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.

QUICK NOTE: DON’T NEGLECT CONDITIONS PRECEDENT TO PAYMENT IN YOUR CONTRACT

imagesThere is a good chance your contract contains conditions precedent to payment.  Such conditions precedent to payment include waivers and releases of lien (and, perhaps, claims) and contractually required warranties.  Make sure to comply with conditions precedent to payment!

 

In a case where a subcontractor sued a payment bond surety, the court held the subcontractor’s lawsuit was premature because the subcontractor did not comply with a condition precedent to payment, that being the submission of a release in satisfactory form.  Until such condition precedent was satisfied, payment was not due and owing the subcontractor.  

 

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.

 

RELEASES ON FEDERAL PROJECTS — MAYBE THE RELEASE IS NOT A FINAL RELEASE

imagesExecuting partial releases and a final release in consideration of payment are routine on construction projects.  Counsel will correctly tell you not to sign a release if you don’t intend to release all of your claims through the date of the release.  Counsel will also tell you to be sure to exempt those claims from a release that you do not intend on releasing.  The reason for this is that if you sign a release and then seek damages or costs pre-dating the release, the party you gave the release too will waive it in front of your face and say “tough luck; you released these claims and costs!” 

 

However, the opinion in H.J. Lyness Construction, Inc. v.  U.S., 120 Fed.cl. 1 (Fed.Cl. 2015) gives those contractors (or subcontractors), particularly federal government contractors, that sign a release and do not exempt certain claims or costs from the release some hope that not all is lost.  In this case, the federal government terminated a contractor for convenience.  After the termination for convenience, the contractor submitted a release and was paid in consideration for that release.  The contractor did not exempt or carve out any claims or costs from that release even though the release allowed the contractor to do so.    In other words, the release did not carve out any termination for convenience settlement costs that the contractor would be entitled to.  Notwithstanding, the government and contractor continued to discuss termination for convenience settlement costs and when an agreement could not be reached, the contractor filed suit.

 

The government moved for summary judgment that the contractor released the government for termination for convenience settlement costs because the contractor executed the unambiguous release after the termination for convenience.  The contractor countered that the release did not apply to termination for convenience settlement costs and, to show this, the government continued to entertain discussions regarding these costs after it received the release the government is arguing under.  Furthermore, the contractor argued that it timely and properly submitted its settlement costs in accordance with F.A.R. 52.249-2(e) that provides:

 

(e) After termination, the Contractor shall submit a final termination settlement proposal to the Contracting Officer in the form and with the certification prescribed by the Contracting Officer. The Contractor shall submit the proposal promptly, but no later than 1 year from the effective date of termination, unless extended in writing by the Contracting Officer upon written request of the Contractor within this 1–year period. However, if the Contracting Officer determines that the facts justify it, a termination settlement proposal may be received and acted on after 1 year or any extension. If the Contractor fails to submit the proposal within the time allowed, the Contracting Officer may determine, on the basis of information available, the amount, if any, due the Contractor because of the termination and shall pay the amount determined.

 

Based on these facts and circumstances, the contractor took the position that the  government never intended the release the contractor furnished post-termination for convenience to operate as a final release and release of its termination for convenience costs.  The Court of Federal Claims sided with the contractor:

 

The Court finds that through the affidavit provided by Mr. Lyness [contractor’s representative], the parties’ actions and course of conduct in this case creates a genuine issue of material fact regarding whether the release constituted a full and final release of claims given in exchange for a final payment, or was simply a routine payment application form that was used with respect to all applications for partial payments requested by HJL [contractor].

H.J. Lyness Construction, supra.

 

Now, why is this case helpful?  Because it goes directly to the argument on federal projects that even if a contractor executed an unambiguous release and does not exempt or carve out any claims, there may be an argument that the conduct of the parties reflects that the parties did not intend the release to operate as a final release of all claims.  In H.J. Lyness the argument was that the release was not intended to bar termination for convenience settlement costs even though the release was executed months after the termination for convenience.

 

Regardless of the holding in H.J. Lyness, it is important for contractors to read what they sign and be cognizant of those claims and costs they do not want to release.  This includes executing a release without properly exempting termination for convenience settlement costs if the contractor does not intend its release to be a final release of all claims.

 

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.

 

BE CAREFUL AND APPRECIATE THE RISK WHEN EXECUTING A RELEASE IN ADVANCE OF AN EVENT OR SITUATION

imagesThe Florida Supreme Court in a non-construction case recently issued an opinion regarding the scope of a release.  Parties expecting releases (“releasee”) need to ensure that the release they are giving others to execute (“releaser”) clearly and unambiguously reflects the scope of the release they are seeking.  Regardless of the reasoning for getting a release, the release will not serve the releasee’s purpose if it is ambiguous. 

 

In Eric Sanislo v. Give Kids the World, Inc., 2015 WL 569119 (Fla. 2015), the Florida Supreme Court answered the question whether a release that does not contain express language of the releaser releasing the releasee for negligence or negligent acts was enforceable to actually release the releasee for negligence claims. 

 

This case involved a non-profit company that organizes vacations for sick children and their families. In advance of the vacation participants need to execute a release in favor of the non-profit company that reads:

 

I/we hereby release Give Kids the World, Inc. [releasee] and all of its agents, officers, directors, servants, and employees from any liability whatsoever in connection with the preparation, execution, and fulfillment of said wish, on behalf of ourselves, the above named wish child and all other participants. The scope of this release shall include, but not be limited to, damages or losses or injuries encountered in connection with transportation, food, lodging, medical concerns (physical and emotional), entertainment, photographs and physical injury of any kind….

 

I/we further agree to hold harmless and to release Give Kids the World, Inc. [releasee] from and against any and all claims and causes of action of every kind arising from any and all physical or emotional injuries and/or damages which may happen to me/us….

 

During a vacation, the mother of a child injured herself due to a malfunction of a wheelchair lift they were on.  The family sued for negligence and the non-profit organization argued that such a negligence claim was barred by virtue of the release the family executed that released the non-profit company “from any liability whatsoever…”  which would be broadly understood to include all negligence claims.  The non-profit further argued if the release did not cover negligence claims, it would essentially be worthless since the obvious intent of the release was to bar these types of claims.  Conversely, the family argued that the release did not bar negligent acts because nowhere in the release does it even use the words “negligence” or “negligent acts.”

 

The Florida Supreme Court agreed with the non-profit company and the broad language that released the non-profit company “from any liability whatsoever…” expounding:

 

[W]e are reluctant to hold that all exculpatory [release]  clauses that are devoid of the terms “negligence” or “negligent acts” are ineffective to bar a negligence action despite otherwise clear and unambiguous language indicating an intent to be relieved from liability in such circumstances. Application of such a bright-line and rigid rule would tend to not effectuate the intent of the parties and render such contracts otherwise meaningless.

***

The wish request form and liability release form signed by the Sanislos [plaintiff] released Give Kids the World [non-profit company] and all of its agents, officers, directors, servants, and employees from “any liability whatsoever in connection with the preparation, execution, and fulfillment of said wish….” The language of the agreement then provided that the scope of the agreement included “damages or losses or injuries encountered in connection with transportation, food, lodging, medical concerns (physical and emotional), entertainment, photographs and physical injury of any kind….” This agreement clearly conveys that Give Kids the World would be released from any liability, including negligence, for damages, losses, or injuries due to transportation, food, lodging, entertainment, and photographs. With regard to Give Kids the World and the wish fulfilled for the Sanislos, it is unclear what this agreement would cover if not the negligence of Give Kids the World and its agents, officers, directors, servants, and employees, given that exculpatory clauses are unenforceable to release a party of liability for an intentional tort.

Sansislo, supra.

 

What exactly does this ruling mean?

 

It means, be careful, really careful, when executing a release, especially a release given in advance of an event or situation.  Naturally, when a release is given in advance of an event or situation, the release is routinely executed without a lot of consideration given to when the release would apply.  Before the event or situation, you do not foresee the other party committing a negligent act and/or getting hurt by such negligence.  But, it certainly could happen which is why the releasee wants to give you an advance release to execute.   Further, but for the execution of the release, the releasee (or company that wants the release) will probably not allow you to participate or attend the event, etc.  This is another reason the release is routinely executed without a lot of consideration given to the context of the release.

 

But, as demonstrated by the Florida Supreme Court, this advance release can come back to haunt a person that is injured by the negligence of the releasee simply because that person executed an advance release or release given BEFORE the negligence occurred.  Thus, be careful, and appreciate this risk, when executing a release in advance of an event or situation.

 

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.

 

PAY ATTENTION TO THE RELEASE YOU EXECUTE!

UnknownPay attention to the release you execute! This includes the release that is executed in consideration of insurance proceeds where the release will likely include a full release of all claims and the parties forbear from pursuing legal claims against one another. Such claims would include the insured / party receiving insurance proceeds releasing its right to assert claims for additional proceeds arising from same incident and the insurer releasing its right to assert a claim that the insured breached the insurance policy and/or that there is no coverage under the policy. This is besides the fact that the monetary payment should constitute sufficient consideration for a full release of any and all rights / claims relating to the incident.

 

In Crystal Colony Condominium Ass’n, Inc.v. Aspen Specialty Ins. Co., 2014 WL 1116881 (S.D.Fla. 2014), an insurer issued a property insurance policy to an association. In October 2005, the insured-association experienced severe damage due to Hurricane Wilma. Due to the damage, the insurer agreed to pay $1,071,359.52 to its insured-association in consideration of a full release from the insured. The insured-association agreed and a release was executed that read:

 

“In consideration of the sum of [$1,071,349.52], to me/us [Plaintiff] paid, the receipt whereof is hereby acknowledged, l/we, [Plaintiff] (being of lawful age) do hereby release and forever discharge [Defendant, its] heirs, administrators, executors, successors and assigns, from any and all action, causes of action, claims and demands whatsoever for, upon, or reason of any damage, loss or injury and all consequential damage, which heretofore have been or which hereafter may be sustained by me/us [Plaintiff] in consequence of windstorm damage during Hurricane Wilma, 10/24/05.”

It is being further agreed and understood that the payment of said amount is not to be construed as an admission of liability, but is a compromise of a disputed claim and that this release is executed in full settlement and satisfaction of rights of the undersigned under Policy No. BP000106 arising out of said hurricane damage above referred to.”

Crystal Colony, supra, at *2.

 

Approximately six year later, the insured-association advised the insurer that it disagreed with the quantum of insurance proceeds it received and filed a declaratory action. The insurer moved for summary judgment based on the full release it received for the incident (the hurricane). The insured-association argued that the release was not enforceable because it lacked consideration since the money it received was only a partial payment and did not cover future damages the association incurred. The insurer argued that the release included language where there was a mutual forbearance from pursuing legal action against the other party and this constituted more than sufficient consideration.

 

The Southern District agreed with the insurer (entering summary judgment against the association-insured) and held: “Florida law provides that a promise, no matter how slight, can constitute sufficient consideration so long as a party agrees to do something that they are not bound to do. Forbearing the pursuit of a legal remedy constitutes such a promise.” Crystal Colony, supra, at *3 (internal citations and quotations omitted).

 

Unambiguous releases will typically be deemed enforceable since it will clarify the intent of the parties. Whether it is a release given in consideration of insurance proceeds or a release given in consideration of a progress or final payment, if the party giving the release wants to ensure certain rights are carved-out or preserved, they need to do so. If the other party is unwilling to accept such carved-out language, the party giving the release, at a minimum, needs to preserve its rights by sending contemporaneous documentation that they are signing the release because the other party will not accept a release with carve-outs for the following specific issues. And, as seen from this case, if a mutual release is given where both parties forbear from pursuing claims against the other, this consideration will be more than enough consideration to support the release and courts will not delve into the type of claims that the parties are potentially releasing each other from. Thus, pay attention to the release you execute so that it does not come back to haunt you 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.

THE SCOPE OF A RELEASE IN A SETTLEMENT AND CONTRACTUAL INDEMNIFICATION

imagesCALGH4ZOPilot Construction Services, Inc. v. Babe’s Plumbing, Inc., 111 So.3d 955 (Fla. 2d 2013) is a case that touches on two relevant issues. The first issue pertains to the scope of a release in a settlement agreement. The second issue pertains to contractual indemnification—an issue of importance to all in construction.

 

I. Scope of Release

 

In Pilot Construction, a private college hired a general contractor to renovate a residence hall. After completion, the college discovered deficiencies in bathrooms and showers that resulted in leaks and water damage. The college sued the general contractor for breach of contract and breach of express warranty. The college also sued the plumber (subcontractor) for breach of express warranty due to plumbing deficiencies that caused water damage.

 

The plumber settled directly with the college and a settlement and release agreement was executed. The college, however, continued to pursue claims against the general contractor including defects and damage that arose out of the plumber’s work. The general contractor then settled with the college, but instead of this dispute being dismissed, the general contractor pursued cross-claims against the plumber for indemnity, breach of warranty, and equitable subrogation.

 

The issue on summary judgment was whether the general contractor could pursue claims (such as indemnity) against the plumber when the plumber settled with the college and was released by the college. The trial court found that the general contractor could not pursue such claims and entered summary judgment in favor of the plumber.

 

On appeal, the Second District analyzed the scope of the release which provided in two portions:

 

First Portion: “Nothing within this Release is intended to be nor shall it be construed as any kind of waiver, limitation, or compromise to any claim or defense New College has or may have against any party or entity other than Babe’s Plumbing, Inc.” Pilot Construction, 111 So.3d at 958.

 

Clearly, the college wanted this reservation in the settlement so that it could continue to pursue claims against the general contractor inclusive of damage that arose out of the subcontractor’s work.

 

Second Portion: The settlement also included a release of the plumber for everything (known and unknown damages) in connection with the plumber’s work at the college.

 

Clearly, the plumber wanted this provision so that it would be released by the college (owner) for its scope of work at the project.

 

So, what was the problem? The Second District found that the release to the plumber actually conflicted with the reservation language since the settlement was not limiting claims against other parties, especially as it relates to the subcontractor’s scope of work. Based on the conflicting portions, the court held as follows:

 

  1. the general contractor could pursue its claims against the plumber because it was not an intended-third-party beneficiary of the college and plumber’s settlement as demonstrated by the fact that the settlement allowed the college to pursue damages (arising from the plumber’s work) against the general contractor;
  2. the fact that the plumber settled with the college does not release the plumber from the general contractor’s claim for indemnification since the general contractor could still be liable to the college for the plumber’s scope of work; and
  3. nothing in the release would prevent the general contractor from pursuing a breach of warranty claim against the plumber.

 

As the court explained, “Because the language of the release does not apply to bar Pilot’s [general contractor] claims against Babe’s [plumber], the trial court erred in granting summary judgment….” Pilot Construction, 111 So.3d at 959.

 

This decision is important to any party participating in a multi-party construction defect case. If a subcontractor is getting sued directly by the owner, its best bet is to effectuate a settlement directly with the owner and general contractor whereby the owner and general contractor both release the subcontractor relating to the project. Due to the subcontractor’s indemnification obligations and requirement to identify the general contractor as an additional insured, it will ideally want a release ending it and its insurance carrier’s involvement in the dispute. Or, if that is not possible, make certain that the settlement does not have reservation language that allows the owner to pursue any defects and damage arising from the subcontractor’s scope of work against the general contractor. Better language would reflect that the owner is not pursuing any defects or damage arising from the subcontractor’s scope of work against the general contractor pursuant to this settlement (i.e., a release of the general contractor relating to the subcontractor’s scope of work). The general contractor may still be able to pursue claims against the subcontractor; but, if the owner is releasing the general contractor for the subcontractor’s work, such claims could be tenuous since the owner cannot pursue such damage against the general contractor. (Although, the general contractor’s insurer could still pursue an additional insured claim to recoup defense costs associated with defending the general contractor.)

 

If a subcontractor is being sued by the general contractor only, some of the same rationale applies. The general contractor can settle directly with the subcontractor; however, it assumes the risk associated with the subcontractor’s work since the owner is still pursuing claims against the general contractor arising from the subcontractor’s work. This isn’t always a bad thing based on the dollar amount of the settlement and the ultimate settlement with the owner. In other scenarios, the general contractor only wants to settle with a subcontractor if it can contemporaneously settle with the owner so that it is getting a release from the owner for the subcontractor’s scope of work. An owner will likely not want to do this, nor should it, if damages cannot necessarily be isolated to that subcontractor’s scope of work (such as a water intrusion dispute where multiple scopes contribute to water intrusion and damage). Other times, the general contractor will not settle with subcontractors independent of a global settlement with the owner in perhaps an effort to minimize its contribution to the settlement.

 

Ultimately, there are numerous strategies that come into play when negotiating settlements and releases based on the party. There really is no one-size-fits-all model as it is dependent on the nature of the dispute.  It is important to understand what is being released, what is not being released, and the scope of the release when entering into a settlement so that any risks can be appreciated.

 

II. Contractual Indemnification – Florida Statute s. 725.06

 

The plumber in Pilot Construction also argued that Florida Statute s. 725.06 barred the general contractor’s claims because the general contractor was seeking indemnification for its OWN negligence. The Second District dismissed this argument because the general contractor was only seeking indemnification for the subcontractor’s negligence:

 

“Section 725.06 would only bar Pilot’s claims for indemnification if Pilot’s claims were based on Pilot’s own negligence. A plain reading of Pilot’s claims against Babe’s shows that Pilot’s suit against Babe’s was based on Babe’s failures to correctly install shower pans and drains in the residence hall bathrooms. “
Pilot, 111 So.3d at 959.

 

The Second District’s ruling is interesting because it does not discuss the contractual indemnification language in the contract. Section 725.06 is a statute that essentially says that the first party cannot require the second party to indemnify it for its own negligence unless there is a “monetary limitation on the extent of the indemnification that bears a reasonable commercial relationship to the contract and is part of the project specifications or bid documents, if any.” See Fla. Stat. s. 725.06. Without compliance with this section, the indemnification provision is unenforceable. This is why it is always good practice to include a monetary limitation and identify it is part of the bid documents because most indemnifications are drafted in broad form that would require the second party to indemnify the first party for any and all damage caused wholly or partly by the second party. However, the Second District appears to focus less on the indemnification language in the subcontract and more on the actual claims that were asserted by the general contractor. Thus, if there is a concern with the enforceability of the indemnification provision, this case could support an argument for the general contractor that because the contractual indemnification claim being asserted is confined to the subcontractor’s (or second party) own negligence, the claim should be entitled to proceed.

 

For more information on contractual indemnification please see: http://www.floridaconstructionlegalupdates.com/buttoning-up-contractual-indemnification-language/

 

 

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.

 

CARVING OUT EXCEPTIONS IN RELEASES

progress releaseReleases in consideration for progress payments are a routine occurrence in the construction industry. The release language will typically include a release of lien and bond rights through a certain date and it may be broad enough to include a release of other rights through that date, such as a release of any and all claims, damages, costs, fees, amounts, etc. that are known about or incurred through the date of the release.

 
Contractors and subcontractors that have pending or disputed additional / extra work items and/or pending or disputed claims (whether for additional / extra work, delay, lost productivity or inefficiency, acceleration, etc.) need to be sure to carve out the subject matter of the pending items from the release language. It is ok if the specific amount of the carve-out for the additional / extra work or claim is not known as long as the carve-out clearly reflects that the entity is not releasing the amounts associated with the item.

 

 

If an owner (in the case of a contractor) or a contractor (in the case of a subcontractor) refuse to pay the progress payment after it receives the release with items carved out, there is really not much the entity can do because it needs the progress payment. However, to preserve its rights, it should absolutely save the release that was not accepted with the carve-out language and should follow-up with an e-mail or other letter that the owner or contractor, whatever the case may be, refused to pay the entity with the items carved out in the release. This way, if a dispute arises down the road, the entity has done what it can to preserve these items and prevent the opposing party from arguing that the entity waived and released its rights by virtue of the releases it executed in consideration of payment.

 

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.

UNDERSTANDING AN INSURER’S SUBROGATION RIGHTS

health-insuranceThere are situations where an owner sues its property insurer (or builders risk insurer) in addition to suing its contractor or design professional for defects / damage. Sometimes, the owner’s lawsuit against its insurer is filed simultaneously with the lawsuit against its contractor and sometimes it is filed before or after it settles its dispute with its contractor. The contractor, if it knows the owner is suing its insurer, wants to ensure that once it settles with an owner, that the owner’s insurer will not pursue a subrogation claim against it. (In a subrogation claim, an insurer that pays its insured can stand in the shoes of the insured and sue third parties deemed liable for the claim.)

 
If a contractor settles with an owner and obtains a well-written release (that would release the contractor for all claims [known and unknown], damages, etc. arising out of or relating to the project and subject matter of the lawsuit/claim, etc.) the insurer will be precluded from asserting a subrogation claim against the contractor. The reason being is that the insured owner already released the contractor. See, e.g., Landmark American Ins. Co. v. Santa Rosa Beach Development Corp., 107 So.3d 1135 (Fla. 1st DCA 2012) (condominium development’s agreement with developer and contractor that was interpreted as containing release barred development’s insurer from seeking subrogation claim).
However, if the insurer is already suing the contractor in a subrogation claim or has perfected its rights, the contractor cannot try to settle with the owner and obtain a release thinking that the insurer’s claim would then be barred. The insurer cannot be prejudiced like this, especially if it already perfected its subrogation rights. For instance, in Twin City Fire Ins. Co. v. Jones, 918 So.2d 403 (Fla. 5th DCA 2006), an insurer paid an insured’s claim and then sued the defendants in a subrogation claim. The insured also filed a separate lawsuit against the defendants. The insured settled with the defendants and released the defendants. The defendants used the release to argue that the insurer should be barred from its subrogation claim. The Fifth District held that “a settlement executed by the insured cannot act as a bar to an action for subrogation by the insurer against a third party tortfeasor if, prior to the settlement, the tortfeasor learns of the insurer’s perfected subrogation rights. Twin City Fire Ins. Co., 918 So.2d at 404 quoting Lincoln Nat’l Health & Cas. Ins. Co. v. Mitsubishi Motor Sales of Am., Inc., 666 So.2d 159, 163 (Fla. 5th DCA 1995).

 
Understanding an insurer’s subrogation rights is important in construction. Oftentimes, there are waiver of subrogation rights that are set forth in contracts. Sometimes, these provisions are either stricken or the contract does not contain a waiver of subrogation. It is important to consider subrogation as a contractor if you have knowledge that the party suing you is also suing an insurer and/or you are being sued by an insurer in a subrogation claim (or the insurer has taken steps to perfect subrogation rights) so that you know your rights and options as the dispute progresses to settlement.

 

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.

CLARIFYING TERMS OF A RELEASE AND STANDARD OF CARE WHEN SUING A DESIGN PROFESSIONAL — BOTH TOUCHED UPON IN NEW FLORIDA CASE

Unknown-1The recent decision of Alderman v. BCI Engineers & Scientists, Inc., 2011 WL 3862094 (2d DCA 2011), implicitly underscores two important concepts.  First, it underscores the importance of clarifying releases of claims applicable to construction issues, especially if a party wants to be protected from the release down the road.  Second, it underscores what is required to hold a design professional—engineer or architect—liable for breach of contract.

 

 

Both of these concepts are important for different reasons.

 

 

A release is important because if a party (or non-party as Is the case in Alderman) wants to be truly protected by the language of a release, the release should be unambiguous.  Any ambiguity will simply foster a potential argument that the release does not protect the party being sued or the types of claims being asserted.

 

 

It is important to understand the legal burden / standard associated with finding a design professional liable for breach of contract.  Not understanding this burden could prevent otherwise colorable claims for design errors or omissions, etc. against a design professional from properly being asserted.

 

 

In Alderman, an owner’s residence sustained settlement damage  believed to have been the result of a sinkhole.  The owner retained an engineer to investigate the sinkhole and corresponding settlement damage.  The owner and the engineer entered into a contract for the engineer to perform a geotechnical investigation which included an inspection, testing, and the preparation of a report with the findings and appropriate repair protocol.  In the report, the engineer recommended for a contractor to perform subsurface compacting grouting to stabilize the residence against further settlement.  The report also recommended for the engineer to be retained during the remediation work to provide monitoring and oversight.

 

 

Based on the report, the owner hired a foundation contractor to perform the subsurface compaction grouting. The engineer’s budget for the monitoring and oversight during the repair work was approved by the owner’s homeowner’s insurer.  (The owner, like most owners with a homeowner’s insurance policy, was looking to recoup covered costs under the policy associated with the settlement damage/problem resulting from the sinkhole.)

 

 

During the grouting, septic tanks ruptured causing sewage to seep into the residence.  Additionally, once this grouting work was fully completed, the residence continued to experience settlement damage.

 

 

The owner settled the sinkhole claim with his property insurer and gave the insurer a release.

 

 

The owner, however, contended that the subsurface compaction grouting recommended by the engineer was not a suitable recommendation (and/or was not monitored correctly) since the work did not remedy the settlement problem.  The owner sued the engineer for negligence arguing that the engineer was negligent in the supervision and monitoring of the remediation work.  It also sued the engineer for breach of contract arguing that the engineer failed to recommend a suitable remediation protocol.   The trial court granted summary judgment in favor of the engineer as to the owner’s negligence and breach of contract claims and the owner appealed to the Second District Court of Appeals.

 

 

A. The Owner’s Negligence Claim Against the Engineer

 

 

The trial court granted summary judgment in favor of the engineer finding that the release the owner gave to his property insurer to settle the sinkhole claim was broad enough to cover the engineer.  The release the owner gave to his property insurer included the following language:

 

 

“1. . . . By executing this General Release, Releasor . . . does hereby fully and completely release and discharge STATE FARM FLORIDA INSURANCE COMPANY (and all parent and subsidiary companies affiliated with it in anyway [sic]), hereinafter referred to collectively as “Releasees,” from any and all current or future claims, rights[,] and actions whatsoever, whether ripe or contingent, arising in relation to the filing of insurance claims by Releasor relative to or associated with insurance coverage for the [Alderman residence].

 

2. NOW THEREFORE in consideration of the payment [of the settlement amount], the receipt and sufficiency of which is hereby acknowledged, the Releasor agrees as follows:

(a) The Releasor does hereby . . . release, discharge, acquit, and indemnify Releasees, and their officers, directors, shareholders, executors, administrators, insurers, insureds, suppliers, distributors, attorneys, contractors, subcontractors, successors, privies, assigns, associations, parents, subsidiaries, holding companies, or partnerships of and from any and all claims . . . whatsoever including but not limited to any coverage dispute, complaints regarding claims handling or bad faith, or the termination of insurance of the Property by the Releasees which the Releasor now has or which may hereafter accrue on account of or in any way growing out of any and all known or unknown, foreseen and unforeseen, property damage and any consequences of the activities listed in paragraph 1 above. The parties agree that the terms of this Release do not impact any rights of either Releasor or Releasees from seeking damages (either tort, contract, or subrogation) against unrelated entities.”

Alderman, 2011 WL at *3.

 

 

The engineer further argued (and the trial court agreed) that the insurer approved the engineer’s budget for the monitoring and oversight services performed during the subsurface compaction grouting.

 

However, the Second District Court disagreed  for two reasons.

 

 

First, the Second District expressed that the contract was between the owner and the engineer, not between the insurer and the engineer.  The court also expressed that the fact that the insurer may have approved the engineer’s budget and may have paid the engineer from insurance proceeds (that arose between the insurance policy between the insurer and the owner), and not because of any separate contract between the insurer and engineer.  The court gave an appropriate analogy: “Here, the circumstances are comparable to an automobile insurer’s approval of a body shop’s estimate for the costs of repairs to an insured’s automobile. Despite the insurer’s approval of the repair estimate, the contract for the repairs remains between the automobile owner and the body shop, not between the body shop and the insurer.” Alderman, 2011 WL at *4.

 

 

Second, the Second District expressed that the release NEVER referenced or named the engineer. “Thus for the instrument to be effective to release BCI [engineer] or other parties not specifically named, such intent must be clearly expressed.Alderman, 2011 WL at *5.

 

 

The Second District’s ruling makes sense in that it was the owner, the insured under the property insurance policy, that negotiated and executed the release with his insurer.  It would seem inequitable for the engineer to get the benefit of the release unless of course it was specifically involved in the negotiation of the release and was an engineer that the insurer specifically authorized the owner to retain (which are unknown from the facts recited in the case).  If, however, the owner hired the engineer and the engineer simply worked with the insurer to ensure that payments would be covered by insurance proceeds, it would seem inequitable for the engineer to reap the benefits of a release that certainly did not involve it.

 

 

B. The Owner’s Breach of Contract Claim Against the Engineer

 

The trial court also granted summary judgment for the engineer on the owner’s breach of contract claim finding that the owner failed to establish that the engineer violated any standard of care based on the investigation of the problem and recommendation of the subsurface compaction grouting. The owner relied on deposition testimony of his trial expert to support that the engineer violated its standard of care and therefore breached its agreement with the owner.

 

 

The Second District maintained: “Under its contract to render professional engineering services on behalf of Mr. Alderman [owner], BCI [engineer] was obligated ‘to perform such services in accordance with the standard of care used by similar professionals in the community under similar circumstances.’” Alderman, 2011 WL at *6 quoting Lochrane Eng’g, Inc. v. Willingham Realgrowth Inv. Fund, Ltd., 552 So. 2d 228, 232 (Fla. 5th DCA 1989).  The Second District found that a question of fact remained as to whether the engineer met or breached the required standard of care.

 

The Second District’s ruling makes sense because whether a design professional specifically breached a standard of care should be a question of fact, especially if there is a testifying expert that will render expert opinions supporting the breach.  The standard of care is an an important term when determining the liability of an architect or engineer for design errors, omissions, recommendations, etc.  If an opposing party has an expert that will say the architect or engineer breached their standard of care based on a design error, omission, recommendation, etc., then a factual issue exists.

 

 

For more information on a design professional’s standard of care, please see:

http://www.floridaconstructionlegalupdates.com/a-consulting-engineer-architects-protection-from-a-negligence-claim-against-a-contractor/

 

and

 

http://www.floridaconstructionlegalupdates.com/a-general-contractor-needs-to-understand-certain-legal-doctrines-before-suing-a-state-including-agency-or-subdivision-and-design-professional-that-it-did-not-hire/

 

 

For more information on the scope of releases, please see:

http://www.floridaconstructionlegalupdates.com/the-scope-of-a-release-in-a-settlement-and-contractual-indemnification/

 

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.