CONSEQUENTIAL DAMAGES CAN BE RECOVERED AGAINST INSURER IN BREACH OF CONTRACT

In a favorable case for insureds, the Fifth District Court of Appeal maintained that “when an insurer breaches an insurance contract, the insured is entitled to recover more than the pecuniary loss involved in the balance of the payments due under the policy in consequential damages, provided the damages were in contemplation of the parties at the inception of the [insurance] contract.”  Manor House, LLC v. Citizens Property Insurance Corp., 44 Fla. L. Weekly D1403b (Fla. 5thDCA 2019) (internal citations and quotation omitted).   Thus, consequential damages can be recovered against an insurer in a breach of contract action (e.g., breach of the insurance policy) if the damages can be proven and were in contemplation of the parties at the inception of the insurance contract.

 

In Manor House, the trial court entered summary judgment against the insured holding the insured could not seek lost rental income in its breach of contract action against Citizens Property Insurance because the property insurance policy did not provide coverage for lost rent.  However, the Fifth District reversed this ruling because the trial court denied the insured the opportunity to prove whether the parties contemplated that the insured, an apartment complex owner, would suffer lost rental income (consequential damages) if the insurer breached its contractual duties.

 

This ruling is valuable to insureds because Citizens Property Insurance, a creature of statute, cannot be sued for first-party bad faith.  However, the Fifth District found that the consequential damages in the form of lost rental income did not require the insured to prove the insurer acted in bad faith, but merely, breached the terms of the policy.   This holding can be extended to other breach of contract actions against an insurer when the insured suffered and can prove consequential-type damages caused by the breach. 

 

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.

CONTRACTUAL WAIVER OF CONSEQUENTIAL DAMAGES

shutterstock_329903120Contractual waivers of consequential damages are important, whether they are mutual or one-sided.  I believe in specificity in that the types of consequential damages that are waived should be detailed in the waiver of consequential damages provision. Standard form construction agreements provide a good template of the types of consequential damages that the parties are agreeing to waive. 

 

But, what if there is no specificity in the waiver of consequential damages provision? What if the provision just states that the parties mutually agree to waive consequential damages or that one party waives consequential-type damages against the other party?  Let me tell you what would happen.  The plaintiff will argue that the damages it seeks are general damages and are NOT waived by the waiver of consequential damages provision.  The defendant, on the other hand, will argue that the damages are consequential in nature and, therefore, contractually waived.   FOR THIS REASON, PARTIES NEED TO APPRECIATE WHAT DAMAGES ARE BEING WAIVED OR LIMITED, AND POTENTIALLY THOSE DAMAGES NOT BEING WAIVED OR LIMITED, WHEN AGREEING TO A WAIVER OF CONSEQUENTIAL DAMAGES PROVISION!

 

Interestingly, this issue appeared in the recent case, Keystone Airpark Authority v. Pipeline Contractors, Inc., 43 Fla. L. Weekly D2601d (Fla. 1stDCA 2018).   Here, a plaintiff sued a contractor and engineer for defects to an airplane hangar and taxiways.  The plaintiff claimed the engineer’s negligence through its failure to supervise the work as contractually required which resulted in defective construction.  The plaintiff claimed that the engineer was responsible for the costs to repair the airplane hangar and taxiways.   The engineer argued under a waiver of consequential damages provision that read:

 

“Passero [engineer] shall have no liability for indirect, special, incidental, punitive, or consequential damages of any kind.”  

 

The engineer argued that the damages the plaintiff was seeking due to its failure to supervise was excluded under the waiver of consequential damages provision in the contract.  The plaintiff argued that such damages are general damages and not barred.  The trial court, as affirmed by the appellate court, held that the damage was barred because the damage was consequential.  In doing so, the court examined the definitions of the types of damages:

 

General damages are ‘those damages which naturally and necessarily flow or result from the injuries alleged. . . . General damages  ‘may fairly and reasonably be considered as arising in the usual course of events from the breach of contract itself. Stated differently, [g]eneral damages are commonly defined as those damages which are the direct, natural, logical and necessary consequences of the injury.

In contrast, special damages are not likely to occur in the usual course of events, but may reasonably be supposed to have been in contemplation of the parties at the time they made the contract. They consist of items of loss which are peculiar to the party against whom the breach was committed and would not be expected to occur regularly to others in similar circumstances.  In other words, general damages are awarded only if injury were foreseeable to a reasonable man and . . . special damages are awarded only if actual notice were given to the carrier of the possibility of injury. Damage is foreseeable by the carrier if it is the proximate and usual consequence of the carrier’s action.

[C]onsequential damages do not arise within the scope of the immediate buyer-seller transaction, but rather stem from losses incurred by the non-breaching party in its dealings, often with third parties, which were a proximate result of the breach, and which were reasonably foreseeable by the breaching party at the time of contracting. The consequential nature of loss . . . is not based on the damages being unforeseeable by the parties. What makes a loss consequential is that it stems from relationships with third parties, while still reasonably foreseeable at the time of contracting

 

Keystone Airpark Authority, supra (internal citations and quotations omitted).

 

 

Based on these definitions, the court agreed that the repairs to the hangars and taxiways were not special damages as “[i]t cannot be said that repairs stemming from improperly supervised construction work are unlikely to occur in the usual course of business.”  Keystone Airpark Authority, supra.   Such damages did not involve special circumstances for which the plaintiff would be required to give the engineer actual notice. 

 

BUT… these damages were CONSEQUENTIAL:

 

[T]he cost of repair here did not constitute general damages, either, because the damages were not the direct or necessary consequence of Passero’s [engineer] alleged failure to properly supervise the construction work.  The contractor could have completed the job correctly without Passero’s supervision.  Thus, the need for repair did not arise within the scope of the immediate transaction between Passero and the Airpark.  Instead, the need for repair stemmed from loss incurred by the Airpark in its dealing with a third party – the contractor.  While these damages ‘were reasonably foreseeable,’ they are consequential and not general or direct damages.

 

The appellate, however, certified the following question of great public importance:

 

WHERE A CONTRACT EXPRESSLY REQUIRES A PARTY TO SUPERVISE CONSTRUCTION WORK AND TO DETERMINE THE SUITABILITY OF MATERIALS USED IN THE CONSTRUCTION, BUT THE PARTY FAILS TO PROPERLY SUPERVISE AND INFERIOR MATERIALS ARE USED, ARE THE COSTS TO REPAIR DAMAGE CAUSED BY THE USE OF THE IMPROPER MATERIALS GENERAL, SPECIAL, OR CONSEQUENTIAL DAMAGES?

 

Thus, there could be a ruling in future from the Florida Supreme Court relating to construction industry, specifically relating to the damages associated with a supervising architect or engineer.

 

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.

ECONOMIC DAMAGES CANNOT BE BASED ON SPECULATION

shutterstock_630016574Economic damages, unlike non-economic damages (such as those in personal injury disputes), need to rest on a reasonable basis.  Economic damages are those routinely seen in a construction dispute.  These damages cannot be based on conjecture or guesswork and need to be supported by competent substantial evidence.  Otherwise, the economic damages will be deemed too speculative because they are not reasonably quantifiable.   I recently discussed a case involving the professional boxer Canelo Alvarez that was sued by a former promoter for unjust enrichment.  Although the promoter recovered a jury verdict for unjust enrichment damages against Canelo Alvarez, the verdict was reversed because the methodology utilized by the promoter to demonstrate damages was speculative.  This is definitely not what a plaintiff wants to happen after prevailing at the trial level! 

 

Parties are generally involved in civil disputes because of damages.  Without damages, there is no lawsuit.  Thus, a party’s damages, and the methodology used to calculate the damages, is critical.  While economic damages do not need to be demonstrated with mathematical precision, they do need to be supported by competent substantial evidence, i.e., they need to be based on a reasonable degree of certainty. 

 

 

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: MITIGATION OF DAMAGES IN CONTRACT CASES

imagesIn an earlier article, I discussed an owner’s measure of damages when a contractor breaches the construction contract.  This article discussed a case where the contractor elected to walk off a residential renovation job due to a payment dispute when he demanded more money and the owners did not bite.  This case also discussed the commonly asserted defense known as mitigation of damages, i.e., the other party failed to properly mitigate their own damages.  

 

In the breach of contract setting, mitigation of damages refers to those damages the other side could have reasonably avoided had he undertaken certain (reasonable) measures.  This is known as the doctrine of avoidable consequences

 

In contract cases, there is really no “duty to mitigate” because the claimant “is not compelled to undertake any ameliorative efforts”; rather, he is merely prevented from recovering damages he “could have reasonably avoided.” The word “reasonably” is important. The doctrine of avoidable consequences does not allow a trial court to reduce damages “based on what ‘could have been avoided’ through Herculean efforts.  It applies only where a claimant fails to undertake measures to avoid damages that are available to him without undue effort or expense.

Forbes v. Prime General Contractors, Inc., 43 Fla.L.Weekly D2094a (Fla. 2d DCA 2018) (internal citations omitted).

 

Stated differently, (1) what reasonable efforts could the other party have undertaken to avoid damage or further damage and (2) if the other party employed such efforts, what is the quantum of those avoidable damages.  Typically, you want these addressed by an expert witness so that there is evidence of reasonable efforts the other side could have undertaken and had these efforts been undertaken their damages would be reduced to “X” or it would have prevented them from incurring “Y” in damages. 

 

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.