TEN-YEAR STATUTE OF REPOSE TO SUE FOR LATENT CONSTRUCTION DEFECTS

If you are dealing with latent construction defects, it is imperative that you consult with counsel to understand your rights.  This not only includes claims for property damage stemming from latent construction defects, but also personal injury stemming from such defects.  There is a ten-year statute of repose to sue for latent construction defects. See Fla.Stat. s. 95.11(3)(c).  After the expiration of this statute of repose you are out of luck, meaning you can no longer sue.

Now, I probably will not be the first to tell you that the statute of repose is not written so clear that you know the precise date it ends (or the last date you can sue for a latent defect).  For this reason, you really want to operate conservatively, meaning it is always better to sue early if you think you could be running on the end of the statute of repose period.  It is always advisable to avoid any legitimate argument that you filed your construction defect lawsuit too late.

In Harrell v. The Ryland Group, 44 Fla. L. Weekly D2054b (Fla. 1st DCA 2019), a subsequent owner of a house sued the original homebuilder in negligence for a construction defect causing a personal injury. The subsequent owner claimed the homebuilder defectively installed an attic ladder (that provided access to the attic for the original construction) which collapsed as he was using it. The homebuilder filed a motion for summary judgment that the statute of repose expired so the owner’s claim was time-barred. The First District agreed.

The subsequent owner tried to argue that the statute of repose did not apply because the installation of an attic latter does not constitute an “improvement” to real property and the statute of repose is based on actions “founded on the design, planning, or construction of an improvement to real property.”  The First District was not having this argument because “the attic ladder at issue here was installed as part of the construction process of the home, required labor and money, made the property more useful/valuable in that it provides a more convenient means of access to another level, was not mere repair or replacement, and was affixed to the attic, making it an integral part of the home.

Even something perceived as nominal like the installation or construction of an attic ladder can constitute an improvement to real property making it subject to the ten-year statute of repose to sue for latent defects.   Hence, do not sit idle if you are dealing with a latent construction defect – take the conservative approach and start the required litigation process sooner than later.

 

 

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.

CLAIMS MADE INSURANCE POLICIES

Claims-made policies are common in the professional liability insurance market. They “differ from traditional ‘occurrence’-based policies primarily based upon the scope of the risk against which they insure.” With claims-made policies, coverage is provided only where the act giving rise to coverage “is discovered and brought to the attention of the insurance company during the period of the policy.” In contrast, coverage is provided under an occurrence-based policy if the act giving rise to coverage “occurred during the period of the policy, regardless of the date a claim is actually made against the insured.”  “The essence, then, of a claims-made policy is notice to the carrier within the policy period.”

Crowely Maritime Corp. v. National Union Fire Ins. Co. of Pittsburgh, PA, 2019 WL 3294003 (11thCir. 2019)

The recent Eleventh Circuit Court of Appeal opinion in Crowely Maritime Corp. discussed the distinction between a claims-made insurance policy and an occurrence-based insurance policy.  Professional liability policies are generally claims-made policies whereas commercial general liability policies are generally occurrence-based policies.  While this opinion does not involve a construction matter, the case did concern the definition of a “claim” in a claims-made policy and whether such claim was timely reported to the insurer within the discovery period / extended reporting period.

The discovery period in a claims-made policy should coincide with an extended reporting period to report a claim, based on how the specific policy defines a claim.  How a policy defines a claim is very important since policies contain different definitions. The discovery period will include language that allows the insured to report a claim that occurred DURING the policy period outside of the policy period within the extended period.  The key is that even with a discovery period, the wrongful act giving rise to the claim must still have occurred during the initial policy period, although it can be reported to the insurer after the initial policy period and within the extended discovery period. If the wrongful act giving rise to the claim occurred AFTER the initial policy period, it will not matter if it was reported within the extended discovery period because the claim, itself, arose outside of the initial policy period.

Insurance is complicated and confusing and everything in between.  Make sure you understand how your policy defines the term claim, whether you are operating under a claims-made or occurrence-based policy, and what constitutes timely notification of a claim, particularly if you are operating under a claims-made 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.

 

 

EQUITABLE DOCTRINE OF ESTOPPEL CAN DEFEAT ARGUMENT FOUNDED ON LEGAL TECHNICALITY

Arguing a legal technicality, even if one hundred percent right, does not always work, especially when you may have reaped the benefits of the same technicality.  This is because there is a legal doctrine known as estoppel that is based on principles of equity.

 

Estoppel is an equitable doctrine based on principles of fair play and essential justice and arises when one party lulls another party into a disadvantageous position. Estoppel has been defined as the preclusion of a person from asserting a fact by previous conduct inconsistent therewith, on his own part, or part of those whom he claims.

Pipeline Contractors, Inc. v. Keystone Airpark Authority, 44 Fla. L. Weekly D1762a (Fla. 1stDCA 2019) (internal citations and quotations omitted). 

 

For example, in Pipeline Contractors, a special district (airport authority) hired a contractor to construct new airport facilities.  A payment dispute arose and the contractor sued the airport authority and the airport authority counter-sued the contractor and the contractor’s performance bond surety for construction defects.  Not a lot happened in the case for five-to-six years before the contractor filed a motion for summary judgment that the airport authority was not a proper special district under Florida law and, therefore, did not have the capacity to enter into the underlying contract, sue, or be sued.  In making this argument, the contractor was acknowledging that not only could the airport authority not sue it or its surety, but it also could not sue the airport authority.  Clearly, the contractor was angling for the walk-away.

 

The contractor and its performance bond surety’s argument was based on a technicality in the law, that being that the airport authority was formed only by a city when it needed to be formed by Florida’s Legislature.  (The airport authority was not properly formed under the law.). Due to this improper formation, the airport authority could not legally enter into the construction contract, could not sue the contractor or the surety, and the contractor could not sue it.

 

The trial court, as affirmed by the appellate court, did not buy the contractor’s argument based on the equitable doctrine of estoppel.  Putting aside that the contractor waited many years after it initiated the lawsuit to raise this argument, the contractor reaped the benefit of the technicality as it received payment for construction improvements it performed for the airport authority (regardless of whether it was improperly formed under Florida law).

 

“Here [contractor] treated [the airport authority] as if it were a properly organized entity with no issues of capacity for most of the parties’ relationship.  [Contractor] performed (at least in part), accepted payment on the contract, and engaged in years-long litigation with [the airport authority].  Only after all that did [contractor] assert any issues of capacity.  Because they accepted the benefits of the contract through payment from [the airport authority], [contractor and its surety] were properly estopped from raising the argument that the contract was void in an attempt to avoid the burdens of the contract embodied by [the airport authority’s] claims against them

 

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.

SUBSEQUENT PURCHASER OF HOME COMPELLED TO ARBITRATION BASED ON COVENANT RUNNING WITH THE LAND

Arbitration provisions are creatures of contract and courts should indulge reasonable presumptions in favor of requiring parties to arbitrate.   Keep this in mind when agreeing to an arbitration provision or trying to navigate around an arbitration provision.

 

An example of a court indulging a reasonable presumption in favor of arbitration can be found in the Second District Court of Appeal’s decision in Hayslip v U.S. Home Corp., Fla. L. Weekly D1798a (Fla. 2d DCA 2019) involving a subsequent purchaser of a home suing the homebuilder for construction defects.

The original owner purchased the home from the homebuilder. The home was conveyed with a special warranty deed recorded in the official records. (The deed was executed by the seller, not the original owner as the buyer, per Florida law.) The special warranty deed stated that all covenants and conditions in the deed run with the land including a dispute resolution provision that required mediation as a condition precedent to binding arbitration.

 

The original owner sold the property to the subsequent purchaser.  The subsequent purchaser then sued the homebuilder for construction defects (building code violations).  The homebuilder moved to compel arbitration pursuant to the special warranty deed arguing that since the arbitration provision was a covenant running with the land it would extend to the subsequent purchaser.  The Second District agreed; even though the subsequent purchaser was not a party to the original transaction, since the arbitration provision in the special warranty deed was a covenant running with the land that the subsequent purchaser would have notice of, the subsequent purchaser would be bound by the arbitration provision.

 

Here, it is undisputed that the [subsequent purchasers] were on notice of the original special warranty deed’s covenants and restrictions, and by taking title to and possession of the home, they acquiesced to the arbitration provision.  Further, Florida law does not require that the home buyer sign the warranty deed in order to be bound by it. 

***

A real covenant, or covenant running with the land, differs from a merely personal covenant in that the former concerns the property conveyed and the occupation and enjoyment thereof, whereas the latter covenant is collateral or is not immediately concerned with the property granted.

***

[T]he performance of the covenant here affects “the occupation and enjoyment” of the home…as it dictates the means by which the [subsequent purchasers]  must seek to rectify building defects related to the home. Not only is the covenant triggered when an apparent defect in the home is realized and the homeowners seek recourse from the builder, but the outcome of the arbitration proceeding necessarily impacts the home as well. Thus, the arbitration provision touches and concerns the property itself. 

Hayslip, supra (internal quotations and citations omitted).

 

 

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: “EFFECTIVE” NOTICE OF COMMENCEMENT

As a contractor (or subcontractor or supplier if an unconditional payment bond is not furnished by the contractor) you always want to make sure (1) there is a notice of commencement that was recorded for the job and (2) you are working under an EFFECTIVE notice of commencement or amended notice of commencement.  An effective notice of commencement is a notice of commencement (or amended notice of commencement that amends an original notice of commencement prior to its expiration) that has not expired and allows your lien to relate back to the date the notice of commencement was originally recorded.

 

In the event you are not paid, you will want to record a construction lien to secure your nonpayment against the property and you will want your lien to relate back in time to the original notice of commencement.   When it comes to liens, a lien is typically only as good as the equity in the property oftentimes dictated by the priority of the lien.  (For example, if the property is worth $1 Million, but there is a $1.1 Million mortgage on the property, there is no equity in the property because the mortgage would have priority over the construction lien.)

 

As an owner, there may be times you want to terminate an EFFECTIVE notice of commencement.  Maybe the job is completed and the notice of commencement is still in effect and you want to cut off lien priority rights.  Maybe you want to convert your construction loan into a permanent loan.  Maybe you want to re-finance.  Maybe you want to secure a construction loan after construction commenced.  Any one of these factors will support recording a notice of termination of the notice of commencement.  When you borrow money from a lender, a lender will typically want their mortgage to be first priority.  This means the mortgage cannot be recorded after an effective notice of commencement otherwise potential liens can take priority over the mortgage.  No lender will want this to occur.

 

It is always advisable to work with counsel when it comes to notices commencement, amended notices of commencement, notices of termination of a notice of commencement, and, of course, construction liens.

 

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: 4 ELEMENTS OF MILLER ACT PAYMENT BOND CLAIM

 

 

A subcontractor on a federal construction project must prove the following four elements in a Miller Act payment bond claim:

 

1. The subcontractor supplied labor and/or material per its subcontract;

 

2. The subcontractor is unpaid for the labor and/or material supplied per its subcontract;

 

3. The subcontractor had a good faith belief that the labor and/or material supplied was for purposes of the project (and the prime contractor’s contractual scope of work for the project); and

 

4. The subcontractor satisfied jurisdictional requirements in bringing the Miller Act payment bond lawsuit.

 

Notably, the  subcontractor’s performance will be determined in reference to the subcontract. This includes reference to the scope of work and the payment terms contained in the subcontract. 

 

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.

 

JUDICIAL REVIEW OF FINAL AGENCY ACTION ARISING FROM BID PROTEST

If you are involved in a bid protest governed by Florida’s Administrative Procedures Act (Florida Statute s. 120.57), you know there will be an administrative hearing presided over by an administrative law judge.   The judge will issue a recommended order to the public agency in the form of findings of fact and conclusions of law.  The public agency will then issue a final order.  The final order, deemed final agency action, will typically adopt the findings of fact and conclusions of law in the judge’s recommended order.

 

This Court’s [judicial] review of final agency action arising from a bid protest is governed by section 120.68(7).  Section 120.68(7) gives the Court statutory authority to, among other things, remand or set aside agency action if such action depends on findings that are not supported by competent, substantial evidence or an agency’s erroneous interpretation of law and a correct interpretation compels a different result…. [The Court] must reverse and remand if the agency erroneously interpreted the law and a correct interpretation compels a different result.

Heritage Oaks, LLP v. Madison Pointe, LLC, 2019 WL 3070048, *2 (Fla. 1stDCA 2019) (internal quotations and citations omitted) (involving appeal of public agency’s final order after bid protest and affirming final order).

 

Make sure you are working with counsel if you believe you have bid protest grounds to ensure your protest rights are timely preserved and, if necessary, you understand your rights associated with the judicial review of a final agency action.

 

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.

DOES HORIZONTAL WORKERS COMPENSATION IMMUNITY APPLY?

The Second District Court of Appeals in Heredia v. John Beach & Associates, Inc., 44 Fla. L. Weekly D1892a (Fla. 2d DCA 2019) found that horizontal workers compensation immunity did not apply when the subcontractors were hired by a developer and not a contractor.     In this case, a developer (really, a homebuilder) of a subdivision hired an earthwork subcontractor and a surveyor.   An employee of the surveyor injured an employee of the earthwork subcontractor prompting the earthwork subcontractor to sue the surveying company.  The issue was whether horizontal workers compensation immunity applied.

 

Section 440.10(1)(b) provides the contours of horizontal immunity:

 

In case a contractor sublets any part or parts of his or her contract work to a subcontractor or subcontractors, all of the employees of such contractor and subcontractor or subcontractors engaged on such contract work shall be deemed to be employed in one and the same business or establishment, and the contractor shall be liable for, and shall secure, the payment of compensation to all such employees, except to employees of a subcontractor who has secured such payment.

Heredia, supra

 

The Court explained that to be considered a contractor:

 

its “ ‘primary obligation in performing a job or providing a service must arise out of a contract.’  This “ ‘primary obligation’ . . . is ‘an obligation under the prime contract between the contractor and a third party.’ ”  “Stated another way, the rule is that the entity alleged to be the contractor must have ‘incurred a contractual obligation to a third party, a part of which obligation the entity has delegated or sublet to a subcontractor whose employee is injured.’ ” 

Heredia, supra (internal quotations omitted).

 

The reality is that the homebuilder / developer was likely a licensed general contractor that hired the subcontractors.  But, based on the definition of contractor under the workers compensation immunity context, this would not have been good enough because the developer would not have been performing work pursuant to a contract with another.  See Heredia, supra (finding that record evidence showed that developer was performing work on property it owned for its own property and was not performing any work under a contract with another).  The developer would have needed to hire itself, or a related entity, as the general contractor to best preserve arguments with respect to workers compensation immunities.

 

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.

Release Language Extended to Successor Entity But Only Covered “Known” Claims

A recent case contains valuable analysis that has impact on whether a “successor” entity will be bound by a settlement agreement it was not a direct party to. This case contains arguments for contractors that can be raised in a number of different contexts if it is sued by a successor or related entity.

The same case discusses the difference between releasing a party for “known” claims without releasing the same party for “unknown” claims. This is an important distinction because unknown claims refer to latent defects so a release that only releases a party for known claims is not releasing that party for latent defects.

In MBlock Investors, LLC v. Bovis Lend Lease, Inc., 44 Fla. L. Weekly D1432d (Fla. 3d DCA 2019), an owner hired a contractor to construct a project. At completion, the owner transferred the project to an affiliated entity (collectively, the “Owner”). The contractor sued the Owner for unpaid work, the Owner claimed construction defects with the work, and a settlement was entered into that released the contractor for KNOWN claims. Thereafter, the Owner defaulted on the construction loan and agreed to convey the property through a deed in lieu of foreclosure to an entity created by the lender (the “Lender Entity”).

The Lender Entity sued the contractor for construction defects – in negligence (negligent construction) and a violation of Florida’s building code. The contractor argued that such claims should be barred by its settlement agreement with the Owner. There were two driving issues:

First, did the settlement agreement with the Owner extend to the Lender Entity because the Lender Entity was a successor entity to the Owner?

Second, even if the Lender Entity was a successor entity to the Owner, were the construction defects latent defects because the settlement agreement only provided a release of KNOWN (or patent) defects?

As to the first issue, the appellate court held that the Lender Entity was a successor entity to the Owner.

[I]t is rather clear that [Lender Entity] is in fact, [Owner’s] ‘successor’ for purposes of the settlement agreement with [contractor] because [Lender Entity] took over the Property and all of [Owner’s] rights with regard to the Property. Thus, [Lender Entity] clearly met the privity requirement for the application of res judicata in this case: it has a mutual or successive relationship to the same right that [Owner] had when it settled with [contractor]: a reduction in the amount owed to [contractor] for its services in exchange for releasing [contractor] from any claims of construction defects as provided for in the [settlement agreement].

As to the second issue, and really the driving issue whether or not the Lender Entity was a successor, was whether the release even protected the contractor from the types of construction defect claims sought. This is a question of fact because the settlement agreement only included a release of “known” claims and did NOT release the contractor for “unknown” claims, i.e., latent defects. Hence, the Lender Entity will establish such claims were unknown or could not reasonably have been discovered at the time of the settlement (a latent defect). The contractor will try to argue otherwise creating an issue of fact as to whether the settlement agreement released the contractor for the construction defects the Lender Entity is asserting.

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.

Release of “Unknown” Claim Does Not Bar Release of “Unaccrued” Claim: Fair or Unfair?

A general release of “unknown” claims through the effective date of the release does NOT bar “unaccrued” claims. This is especially important when it comes to fraud claims where the facts giving rise to the fraud may have occurred prior to the effective date in the release, but a party did not learn of the fraud until well after the effective date in the release. A recent opinion maintained that a general release that bars unknown claims does NOT mean a fraud claim will be barred since the last element to prove a fraud had not occurred, and thus, the fraud claim had not accrued until after the effective date in the release. See Falsetto v. Liss, Fla. L. Weekly D1340D (Fla. 3d DCA 2019) (“The 2014 [Settlement] Agreement’s plain language released the parties only from “known or unknown” claims, not future or unaccrued claims. Because there is a genuine issue of material fact as to whether the fraud claim had accrued — that is, whether Falsetto [party to Settlement Agreement] knew or through the exercise of due diligence should have known about the alleged fraud at the time the 2014 Agreement was executed — the trial court erred in granting summary judgment on those fraud claims.”).

Fair or unfair? In certain contexts, perhaps fair — such as when the facts giving rise to the fraud took place after the effective date of the release. In other contexts, perhaps unfair — such as when the facts giving rise to the fraud occurred prior to the effective date in the release but were unknown.

What are your thoughts? However, modifying a release to now include “unaccrued” claims may not be the answer as this could have broad implications relating to future claims, which a party may be cautious about releasing in light of current or future relations between the parties.

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.