OWNER’S OBLIGATION GIVING NOTICE TO CURE TO CONTRACTOR AND ANALYZING REPAIR PROTOCOL

unknownRecently, I read an informative article from another attorney addressing considerations of an owner when it receives a repair protocol in response to a Florida Statutes Chapter 558 notice of defect letter.   This is a well-written article and raises two important issues applicable to construction defect disputes: 1) how is an owner supposed to respond to a repair protocol submitted by a contractor in accordance with Florida’s 558 notice of construction defects procedure and 2) irrespective of Florida’s 558 procedure, how is an owner supposed to treat a contractual notice to cure / notice of defect requirement that requires the owner to give the contractor a notice to cure a defect. This article raises such pertinent points that I wanted to address the issues and topics raised in this article.  

 

 558 Procedure–Owner’s Receipt of Contractor’s Repair Protocol

 

When a contractor submits a repair protocol to an owner in response to a notice of construction defects letter per Florida Statutes Chapter 558, the owner should seriously consider that protocol.   The owner does this by discussing with counsel and any retained expert.   The owner needs to know whether the protocol is a reasonable, cost-effective protocol to repair the asserted defects or, alternatively, whether the protocol is merely a band-aid approach and/or otherwise insufficiently addresses the claimed defects.  Every scenario is different. 

 

Oftentimes, I want my client’s expert (if I represent the owner) to analyze the protocol and opine as to the deficiencies in the repair protocol, as well as problems concerning the actual logistics of implementing the protocol.  The objective would be that these opinions would come out down the road (say trial) when the contractor argues that the owner failed to mitigate damages by not promptly implementing the contractor’s repair protocol.    Sometimes, I want a tolling agreement (an agreement to extend the statute of limitations where the other side agrees not to raise the statute of limitations as a defense) so that if the repairs do not work, the owner’s rights are not prejudiced and the owner can still pursue the defect claim. 

 

 As the article correctly pointed out, every scenario is fact-specific, however, in each scenario, the owner should consider the repairs being proposed by the contractor in response to a Florida Statutes Chapter 558 notice of construction defects letter.

 

Contractual Notice to Cure / Opportunity to Repair

 

The article further discussed the case of Underwater Engineering Services, Inc. v. Utility Board of the City of Key West, 194 So.3d 437 (Fla. 3d DCA 2016).  Without getting into all of the technical facts, a public owner hired a contractor to perform certain structural repairs and, applicable here, the contract provided:

 

1.5 DEFECT ASSESSMENT

A. Replace the Work, or portions of the Work, not conforming to specified requirements.

B. If, at the request of the Contractor and in the opinion of the Engineer, it is not Practical to remove and replace the Work, the Engineer will direct one of the following remedies:

1. The defective Work may remain, but the Unit Price will be adjusted to a new price as agreed to by the Owner and Engineer.

2. The defective Work will be partially repaired to the instructions of the Engineer, and the Unit Price will be adjusted to a new price.

 

The public owner claimed that the contractor defectively constructed eight concrete collars.  However, the public owner failed to give the contractor an opportunity to cure / replace the defectively constructed concrete collars.   In other words, the contractor was never given an opportunity to actually cure or replace the asserted defect pursuant to the terms of the contract.  As a consequence of the public owner violating this opportunity to cure requirement, the appellate court reversed an award of damages in favor of the public owner and remanded with directions to enter judgment in favor of the contractor as to the owner’s defect claim.  Thus, by the public owner failing to give the contractor a contractual opportunity to cure–and  unilaterally fixing the defects–the owner recovered nothing from the contractor due to the defective work.

 

Irrespective of the requirements of Florida Statutes Chapter 558, an owner should absolutely comply with a contractual notice to cure / repair requirement.  Otherwise, the contractor has the argument that the owner’s failure to comply with this contractual requirement should preclude the owner from recovering any damages for fixing the defect.

 

Further, if an owner receives a repair protocol, whether in response to a contractual notice to cure requirement or Florida Statutes Chapter 558, the owner should consider the repair protocol and consult with counsel and any retained expert to analyze the reasonableness and logistics of the protocol.

 

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.

 

SHOULD CGL INSURER HAVE DUTY TO DEFEND INSURED DURING CHAPTER 558 NOTICE OF CONSTRUCTION DEFECTS PROCESS???

UnknownDoes a CGL insurer have a duty to defend its insured-contractor during Florida Statutes Chapter 558 notice of construction defects pre-suit process?  This answer is currently undecided and will be up to the Florida Supreme Court to decide.  (It is on appeal stemming from a federal district court saying that an insurer does not have a duty to defend its insured-contractor in the 558 process based on the definition of the word “suit” in the CGL policy.)

 

Why is this an important issue?

 

The 558 pre-suit notice of construction defects process is designed to facilitate an avenue for construction defect lawsuits to get resolved without having to file a lawsuit or, at least, have issues narrowed before a lawsuit needs to be filed.  (Check here for a summary of the 558 process.)  It requires pre-suit notifications so that implicated parties can become aware of the defects and have an opportunity to inspect the defects / damage, test the defects / damage, and respond to the notice of construction defects; it provides an avenue for beneficial pre-suit discovery.  Through participating in the 558 process, the contractor and/or design professional (and those downstream from them) can:  (i) offer to remedy the defect, (ii) settle the defect, whether through money or a combination of money and repairs, (iii) dispute the defect, or (iv) advise that available insurance proceeds will be determined by its  liability insurer.  See Fla. Stat. s. 558.004.

 

There are definitely some pros and cons to the 558 pre-suit process.  There is no doubt about this.  But, if the insured-contractor’s insurer is not on board with the process, then it invariably will fail (unless the defects are relatively minor in nature).  Why will it fail?  Because 558 notice of construction defect letters can contain an extensive laundry list of defects–some minor, some major and complicated.  This means that the insured-contractor really needs an expert or experts on board to truly analyze these issues from a liability and damages standpoint including the most cost effective approach to remedy the defects and corresponding damage.  This, as you can imagine, is costly.  The insured-contractor also wants to know that if a monetary settlement is made, the settlement includes insurance proceeds for damages covered by the CGL policy.  

 

All of this can really only effectively take place if the insurer defends the insured-contractor in this process to best assess its risk and any forthcoming lawsuit that should (hopefully) nevertheless trigger the insurer’s duty to defend its insured-contractor.   Hence, there is no reason for the insurer not be engaged in the process and defend its insured-contractor, at least under a reservation of rights.  Unfortunately, if the liability insurer disengages from the process and is not willing to defend its insured in the process, then the insured-contractor in many instances is best-off waiting for that lawsuit that will then (a) trigger the insurer’s duty to defend and (b) require the insurer to now incur the costs of the defense, including experts, to defend its insured.  By the insurer not defending its insured-contractor earlier, such as the 558 process, all it is doing is inviting an expensive multi-party lawsuit and not educating itself of the nature of the defects and damage (i.e., its risk assessment) so that efforts can be made to resolve the defect claim, narrow the issues, or develop the framework of 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.

 

 

 

CGL INSURER’S (HAVE NO!) DUTIES OF DEFENSE AND INDEMNITY UNDER FLORIDA STATUTES CHAPTER 558

UnknownI previously wrote an article regarding Florida Statutes Chapter 558 and its pre-lawsuit application to construction defects.  In particular, I discussed a claimant’s (e.g., owner) requirement to submit a written notice of construction defects to potentially responsible parties and those parties rights under Chapter 558

 

When a party (e.g., contractor, subcontractor, design professional) receives a written notice of construction defects pursuant to Chapter 558, that party should notify its insurer (CGL or professional liability, as applicable) of a construction defect claim.  This is generally the prudent avenue to ensure timely notice is given to the insurer and that the insurer starts to pay defense costs as a party participates in the Chapter 558 pre-lawsuit process. 

 

But, what if the CGL insurer refuses to pay a party’s defense costs in participating in the pre-lawsuit process set out in Chapter 558?  The recent opinion in Altman Contractors, Inc. v. Crum & Foster Specialty Ins. Co., 2015 WL 3539755 (S.D.Fla. 2015) deals with this very issue.

 

In this case, a general contractor received written notices of construction defects from a condominium association per Chapter 558. The general contractor notified its CGL insurer of the written notices of defects and demanded that its insurer defend and indemnify it in connection with the notices.  The CGL insurer denied it had any duties with respect to a written notice of defects under Chapter 558 since the matter was “not in suit.”  Subsequently, the insurer claimed it would participate in the pre-lawsuit Chapter 558 process, but that it was going to hire its preferred counsel to represent the general contractor.  The general contractor objected and filed a lawsuit against its CGL insurer seeking a declaration of rights under the policy that (a) the CGL insurer’s duty to defend the general contractor was triggered upon the general contractor’s receipt of the written notice of defects per Chapter 558 and (b) the CGL insurer was responsible for paying the general contractor’s private counsel’s defense costs from the time the CGL insurer was placed on notice of the written notice of defects claim.

 

In analyzing this issue, the court examined the following language in the general contractor’s CGL policy (common language in CGL policies):

 

We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages for “bodily injury” or “property damage” to which this insurance does not apply. We may, at our discretion, investigate any “occurrence” and settle any claim or “suit” that may result.

***

 

 

Suit” means a civil proceeding in which damages because of “bodily injury,” “property damage” or “personal and advertising injury” to which this insurance applies are alleged. “Suit” includes:

a. An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent; or

b. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.

Altman Contractors, supra, at *5, 6.

 

 

As reflected by the CGL policy’s language, the policy required the CGL insurer to defend the general contractor against any “suit,” and the term “suit” was defined as a “civil proceeding.”  The court looked at the ordinary definition / meaning of a civil proceeding and determined that the ordinary meaning was a judicial proceedingSince the court determined that a Chapter 558 written notice of defects claim did NOT constitute a “civil proceeding” under the CGL policy, it concluded that the CGL insurer had NO duty to defend or indemnify the general contractor under the Chapter 558 pre-lawsuit process.

 

Takeaways:

 

  • If your CGL policy contains analogous language to the policy in this case regarding the definition of “suit,” there is a strong chance that your CGL insurer has NO duty to defend or indemnify you in the Chapter 558 notice of defects pre-lawsuit process. This means a party has to incur its own defense costs in participating in Chapter’s 558 pre-lawsuit process. This also means any decision a party makes in Chapter’s 558 pre-lawsuit process is probably not reimbursable.
  • If your CGL insurer has no duty to defend or indemnify you in connection with a written notice of defects under Chapter 558, this means you need to be sued for the alleged defects in order to trigger the CGL insurer’s duty to defend and indemnify you under the policy.
  • It is still good practice to notify your insurer of a written notice of defects under Chapter 558.  And, if you are a claimant, it is still good practice to notify potentially responsible parties’ insurers of the written notice of defects.  There are insurers that will assume the defense obligation at this point even though a lawsuit has not been initiated.  But, as reflected in this case, the insurer may hire their own counsel instead of the insured’s preferred choice of counsel to do so (which also means that the insurer plans on using its preferred choice of counsel if/when a lawsuit is filed against the insured).

 

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.

CONSTRUCTION / DESIGN DEFECTS AND RIGHTS UNDER FLORIDA STATUTES CHAPTER 558

imagesConstruction / design defects are an unfortunate byproduct of construction.  If you are an owner or association and experience defects, you will become familiar with Florida Statutes Chapter 558 since this Chapter deals with defects and serving a written notice of the defects.  Likewise, if you are a contractor, design professional, supplier, or subcontractor and defects are asserted against you, you will also become familiar with Chapter 558.  This Chapter requires a claimant to serve written notice of the defects (identifying the defects with sufficient detail) to the responsible parties as a condition precedent before filing a construction / design defect lawsuit against those parties.

 

A party experiencing construction / design defects or the recipient of a written notice of defects should engage counsel to assist with preserving rights under Chapter 558 and drafting a written notice or response, as applicable.  Below is a synopsis of important time limitations requirements for claimants serving a written notice of defects and parties receiving a written notice of defects:

 

 Florida Statutes Chapter 558 Procedure

 

1)    Claimant 60 days before filing construction defect / design defect lawsuit shall serve written notice on contractor, design professional (or others, as applicable) of the defects. The written notice shall reference Florida Statutes Chapter 558 and shall describe the defects with sufficient detail.  This written notice tolls the statute of limitations relating to the party and any applicable bond until the later of 90 days after service of the written notice (or 30 days after any repair or payment period settlement option).

2)    The party receiving the written notice is entitled to perform a reasonable inspection within 30 days of receiving the written notice.  The party may undertake destructive testing under reasonable terms and conditions set forth in more detail in Florida Statute s. 558.004(2).

3)    The party receiving the notice may serve a copy of the written notice to each party it believes responsible for the defect within 10 days of receiving the written notice from the claimant (e.g., subcontractors).  This notice is not to be construed as an admission by the party. The party receiving the notice may conduct an inspection per section 2).

4)    The party receiving a copy of the written notice per section 3) must serve a written response to the party it received the written notice from within 15 days after service of the copy of the notice. The response shall include whether the party is willing to make repairs and, if so, what repairs or whether the claim is disputed.

5)    The party receiving the initial written notice per section 1) shall serve a written response to the claimant within 45 days after service of the claim. The response shall include: 1) whether the party is willing to make repairs and, if so, what repairs; 2) a monetary offer; 3) a combination of money and scope of repairs; or 4) a dispute of the claim.  If a party disputes the claim or fails to timely respond to the written notice, the claimant can proceed with a lawsuit against the party. If the claimant accepts or rejects a repair or monetary settlement option, it must do so within 45 days after receiving the option.

 

Notably, if the claimant is an association representing more than 20 parcels the time limitations identified above are extended, but everything else remains the same:

 

1)    Claimant shall give the written notice at least 120 days before filing the lawsuit.  This written notice tolls the statute of limitations relating to the party and any applicable bond until the later of 120 days after service of the notice  (or 30 days after any repair or payment period settlement option).

2)    The party receiving the written notice is entitled to perform a reasonable inspection within 50 days.

3)    The party receiving the notice may serve a copy of the written notice to each party it believes responsible for the defect within 30 days of receiving the written notice from the claimant.

4)    The party receiving a copy of the written notice per section 3) must serve a written response to the party it received the written notice from within 30 days after service of the copy of the notice of claim.

5)    The party receiving the initial written notice per section 1) shall serve a written response to the claimant within 75 days after service of the claim.

 

There is more to Chapter 558 than what is set forth above.  Again, a party experiencing defects or provided a written notice of defects should consult counsel to ensure their rights are protected moving forward.

 

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.