SERVING THE 558 NOTICE OF CONSTRUCTION DEFECT LETTER IN LIGHT OF THE STATUTE OF REPOSE

Posted on October 13, 2018April 24, 2020 by Edward Garber

Florida Statutes Chapter 558 requires a Notice of Construction Defect letter (“558 Notice”) to be served before a construction defect lawsuit is commenced. This is a statutory requirement unless contractually waived for a completed project when latent defects or post-completion construction or design defects are pursued.

A recent Florida case held that this statutory requirement is NOT intended to bar a lawsuit based on Florida’s ten-year statute of repose for construction defects IF the 558 Notice is timely served within the statute of repose period. After the expiration of the statute of repose period, a construction defect lawsuit can no longer be commenced.

In Gindel v. Centex Homes, 43 Fla. L. Weekly D2112d (Fla. 4^th DCA 2018), homeowners took possession of townhomes on March 31, 2004. The homeowners discovered construction defects and on February 6, 2014 provided the 558 Notice to the homebuilder. This notice was served before the expiration of the ten-year statute of repose period. The homebuilder notified the homeowners it would not cure the defect and the homeowners initiated a construction defect lawsuit on May 2, 2014, more than ten years from when they took possession of their townhomes, and outside of the statute of repose period.

The issue was the application of Florida’s ten-year statute of repose in Florida Statute 95.11(3)(c).

The homeowners argued that its action commenced upon serving the statutorily required 558 Notice so that its lawsuit was timely filed.

The homebuilder argued that the homeowners commenced their action by filing the lawsuit after the ten-year statute of repose, irrespective of when the 558 Notice was served, meaning the construction defect lawsuit should be barred. The trial court agreed with this argument.

On appeal, however, the appellate court agreed with the homeowners that the presuit notice requirements called for in Florida Statutes Chapter 558 constitute an action for purposes of the statute of repose. In other words, by the homeowners serving the 558 Notice within the ten-year statute of repose period, the homeowners timely commenced their construction defect lawsuit. To hold otherwise would be to view Florida Statute Chapter 558 as a device to potentially bar claims when the required 558 Notice was timely served. This position makes sense considering a claimant cannot file a construction defect lawsuit without complying with Chapter 558. See Fla.Stat. s. 558.003.

When it is coming close to the ten-year statute of repose (or statute of limitations) deadline, the safer approach is to file the lawsuit and move to stay or abate the lawsuit pending compliance with the Florida Statues Chapter 558. This way this issue is fully avoided by the lawsuit already being initiated. This approach is also supported in Chapter 558 by stating the action shall be stayed pending compliance with the requirements of the statute. See Fla.Stat. s. 558.003.

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???

Posted on August 12, 2016August 12, 2016 by Edward Garber

Does 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.

REQUESTING LIABILITY INSURANCE INFORMATION FROM RESPONSIBLE PARTIES FOR CONSTRUCTION OR DESIGN DEFECTS (FLA. STAT. s. 627.4137)

Posted on March 28, 2015March 28, 2015 by Edward Garber

If you are an owner and discover construction or design defects, you are going to want consult with a lawyer to make sure you know your rights under Florida Statutes Chapter 558. This includes sending a written notice of the construction or design defects identifying the defects with sufficient detail to the potentially responsible parties. Likewise, if you are a contractor and receive this written notice, you are going to want to make sure you forward that letter to potentially responsible parties (subcontractors or suppliers).

Coupled with this written notice of defects letter should be a written request on the parties and their known insurance agents and insurers for their liability insurance information. Start with culling Certificates of Insurance you have on these parties to obtain (some) of this information as to whom to send the request to. This request can be in a separate letter or the same letter (as the notice of defects letter) and should reference Florida Statute s. 627.4137 and request the information in the below statutory language:

(1) Each insurer which does or may provide liability insurance coverage to pay all or a portion of any claim which might be made shall provide, within 30 days of the written request of the claimant, a statement, under oath, of a corporate officer or the insurer’s claims manager or superintendent setting forth the following information with regard to each known policy of insurance, including excess or umbrella insurance:

(a) The name of the insurer.

(b) The name of each insured.

(c) The limits of the liability coverage.

(d) A statement of any policy or coverage defense which such insurer reasonably believes is available to such insurer at the time of filing such statement.

(e) A copy of the policy.

In addition, the insured, or her or his insurance agent, upon written request of the claimant or the claimant’s attorney, shall disclose the name and coverage of each known insurer to the claimant and shall forward such request for information as required by this subsection to all affected insurers. The insurer shall then supply the information required in this subsection to the claimant within 30 days of receipt of such request.

As discussed in prior articles, insurance is an important aspect of construction and design defect disputes.

If you are an owner, you want to understand potential insurance coverage so that you know how to best maximize any claim for insurance coverage against potentially liable parties. This includes knowing the limits of liability in any commercial general liability (CGL) or professional liability / errors & omissions policy, as applicable, and whether there is any umbrella / excess policy. This also includes understanding the exclusions in the policies and whether there are endorsements that add or modify exclusions in the policy.

If you are a general contractor, you also want to understand potential insurance coverage from subcontractors and other entities you are looking to flow-down an owner’s defect claims (ideally, through contractual indemnification language in your subcontract). Also, you are going to want to make sure you have additional insured status under these parties’ liability policies so that they contribute to the fees and costs incurred in your defense. For this reason, you also want to obtain copies of subcontractor insurance polices including all endorsements. Besides the limits of liability, you want to see the additional insured endorsement in the policy, and any endorsements that add or modify exclusions in the policy.

If you are a subcontractor, if you subcontracted aspects of your scope of work or there is a claim associated with deficient material you furnished, you also want to obtain this insurance information from these potentially liable entities because you are also going to try to flow-down liability (ideally, through contractual indemnification language in your subcontract).

And, if you are a manufacturer, if a claim is asserted against you arising out of the installation of that product, you also want to obtain insurance information from any authorized dealer or installer (perhaps through any agreement you have with that dealer or installer that would require this entity to indemnify you and name you as an additional insured).

One of the underlying reasons for s. 627.4137 is so that parties can obtain insurance coverage information and make reasonably informed decisions about settling a matter. In other words, you don’t want to settle a dispute for policy limits if you have damages that may exceed policy limits and find out the responsible party has additional or excess insurance to cover the excess damages. See, e.g., Schlosser v. Perez, 832 So.2d 179 (Fla. 2d DCA 2002) (in non-construction case, noncompliance with s. 627.4137 rendered settlement unenforceable). But, this statute does not create a private cause of action by a third-party if an insurer fails to timely provide this information. Any potential recourse the third-party would have, if any, against the insurer would have to be after the third-party obtains a judgment against the underlying insured. Lucente v. State Farm Mut. Auto. Ins. Co., 591 So.2d 1126, 1127-28 (4^th DCA 1992) (“[T]he statute does not contain an implicit cause of action for a third-party against an insurance company.”); see also Brannan v. Geico Indemnity Co., 569 Fed.Appx. 724, 728 (11^th Cir. 2014) (“But Brannan fails to point to any legal authority to show that s. 627.4137 creates a first-party private cause of action against an insurer [for failure to comply with the statute.]”).

CONSTRUCTION / DESIGN DEFECTS AND RIGHTS UNDER FLORIDA STATUTES CHAPTER 558

Posted on February 26, 2015February 26, 2015 by Edward Garber

Construction / 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.