney’s fees; (2) Florida Statute s. 57.105(7) provides that one-sided contractual attorney’s fees provisions must apply to both parties (and treated reciprocally), hence the inclusion of attorney’s fees in the indemnification provision means that the surety should be entitled to attorney’s fees; and (3) since the subcontract was incorporated into the performance bond, the surety should be entitled to attorney’s fees since it steps in the shoes of the subcontractor under principles of surety law.

 

Surprisingly, the trial court agreed with the surety.  However, thankfully, the Eleventh Circuit held that the indemnity provision in the subcontract was an indemnity clause that applies only to third-party claims and not suits between the general contractor and subcontractor.  Thus, the requirement of reciprocity for attorney’s fees provisions pursuant to Florida Statute s. 57.105 does not apply.  The Eleventh Circuit, however, did not enter a ruling as to whether even if s. 57.105 did apply such that attorney’s fees must be reciprocal in an indemnification clause, whether such rationale would allow the performance bond surety to recover attorney’s fees under principles of surety law. 

 

This decision is useful for a few reasons:

 

(1)  If a contractor, subcontractor, etc. is trying to create an argument for attorney’s fees based on an indemnification clause, this decision is helpful to put that issue to bed since the indemnification provision applies in the context of third-party claims, and is not related to independent claims between the contracting parties;

(2) A party looking to take advantage of a performance bond must, and I mean, must, make sure to properly comply with the terms of the bond.  Certain sureties will raise any argument to avoid obligations under a performance bond hoping that the beneficiary of the bond undertakes an act that allows the surety to discharge its obligations; and

(3) General (prime) contractors should explore subcontractor default insurance, which is a first-party insurance policy, as an alternative to performance bonds to avoid the issues associated with delays and other arguments a surety may raise in furtherance of avoiding obligations under the bond.

 

 

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.

 

INSURER’S “FAILURE TO COOPERATE” DEFENSE

shutterstock_392537986The “failure to cooperate” defense is a defense an insurer may raise when its insured fails to cooperate with it in the defense of the claim against the insured.  If an insurer takes this position, it will typically be denying both defense and indemnification obligations, meaning the insured could be forfeiting coverage that otherwise exists through his/her/its failure to cooperate with the insurer.  This defense by the insurer is not absolute as recently explained by the Fourth District in Barthelemy v. Safeco Ins. Co. of Illinois, 43 Fla.L.Weekly D2379a (Fla. 4th DCA 2018) discussing the elements of this failure to cooperate defense.

 

In this case, dealing with an automobile accident, the insurer denied both defense and indemnification obligations to its insured under the failure to cooperate defense.  The insurer argued its insured failed to cooperate by failing to submit three times to an Examination Under Oath (known as an “EUO”).  As a result, the insurer did not provide its insured a defense in the underlying lawsuit that exposed the insured to judgments.  The insured then sued its insurer for a declaratory judgment where the overriding issue was the insurer’s failure to cooperate defense. 

 

The Fourth District confirmed that in a failure to cooperate defense case, “the insurer must show a material failure to cooperate which substantially prejudiced the insurer.”  Barthelemy, supra, quoting Bankers Ins. Co. v. Macias, 475 So.2d 1216, 1218 (Fla. 1985).  This means the insurer must show: (1) the insured materially failed to cooperate and (2) this material failure substantially prejudiced the insurer

 

Please make sure to consult with counsel if your insurer raises this failure to cooperate defense or takes the position that you, as the insured, forfeited otherwise valid coverage under your insurance 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.

QUICK NOTE: UNENFORCEABLE LANGUAGE IN ARBITRATION PROVISION

imagesAlthough arbitration is a dispute resolution provision provided for in a contract, the scope of judicial review of an arbitrator’s award is still governed by law.  There are limited circumstances in which an arbitrator’s award can be challenged under the law.  One of those circumstances is not because a party believes that an arbitrator applied the incorrect law.  

 

In a recent construction case, discussed in more detail here, an arbitration provision provided that a party can essentially appeal/challenge an arbitrator’s award to the circuit court if the arbitrator applied the incorrect law.  The appellate court held this language was unenforceable because it attempted to expand the legal scope of judicial review of an arbitration award.  The issue, here, became more than just the unenforceable language but whether the entire arbitration clause should be deemed unenforceable.  In other words, the issue became whether the unenforceable language that expanded the scope of judicial review of an arbitration award could be severed from the provision such that the parties would still be required to arbitrate (hence, the importance of a severability provision in a contract) OR the entire arbitration provision should be deemed unenforceable.  This is a HUGE difference because in one instance the parties still can arbitrate absent the expanded scope of judicial review and in the other instance the arbitration clause is unenforceable in entirety and the parties would be required to litigate. 

 

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.