ECONOMIC WASTE DOCTRINE AND CONSTRUCTION DEFECTS / NONCONFORMING WORK

Posted on January 21, 2023January 21, 2023 by David Adelstein

I recently did a presentation on the economic waste doctrine. It is an applicable doctrine dealing with construction defects and nonconforming work. When it comes to construction defects and nonconforming work, EVERYTHING starts with your measure of damages. How are you going to prove your damages? Next, what evidence are you going to use to prove your damages? Or, what are the defenses and how do you prove those defenses to a construction defect and nonconforming work claim including the economic waste doctrine?

If you are interested in learning more, the below presentation can shed detail. However, don’t rely on the presentation in a vacuum. Work with knowledgeable construction counsel (like me!) that can best position your case whether you are the one proving construction defects and nonconforming work or the one defending against such a claim. This way, if you are arguing economic waste, you are not just throwing it out there, but you are arguing it to actually mean it!

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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.

SUBSEQUENT PURCHASER CAN ASSERT CLAIMS FOR CONSTRUCTION DEFECTS

Posted on September 25, 2022September 25, 2022 by Edward Garber

Can a subsequent purchaser pursue construction defect claims relating to the original construction of the property? This was the threshold issue on a motion for summary judgment by a drywall manufacturer against a subsequent purchaser of a home in Karpel v. Knauf Gips KG, 2022 WL 4366946 (S.D. Fla. 2022). This matter deals with the defective Chinese drywall that was installed in homes years ago. The plaintiffs, which were subsequent purchasers of a home, sued the manufacturer of the defective drywall for various theories including negligence, negligence per se, strict liability, breach of express and/or implied warranty, private nuisance, unjust enrichment, and Florida’s Deceptive and Unfair Trade Practices Act.

The trial court noted, from the onset, that Florida does NOT have a subsequent purchaser rule that prohibits subsequent purchasers from asserting construction defect claims. With this consideration in mind, the trial court went through the claims the plaintiff, as a subsequent purchaser, asserted against the manufacturer to determine whether they were viable claims as a matter of law.

Negligence Claim

The trial court found that a subsequent purchaser could sue in negligence. “Florida courts have long allowed subsequent purchasers to sue for negligence including in construction defect litigation.” Karpel, supra, at *2.

Negligence Per Se and Strict Liability Claims

The trial court held that the plaintiff’s negligence per se and strict liability claims were duplicative. Both could not stand; for this reason, the court entered summary judgment as to the duplicative negligence per se claim. “Strict liability means negligence as a matter of law or negligence per se, the effect of which is to remove the burden from the user of proving specific acts of negligence.” Karpel, supra, at *3 (quotation and citation omitted).

A subsequent purchaser could pursue a strict liability claim against a manufacturer. “[A] manufacturer is strictly liable in tort when an article he places on the market, knowing that it is to be used without inspection for defects, proves to have a defect that causes injury to a human being.” Karpel, supra, at *4 (quotation and citation omitted).

Even Section 402A of the Second Restatement of Torts, adopted by Florida’s Supreme Court, provides: “(1) One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm caused to the ultimate user or consumer, or to his property, if (a) the seller is engaged in the business of selling such product, and (b) it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold.” Karpel, supra, at *4.

There are, however, limits on strict liability.

“First, Florida disallows recovery in tort where plaintiffs only claim economic losses such as ‘damages for inadequate value, costs of repair, and replacement of the defective product, or consequent loss of profits—without any claim of personal injury or damage to other property.” Karpel, supra, at *4 (citation omitted).

“Second, Florida courts will disallow recovery for strict liability where the purchaser was subject to the common law doctrine of caveat emptor.” Karpel, supra, at *4.

Thus, a subsequent purchaser’s strict liability claim could be pursued against a manufacturer provided such damages are not barred by the economic loss rule or the doctrine of caveat emptor (which applies to commercial property and property purchased at judicial auction sales). Karpel, supra, at *4.

Breach of Implied Warranty

The trial court found that a subsequent purchaser could NOT sue a manufacturer for breach of implied warranty. “[I]t is abundantly clear that in cases like these, where no contractual relationship between a subsequent purchaser and a manufacturer exists, the former’s recourse is a claim for strict liability.” Karpel, supra, at *4.

Breach of Express Warranty

While a contractual relationship is typically required for breach of express warranty, this requirement is relaxed if the express warranty is intended to benefit subsequent purchasers. “A manufacturer’s liability for breach of an express warranty derives from, and is measured by, the terms of that warranty.” Karpel, supra, at *4 (quotations and citation omitted). However, in this case, plaintiff’s breach of express warranty claim failed because the plaintiff never introduced any express warranty into the record.

Private Nuisance

The trial court held that the subsequent purchaser could NOT pursue a private nuisance claim against the manufacturer. To sustain a private nuisance claim, the plaintiff must prove that the defendant’s maintenance of the nuisance was the proximate cause of the plaintiff’s damages. Karpel, supra, at *8. “The Plaintiffs’ ownership and current control over the drywall conclusively forecloses them from arguing that the Defendants actively “maintain” the ‘nuisance’ they complain of.” Id.

Unjust Enrichment

The trial court held that the subsequent purchaser could NOT pursue an unjust enrichment claim against the manufacturer. An unjust enrichment claim requires the plaintiff to prove that the plaintiff conferred a direct benefit on the defendant. “The Plaintiffs conferred no direct benefit on the Defendant.” Karpel, supra, at *8 (finding that plaintiffs, as subsequent purchasers, obtained their homes from previous owners so the plaintiffs conferred no direct financial benefit on the manufacturer).

Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA)

The trial court found that a subsequent purchaser could theortetically pursue a FDUTPA claim. “Because the law is clear that a plaintiff need not have actually relied on the purported deceptive or unfair practice, the Court’s analysis need not go further….The Plaintiffs’ status as subsequent purchasers does not foreclose them from arguing that the Defendants’ practices violated FDUTPA.” Karpel, supra, at *9.

However, the trial court noted that actual damages under FDUTPA may implicate the economic loss rule because actual damages under the statute “are the difference in the market value of the product or service in the condition in which it was delivered and its market value in the condition in which it should have been delivered according to the contract of the parties.” Karpel, supra, at *9 (quotation and citation omitted). For this reason, the court ordered the plaintiff and defendant to submit supplemental briefing because if the economic loss rule is implicated, the FDUTPA claim will fail (due to the same limitations relating to the strict liability claim).

ALLEGING PROPERTY DAMAGE IN CONSTRUCTION DEFECT LAWSUIT

Posted on August 22, 2020August 22, 2020 by Edward Garber

When there is a construction defect lawsuit, there is an insurance coverage issue or consideration. As I have said repeatedly in other articles, it is all about maximizing insurance coverage regardless of whether you are the plaintiff prosecuting the construction defect claim or the contractor(s) alleged to have committed the construction defect and property damage. It is about triggering first, the insurer’s duty to defend, and second, the insurer’s duty to indemnify its insured for the property damage.

The construction defect claim and lawsuit begins with how the claim and, then, lawsuit is couched knowing that the duty to defend is triggered by allegations in the lawsuit (complaint). Thus, preparing the lawsuit (complaint) is vital to maximize the insurer’s duty to defend its insured.

In a recent opinion out of the Eleventh Circuit, Southern-Owners Ins. Co. v. MAC Contractors of Florida, LLC, 2020 WL 4345199 (11^th Cir. 2020), a general contractor was sued for construction defects in the construction of a custom home. A dispute arose pre-completion and the owner hired another contractor to complete the house and remediate construction defects. The contractor’s CGL insurer originally provided a defense to the general contractor but then withdrew the defense and filed an action for declaratory relief asking for the declaration that it had no duty to defend the contractor because the underlying lawsuit did NOT allege property damage. The trial court agreed with the contractor and granted summary judgment in its favor finding that the underlying complaint did not allege property damage beyond defective work. But, on appeal, the Eleventh Circuit reversed.

Among other allegations, the owner’s underlying complaint against the contractor asserted that the contractor committed defects through chipped pavers in the driveways and walkways, inconsistent paint finish, marks on ceilings, damage to exterior doors, damage to the top stair tread, damage to hardwood floors, metal roof dents, scratches in granite, holes in ceilings, etc. The owner sought its costs to repair and remediate the defects and damage from the contractor. In looking at whether the contractor’s CGL insurer had a duty to defend the contractor–the insured–the Eleventh Circuit (focusing on precedent out of the Eleventh Circuit) stated:

The operative amended complaint alleged that [the contractor] used subcontractors for work on the residence and that the residence was “replete with construction defects” and various damage. It did not further allege which subcontractors performed which work or how the damage occurred. Given these ambiguities, the complaint’s allegations are broad enough to allow [the contractor] to prove that one subcontractor negligently damaged nondefective work performed by another subcontractor. If [the contractxor] could establish that at least some of the damage arose in this way, there would be “damage apart from the defective work itself” and therefore “property damage.”

***

For these reasons, we conclude that the underlying operative complaint can fairly be construed to allege “property damage” within the meaning of the CGL policy and Florida law. Accordingly, the district court erred in granting summary judgment to [the CLG insurer] on this basis.

MAC Contractors of Florida, 2020 WL at *4 (internal citations omitted).

THE RELEVANCE AND REASONABLENESS OF DESTRUCTIVE TESTING

Posted on August 12, 2017August 12, 2017 by Edward Garber

Destructive 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.

SUBCONTRACTOR’S LIABILITY INSURER’S DUTY TO DEFEND THE “ADDITIONAL INSURED” GENERAL CONTRACTOR

Posted on April 22, 2017April 22, 2017 by Edward Garber

Construction projects can lead to insurance coverage disputes. One such dispute arises when a general contractor is sued for construction defects and resulting property damage and it tenders the defense of the claim / lawsuit to an implicated subcontractor’s liability insurer. A general contractor does this because it (hopefully) will be an additional insured under the subcontractor’s liability policy. Being identified as an additional insured under a subcontractor’s liability policy is imperative for a general contractor as part of its normal risk assessment. The issue will typically come up in any construction defect lawsuit because if the general contractor is an additional insured it will, and should, tender the defense of the lawsuit to implicated subcontractors’ insurers.

Sometimes, a subcontractor’s liability insurer will deny the duty to defend the general contractor. Yes, this happens. When it does, the general contractor’s insurer will provide a defense to the general contractor but may pursue the subcontractor’s insurer for reimbursement of fees and costs based on the general contractor being an additional insured under the subcontractor’s liability policy.

For example, in Travelers Property Casualty Co. of America v. Amerisure Ins. Co., 161 F.Supp.3d 113 (N.D.Fla. 2015), the general contractor’s liability insurer (Travelers) sued a stucco subcontractor’s liability insurer (Amerisure) where the underlying issue was whether the general contractor was an additional insured under the subcontractor’s liability policy. The subcontractor’s insurer refused to defend the general contractor in an underlying construction defect lawsuit. The general contractor’s insurer provided a defense in the underlying lawsuit and sued the subcontractor’s insurer for reimbursement.

“Under Florida law, a liability insurer’s duty to defend extends to an entire lawsuit if any claim in the lawsuit may come within the policy’s coverage.” Travelers Property Casualty Co., 161 F.Supp.3d at 1137. The underlying complaint against the general contractor alleged property damage caused by defective stucco installation. This meant that the complaint triggered the duty to defend and the Court held the general contractor was an additional insured under the subcontractor’s liability policy. For this reason, the Court maintained that the subcontractor’s insurer (Amerisure) owed the general contractor’s insurer (Travelers) the reasonable attorney’s fees incurred in the defense of the general contractor in the underlying lawsuit:

When Amerisure [subcontractors’ insurer] failed to step up, Travelers [general contractor’s insurer] did what Amerisure should have done: Travelers provided Yates [general contractor] a defense. The attorneys Travelers hired chose to defend the case not only by answering the claims but also by asserting third-party claims against subcontractors, including Jemco [stucco subcontractor]. Travelers paid the fees and costs incurred in connection with the third-party claims, apparently concluding that this was the best strategy for defending the claims and that its duty to defend Yates thus obligated it to pay for the third-party claims as well. There is support for that view.

***

Had Amerisure provided a defense as it should have done, the attorneys it hired might or might not have made the same strategic decision as the attorneys hired by Travelers. But now Amerisure can complain, at most, about unreasonable decisions, not about decisions that reasonably could have gone either way. As a leading commentator has put it, when an insurer breaches its duty to defend,

the insured is justified in assuming the defense of the action and is released from the contractual obligation to leave the management of the case to the insurer. Not only does the insurer lose the power to control the defense or dictate to the insured how the case should be handled, but the insurer cannot complain about the conduct of the defense by the insured or the negligent handling of the case by the insured’s attorney.

Travelers Property Casualty Co. of America, 161 F.Supp.3d at 1138-39 (internal citations omitted).

SPEARIN DOCTRINE AS AN AFFIRMATIVE DEFENSE

Posted on November 26, 2016November 26, 2016 by Edward Garber

The Spearin doctrine, referred to as the implied warranty of constructability doctrine, is oftentimes utilized as an affirmative defense by a contractor being sued for construction defects. Under the Spearin doctrine (recognized in the government contract setting), a contractor is NOT liable for defects in the plans and specifications furnished by the owner if the contractor constructs the project pursuant to the plans and specifications. This is because the owner impliedly warrants the constructability of the plans and specifications it furnishes to the contractor. Hence, the contractor should not be liable for defective construction caused by the owner furnishing defective plans and specifications.

As with any affirmative defense, the contractor asserting the Spearin doctrine has the burden to prove the merits of the defense. Specifically, the contractor has the burden to prove that there was an error in the plans or specifications and that such error was the proximate cause of the defective construction. The contractor needs to prove this in order to sustain the Spearin doctrine as an affirmative defense. See, e.g., Underwater Engineering Services, Inc. v. Utility Board of the City of Key West, 194 So.3d 437, n. 4 (Fla. 3d DCA 2016) (“By raising this defense [of the Spearin Doctrine] Underwater [contractor] had the burden to prove not only that there was a defect in the specifications, but that the defect in the specifications was the proximate cause of the failure of the eight [concrete] collars.”); see also Rick’s Mushroom Service, Inc. v. U.S., 521 F.3d 1338, 1344-45 (Fed.Cir. 2008) (“‘When the government provides a contractor with defective specifications, the government is deemed to have breached the implied warranty that satisfactory contract performance will result from adherence to the specifications, and the contractor is entitled to recover all of the costs proximately flowing from the breach.’”) quoting Essex Electro Eng’rs, Inc. v. Danzig, 224 F.3d 1283, 1289 (Fed.Cir.2000).

Asserting the Spearin doctrine as an affirmative defense is one thing, but proving it is another. If relying on this defense, make sure to prove through expert testimony that there was (i) a defect in the plans or specifications furnished by the owner and (ii) that this defect proximately caused the defects or failures being asserted by the plaintiff (e.g., owner).

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

Posted on November 19, 2016November 19, 2016 by Edward Garber

Recently, 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.

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.

VIOLATION OF THE BUILDING CODE IS A QUESTION OF LAW

Posted on December 25, 2015December 25, 2015 by Edward Garber

In construction defect disputes, oftentimes the owner (or developer or association, as may be applicable) will assert a claim against the general contractor, and perhaps, subcontractors for a violation of the building code. Such a claim is authorized pursuant to Florida Statute s. 553.84 that provides:

Notwithstanding any other remedies available, any person or party, in an individual capacity or on behalf of a class of persons or parties, damaged as a result of a violation of this part or the Florida Building Code, has a cause of action in any court of competent jurisdiction against the person or party who committed the violation; however, if the person or party obtains the required building permits and any local government or public agency with authority to enforce the Florida Building Code approves the plans, if the construction project passes all required inspections under the code, and if there is no personal injury or damage to property other than the property that is the subject of the permits, plans, and inspections, this section does not apply unless the person or party knew or should have known that the violation existed.

A violation of the building code serves as evidence of negligence by the offending party. See Russ v. Wollheim, 915 So.2d 1285, n.1 (Fla. 2d DCA 2005) (“A building code is designed to protect the general public rather than a particular class of individuals, and therefore, violation of a building code is merely evidence of negligence.” )

But who determines whether an asserted defect, error, or omission constitutes a violation of the building code? Is this a question of law for the judge? Or, is this a question of fact for the jury (in a jury trial)? Remarkably, cases have held that a violation of a building code, a complicated and rather specialized issue, is a question of law for the judge to determine.

In Edward J. Seibert, A.I.A. Architect and Planner, P.A. v. Bayport Beach and Tennis Club Ass’n, Inc., 573 So.2d 889 (Fla. 2d DCA 1990), a condominium association filed suit against the architect among others. The jury found that the architect was liable for violating the building code in the fire exit design even though the design had been approved by the building department upon the issuance of the building permit. To support this violation, the association had an expert testify regarding his interpretation regarding the building code. The architect testified that his design complied with the building code and had two supporting expert opinions. The verdict form asked the jury if the fire exist design complied with the applicable code. The Second District held that the interpretation of the code was a question of law that should not have been submitted to the jury.

They [the parties] instead presented conflicting opinions as to how the code should be interpreted. The jury was allowed to determine the meaning of the code and then whether Seibert [architect] violated the code by designing only one fire exit. This was error. An expert should not be allowed to testify concerning questions of law, and the interpretation of the building code presented a question of law.

It was the duty of the trial court to interpret the meaning of the code and instruct the jury concerning that meaning. Any conflicts in interpretation were for the court to resolve and their resolution was not a jury issue.

Edward J. Seibert, 573 So.2d at 891-9 (internal citations omitted).

Further, in Lindsey v. Bill Arflin Bonding Agency, Inc., 645 So.2d 565 (Fla. 1^st DCA 1994), a personal injury plaintiff sued an owner for slipping on a wet spot on stairs. The plaintiff claimed that the stairs lacked handrails in violation of the building code. The owners relied on testimony from a building department official opining that handrails were not required based on his interpretation of the code / ordinance at-issue. The First District, however, found:

Expert testimony as to the meaning of an ordinance is not appropriate when the disputed language consists of “ordinary words susceptible to being given plain effect consistent with their ordinary meaning.” The legal effect of a building code presents a question of law for the court, not a question of fact for the jury. While expert testimony may be relevant and helpful to the court where a statute or ordinance contains words of art or scientific and technical terms, even then such testimony cannot dictate the court’s construction of the enactment.

Lindsey, 645 So.2d at 568 (internal citations omitted).

DID I JUST BUY THE MONEY PIT?

Posted on September 12, 2015September 12, 2015 by Edward Garber

You bought a house. Congratulations! You are all excited. You move in, get settled, and then the dreadful happens. You discover that the new house you bought contains water intrusion or other significant construction defects. You begin to think about the money pit you just bought; hilarious movie, by the way, so I digress with a funny scene from the movie:

Back to the issue. What do you do with the perceived money pit that you know or anticipate will cost you substantial sums to repair. First, assuming this was not new construction, you pull up the seller’s disclosure to see whether the seller (former owner) disclosed any of the water intrusion or construction defects. The seller did not. You believe the seller knew or reasonably should have known of these construction defects. How could they not? So you consult a lawyer (always a good first step) to explore what is known as the Johnson v. Davis line of cases that stand for the proposition that a seller has a duty to disclose known defects with the house they are selling. See Johnson v. Davis, 480 So.2d 625 (Fla. 1985).

A new case, Bowman v. Barker, 40 Fla. L. Weekly D2091b (Fla. 1^st DCA 2015), bolsters a buyer’s claims against a seller for not disclosing known defects in their house. In this case, the sellers apparently purchased a dilapidated house (cheaply) and renovated the house with the intent on flipping the house to another buyer. The house was sold. Defects were not disclosed. After the sale, the buyer discovered numerous construction defects. The buyer sued the seller, amongst others, for failing to disclose these defects that the buyer contended the seller knew about or should have reasonably known about.

The First District explained:

The duty to disclose known defects under Johnson v. Daviscontinues to exist for a home sold “as is.” The sellers do not dispute this principle. Despite selling this house “as is,” the sellers had a duty to disclose what they knew about its condition, and they undertook to make disclosures to Appellant [buyer] about the condition of the house. The record demonstrates triable issues of fact about what that condition was, what the sellers knew about it, what disclosures were made, and whether those disclosures were accurate.

This means the buyer is able to let the trier of fact (jury or judge) determine the issue of whether the seller knew of the construction defects but failed to disclose them to the buyer. This is a good case for a buyer since it supports the argument that these are issues to be determined by the trier of fact, putting pressure on the seller based on how the trier of facts may interpret the facts knowing the house they just sold contains numerous construction defects. For instance, in this case, the First District noted: “This evidence raises a question of fact about the appellees’ [seller’s] knowledge, as well as questions about their credibility and the plausibility of their denying knowledge of the property’s substantial defects and what repairs it needed.”

Consult an attorney if you purchase a house and discover construction defects, especially if you believe you just bought a money pit. An attorney can assist you with potential recourse under the law.