THE RELEVANCE AND REASONABLENESS OF DESTRUCTIVE TESTING

shutterstock_617053133Destructive testing is a routine investigatory procedure in construction defect disputes.   The destructive testing is necessary to determine liability (causation), the extent of damage, and the repair protocol.   Destructive testing is designed to answer numerous questions:  Why did the building component fail?  Was the building component constructed incorrectly?  What is the magnitude of the damage caused by the failure? What specifically caused the damage?  What is the most effective way to fix the failure and damage?  There are different iterations to the same questions, but in many instances, destructive testing is necessary to answer these questions.

 

Claimants sometimes prohibit destructive testing.  Of course, destructive testing is intrusive.  In many instances, it is very intrusive.  But, this testing is a necessary evil.  Without this testing, how can a defendant truly analyze their potential exposure and culpability?  They need to be in a position to prepare a defense and figure out their liability.  This does not mean destructive testing is warranted in every single construction defect dispute.  That is not the case.   However, to say it is never warranted is irrational. 

 

Florida Statutes Chapter 558 (the pre-suit notice of construction defects process) addresses the issue of destructive testing when parties are participating in this obligatory pre-suit notice of construction defect process:

 

(a) If the person served with notice under subsection (1) determines that destructive testing is necessary to determine the nature and cause of the alleged defects, such person shall notify the claimant in writing.

(b) The notice shall describe the destructive testing to be performed, the person selected to do the testing, the estimated anticipated damage and repairs to or restoration of the property resulting from the testing, the estimated amount of time necessary for the testing and to complete the repairs or restoration, and the financial responsibility offered for covering the costs of repairs or restoration.

(c) If the claimant promptly objects to the person selected to perform the destructive testing, the person served with notice under subsection (1) shall provide the claimant with a list of three qualified persons from which the claimant may select one such person to perform the testing. The person selected to perform the testing shall operate as an agent or subcontractor of the person served with notice under subsection (1) and shall communicate with, submit any reports to, and be solely responsible to the person served with notice.

(d) The testing shall be done at a mutually agreeable time.

(e) The claimant or a representative of the claimant may be present to observe the destructive testing.

(f) The destructive testing shall not render the property uninhabitable.

(g) There shall be no construction lien rights under part I of chapter 713 for the destructive testing caused by a person served with notice under subsection (1) or for restoring the area destructively tested to the condition existing prior to testing, except to the extent the owner contracts for the destructive testing or restoration.

If the claimant refuses to agree and thereafter permit reasonable destructive testing, the claimant shall have no claim for damages which could have been avoided or mitigated had destructive testing been allowed when requested and had a feasible remedy been promptly implemented.

Florida Statute s. 558.004(2).

 

Under this pre-suit process, if a claimant refuses to permit reasonable destructive testing, the claimant shall have no claim for damages which could have been mitigated or avoided had destructive testing been allowed and had a feasible remedy been promptly implemented.  In my opinion, this has very little teeth as it raises too many factual issues such as 1) was the destructive testing reasonable, 2) what damages could have realistically been mitigated and how do you prove this, 3) what is a feasible remedy and how is one to know whether the defendant would have even proposed or implemented a feasible remedy, 4) is the feasible remedy a remedy that mitigates future damage or fully addresses the root of the problem, and 5) what is the quantum of damages that could have been mitigated or avoided.   Establishing the reasonableness of the destructive testing is likely easy as an expert would support this.  But the same expert would have to establish the other requirements as a basis to establish an affirmative defense that some of the claimed damages the plaintiff is seeking could have been mitigated had the claimant allowed pre-suit destructive testing.

 

Oftentimes, however, a defendant wants to undertake certain destructive testing after a lawsuit has been initiated.  What happens if the plaintiff refuses such testing in this scenario?  In a recent products liability case, Westerbeke Corp. v. Atherton, 42 Fla.L.Weekly D1741c (Fla. 2d DCA 2017), a defendant wanted to perform destructive testing on a gas generator that caused an explosion on a boat.  The plaintiff did not want this testing to be performed.   In support of the testing, the defendant relied on a federal district case that applied four factors to consider whether the destructive testing is warranted:

 

1) Whether the proposed testing is reasonable, necessary, and relevant to proving the movant’s case; 2) Whether the non-movant’s ability to present evidence at trial will be hindered, or whether the non-movant will be prejudiced in some other way; 3) Whether there are any less prejudicial alternative methods of obtaining the evidence sought; and 4) Whether there are adequate safeguards to minimize prejudice to the non-movant, particularly the non-movant’s ability to present evidence at trial.

 

 Westerbke Corp., supra, quoting Mirchandani v. Home Depot, U.S.A., Inc., 235 F.R.D. 611, 614 (D.Md. 2006).

 

The trial court did not apply these four factors and denied the defendant’s request to perform destructive testing on the gas generator.  On appeal (through a petition for writ of certiorari), the appellate court reversed.  Unfortunately, the appellate court punted without providing specific guidance as to what standard the trial should follow when granting or denying a request for destructive testing.  The appellate court simply held that the four factors above may provide guidance to the trial court, but are not controlling in Florida.  The appellate court further summarily pointed to the Florida’s Rules of Civil Procedure to address the issue:

 

The Florida law regarding discovery in general provides that a party in a civil case is entitled to discover evidence that is relevant to the subject matter of the case and that is admissible or reasonably calculated to lead to admissible evidence. Fla. R. Civ. P. 1.280(b)(1); Allstate Ins. Co. v. Langston, 655 So. 2d 91, 94 (Fla. 1995). In addition, “[a]ny party may request any other party . . . to inspect and copy, test, or sample any tangible things that constitute or contain matters within the scope of rule 1.280(b) and that are in the possession, custody, or control of the party to whom the request is directed.” Fla. R. Civ. P. 1.350(a)(2). “The discovery rules . . . confer broad discretion on the trial court to limit or prohibit discovery in order to ‘protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense.‘ ” Rasmussen v. S. Fla. Blood Serv., Inc., 500 So. 2d 533, 535 (Fla. 1987) (citing Fla. R. Civ. P. 1.280(c)). We conclude that the trial court departed from the essential requirements of the law in failing to apply the proper discovery standard…..

 

 

The four factors outlined above are reasonable factors that comport with Florida law – whether the testing is relevant to the subject matter of the case. The factors provide guidance as to how to determine relevancy of destructive testing during the course of a lawsuit.  Plus, the court can always impose limitations or restrictions to reduce any intrusion and protect the claimant’s interests while allowing testing to be performed.   By the appellate court punting and not even ruling on whether the destructive testing would be relevant in the underlying action, the court is simply inviting another appeal.

 

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.

 

 

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.