ASSERT A PARTY’S NONCOMPLIANCE OF CONDITIONS PRECEDENT WITH PARTICULARITY

shutterstock_404314786Construction contracts oftentimes and should contain conditions precedent to payment.  Conditions precedent apply to both progress payments and final payment.  The conditions precedent operate such that payment is NOT due until the conditions are satisfied.  The satisfaction of the conditions precedent triggers the payor’s obligation to pay.

 

If a dispute arises due to the payee’s noncompliance with conditions precedent to payment, the noncompliance should be asserted with particularity in the answer and affirmative defenses.  For example, if a subcontractor was required to provide lien waivers and releases as a condition precedent to payment, then this should be asserted with particularity as an affirmative defense.  If the contractor’s receipt of payment from the owner was a condition precedent to payment to the subcontractor (pay-when-paid), then this should be asserted with particularity as an affirmative defense. Any noncompliance with a condition precedent should be identified as an affirmative defense.

 

An example of not pleading failure to comply with conditions precedent with particularity can be found in the recent case of Don Facciobene, Inc. v. Hough Roofing, Inc., 42 Fla. L. Weekly D1627a (Fla. 5th DCA 2017). 

 

In this case, the contractor hired a roofer for a relatively quick job. The roofer started its work without a formalized subcontract (not uncommon).  A subcontract was finally executed between the roofer and contractor when the roofer was virtually complete with its entire scope of work.  The contract required conditions precedent to payment.  The contractor did not pay the roofer due to the roofer’s failure to comply with the conditions precedent to payment and, then, certain offsets associated with alleged defective work.

 

The roofer initially claimed that the conditions precedent should not apply to work it performed and payments owed prior to the execution of the subcontract.  The court dismissed this argument claiming that the subcontract applied retroactively (e.g., prior to the date the subcontractor started working) since the subcontract contained a merger clause.  (Perhaps the parties could have even back-dated the subcontract which is not uncommon, e.g., “this subcontract is made and entered as of _______ [date]” even though it is signed after that date.)  Nevertheless, the Fifth District held that the contractor failed to properly preserve its defense that the roofer failed to comply with conditions precedent because its affirmative defense stated that the roofer “failed to allege, nor can it establish that it met each and every condition precedent to recovering payment in this cause pursuant to its Complaint.”  Because the contractor failed to allege with particularity which conditions precedent the roofer did not comply with or how the roofer failed to comply with them, the contractor failed to preserve its right to demand proof that the roofer satisfied conditions precedent to progress payments and final payment.

 

My guess is that it was apparent, and I mean apparent, that the contractor was relying on contractual conditions precedent.  It is also unclear if the contractor recited the word “contractual” in this affirmative defense whether that would have been sufficient or the court specifically wanted the contractor to recite each and every condition precedent the roofer did not satisfy.  Probably the latter.  My guess is this issue was also fleshed out in written discovery, a deposition, or even at trial, meaning there was no surprise since the contractor had an affirmative defense on point.  Regardless of whether this was a meritorious defense, the court was a stickler regarding the requirement to identify the noncompliance of the occurrence of conditions precedent.

 

Remember, when asserting a payee’s noncompliance with conditions precedent, identify the noncompliance with particularity!  Do not generalize the defense!

 

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: DO YOUR HOMEWORK WHEN IT COMES TO SELECTING YOUR ARBITRATOR

imagesMany construction contracts contain arbitration provisions.  Instead of litigating a dispute arising out of the contract, the parties will arbitrate the dispute per the arbitration provision.  There are advantages to arbitration and certain disputes bode well for arbitration.  The key is you want to make sure you select the RIGHT arbitrator or arbitrators.  Do your homework regarding the arbitrator list presented to you by, say, the American Arbitration Association.  Strike out those on the list that either do not have the requisite experience you need to decide the dispute or you believe they are not going to be impartial.  For instance, if you want an arbitrator that you think will specifically follow the letter of the law or the precise terms of a contract, select those on the list that meet this requirement; strike out others that do not.  The same philosophy would apply if you want an arbitrator to have specific factual knowledge or a factual understanding regarding a driving issue in the dispute.  Do not neglect the homework required to select –or try to select — the arbitrator you believe is the most qualified to understand the issues.

 

Now, why is this important?  It is important because you need to arbitrate a dispute with the understanding that the arbitrator’s award (decision) is FINAL.  There are no appellate rights.  None.  Vacating an arbitrator’s award is very challenging and the bases to vacate an award are limited and, most of the time, will NOT apply.

 

In a recent decision, a party tried to vacate an arbitration award.  One of the arguments was that the arbitration panel failed to follow  Florida law.   Well, guess what?  An arbitrator does not necessarily have to comply with Florida law.  Legal error by an arbitration panel is not a basis to vacate an arbitration award.  See Managed Care Ins. Consultants, Inc. v. United Healthcare Ins. Co., 42 Fla. L. Weekly D1599b (Fla. 4th DCA 2017).

 

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.

AMBIGUITY IN INSURANCE POLICY WILL BE INTERPRETED IN FAVOR OF INSURANCE COVERAGE

shutterstock_389538880An ambiguity in an insurance policy–after reading and interpreting the policy as a whole–will be construed against an insurerThis means an ambiguity will be construed in favor of insurance coverage (for the benefit of the insured) as opposed to against insurance coverage.  This does not mean that every insurance policy contains an ambiguity.  This also does not mean a court will interpret plain and ordinary words contrary to their conventional meaning or definition.  But, as we all know, insurance policies are not the easiest of documents to decipher and ambiguities do exist relating to a particular issue or circumstance to the benefit of an insured.  An insured that is dealing with specific insurance coverage issues should make sure they are working with counsel that looks to maximize insurance coverage, even if that means exploring ambiguities that will benefit an insured based on a particular issue or circumstance.

 

An example of an ambiguity in an insurance policy relating to a particular issue that benefitted an insured can be found in the Florida Supreme Court decision of Government Employees Insurance Co. v. Macedo, 42 Fla. L. Weekly S731a (Fla. 2017).  This case involved an automobile accident and the interpretation of an automobile liability policy. 

 

In this case, after an accident, a plaintiff sued the defendant that caused the accident. The defendant’s insurer GEICO provided a defense in accordance with the defendant’s automobile liability policy.  During the litigation, the plaintiff served a proposal for settlement for $50,000, which is a procedural vehicle to create the argument for attorney’s fees if the defendant does not accept the proposal.  The defendant—again, being defended by its insurer GEICO—did not accept the proposal.  The case proceeded to trial and the plaintiff obtained a jury verdict of approximately $243,000.  This meant the plaintiff had a basis to recover attorney’s fees since the defendant did not accept the proposal for settlement.   The plaintiff moved to bind GEICO to a judgment, and the underlying issue was whether the defendant’s insurer GEICO was liable under the policy for attorney’s fees.  If GEICO was not liable, then that meant the defendant was individually liable for the plaintiff’s incurred attorney’s fees. 

 

This is a significant issue because by the defendant’s counsel not accepting the proposal for settlement, the defendant, individually, was exposed to substantial attorney’s fees incurred by the plaintiff.   The defendant’s counsel was hired by GEICO and GEICO controlled any settlement of the case and the defendant was required to cooperate with GEICO.

 

The applicable language of the insurance policy as relied upon by the Florida Supreme Court was as follows:

 

ADDITIONAL PAYMENTS WE WILL MAKE UNDER THE LIABILITY COVERAGES

1. All investigative and legal costs incurred by us.

. . . .

4. We will upon request by an insured, provide reimbursement for the following items:

. . . .

(c) All reasonable costs incurred by an insured at our request.

. . . .

Additionally, the index of the policy lists “Legal Expenses And Court Costs” as items that are covered under the Additional Payments section.

 

The Florida Supreme Court, interpreting the policy as a whole, found this language to be ambiguous relating to the insurer’s obligation to cover attorney’s fees incurred by the plaintiff due to GEICO’s defense counsel not accepting the proposal for settlement.  This ambiguity was a big “W” for both the defendant-insured and the plaintiff because it meant that GEICO was liable for the plaintiff’s attorney’s fees.

 

First, the Court explained that the terms “Legal Expenses” and “Court Courts” signify that legal expenses in addition to court costs would be covered under the policy; otherwise, there would have been no reason to separately include the language “Legal Expenses” in the index of the policy.

 

Second, the Court explained that there are numerous reasonable interpretations that attorney’s fees are encompassed by the terms “costs” and expenses” as used in the policy. 

 

And, third, the Court explained that the legal expenses (attorney’s fees) incurred by the insured were the product of GEICO electing not to accept the proposal for settlement, and thus, were incurred by the defendant-insured at GEICO’s direct request.  GEICO had complete discretion under the policy to settle the case with the insured being required to cooperate with its insurer.   “It follows that any cost or fee incurred as a result of GEICO exercising its authority and control is something that it intended to pay.”  See Macedo, supra

 

 

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.

 

TERMINATING THE NOTICE OF COMMENCEMENT (WITH A NOTICE OF TERMINATION)

shutterstock_259385300The notice of commencement is important for purposes of construction lien priority.   Stock Bldg. Supply of Florida, Inc. v. Soares Da Costa Const. Services, LLC, 76 So.3d 313, 317 (Fla. 3d DCA 2011) (“[A] notice of commencement serves to determine the priority of liens under the Construction Lien Law.”).   A lien relates back in time to the date the notice of commencement was recorded assuming the notice of commencement is still in effect when the lien is recorded (or an amended noticed of commencement is recorded).  Lien priority is very important and the reason why a contractor should always want to ensure there is an effective notice of commencement in place rather than an expired notice of commencement.

 

For the same reasons why a contractor wants to ensure there is an effective notice of commencement, there are times an owner wants to terminate a notice of commencement.  An owner may want to terminate the potential priority of a construction lien.  For instance, say the owner is refinancing or obtaining a construction loan in the midst of construction.  A lender will want to ensure its mortgage maintains first priority and certainly priority over a potential construction lien.  Otherwise, why would a lender finance the construction if it does not maintain first priority. It generally will not.  Thus, an owner needs to terminate the notice of commencement so that the closing occurs on the loan and the mortgage recorded before a new notice of commencement is recorded and construction continues.

 

Florida Statute s. 713.132 allows an owner to statutorily terminate the effectiveness of a notice of commencement by recording a notice of termination.  It is a statutory procedure that must be followed and it is important that an owner and contractor seek the assistance of counsel in following this procedure.  The statute contains in relevant part:

 

(3) An owner may not record a notice of termination except after completion of construction, or after construction ceases before completion and all lienors have been paid in full or pro rata in accordance with s. 713.06(4). If an owner or a contractor, by fraud or collusion, knowingly makes any fraudulent statement or affidavit in a notice of termination or any accompanying affidavit, the owner and the contractor, or either of them, as the case may be, is liable to any lienor who suffers damages as a result of the filing of the fraudulent notice of termination; and any such lienor has a right of action for damages occasioned thereby.

 

(4) A notice of termination is effective to terminate the notice of commencement at the later of 30 days after recording of the notice of termination or the date stated in the notice of termination as the date on which the notice of commencement is terminated, if the notice of termination has been served pursuant to paragraph (1)(f) on the contractor and on each lienor who has a direct contract with the owner or who has served a notice to owner.

 

If a notice of termination of a notice of commencement is recorded as a result of the cessation of construction, a new notice of commencement must be recorded before completion of the improvement may be recommenced.”  Stock Bldg. Supply of Florida, 76 So.3d at 317-18.    

 

From a lienor’s perspective, it is important that they understand that when a new notice of commencement is recorded, the lienor must re-serve any required notices to preserve lien or bond rights (such as a notice to owner or notice of intent to look to the contractor’s bond).  Stock Bldg. Supply of Florida, 76 So.3d at 318 (when owner recorded new notice of commencement, the project began anew and lienor was required to re-serve notices under Florida’s Construction Lien Law).

 

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.