What You Don’t Know About Construction Defect Claims

Whether a project is large or small, it is likely that construction defect claims will surface at some point. While the nature of these claims may vary, there are a number of issues which will generally be present and which construction managers would do well to understand.

Typical types of construction defect claims

A few months ago, the Florida legislature amended the existing 10 year statute of repose – the time period one has to sue for latent or hidden defects.

The law had stated that a lawsuit based on the design, planning or construction of an improvement to real property must be commenced within 10 years after the latest of the following events:

The date of actual possession by the owner;
The date of the issuance of a certificate of occupancy;
The date of abandonment of construction if not completed; or
The date of completion or termination of the contract between the professional engineer, registered architect or licensed contractor and his or her employer, whichever is latest.
This latest change added the following language: “Counterclaims, cross-claims and third party claims that arise out of the conduct, transaction or occurrence set out or attempted to be set out in a pleading may be commenced up to one year after the pleading to which such claims relate is served even if such claims would otherwise be time barred.”

What this amendment did was to extend the time a claimant now has to bring an action. So, for example, a general contractor can now have an additional period to bring in potentially liable subcontractors and materialmen into any litigation with which it may have been sued and which may be nearing the 10 year expiration period.

Design Defects

It is generally assumed that the duties associated with the professions of architecture and engineering are as distinct as are the two disciplines. An architect focuses on the design of a building, making certain it is aesthetically pleasing, while an engineer assures that a building functions properly. However, Florida construction law shows that such a strict division of responsibilities may be incorrect.

When a hurricane struck a job site causing partly installed tilt-up construction panels to collapse, a suit was brought for professional malpractice by the owner against his architect. The owner believed the architect should have known that the temporary bracing of the walls was inadequate and would not hold up against hurricane force winds. Moreover, the owner alleged, the architect should have realized that such a failure could cause the complete demolition of the walls resulting in the project being delayed as the walls were reconstructed. The architect countered that this aspect of the project was not his responsibility – and this was more an engineering than an architectural issue. To support his contention, the architect showed that there was no corresponding duty enumerated in his contract with the owner, and he argued, no contracting party ever has any obligation greater than that promised in its contract.

But in reality, the responsibilities of architects and engineers often overlap, especially on larger scope projects such as the one at issue. Had the architect looked a bit more closely at his construction contract documents, he would have found what the court discovered – a supplementary document marked as an exhibit to the architect’s underlying agreement with the owner, specifically stating that the architect’s scope of services, as well as his compensation, encompassed “structural engineering, including site visits during construction”. A surprise for the architect on this case but in fact not especially unusual on projects of this sort. The law in several jurisdictions actually anticipates that there will be times when incidental to one’s practice, a professional may perform services outside his or her specific discipline on a project, such that, for example, an engineer may perform architectural services and an architect engineering related tasks.

Simply thinking one can defend a claim on the grounds that he or she is by discipline not required to perform any specific duties related to another, different profession, could be a big mistake. Such responsibilities can easily become blurred in today’s complicated projects, and they generally do when something goes wrong. It is as critical for professionals to spell out those obligations they are not agreeing to take on as those that they are.

CPVC Case Updates:

Fire sprinkler installation companies are steeling themselves for what some plaintiff lawyers are warning could be “the biggest construction defect cases in history – larger than the Chinese drywall problem.” Stemming from allegedly defective fire sprinkler system pipes which combine CPVC pipe with metal pipes, the initial suit has been brought on behalf of the Wind and the Latitude on the River condominium associations here in Miami. Repairs are expected to cost between $50 million to $70 million per building.

CPVC pipe has been extensively used for over three decades as an alternative to steel pipe because of its durability, flame and smoke resistance, ease of installation and affordable cost. To be clear, CPVC and PVC pipes while similar are not the same; they actually have different chemical makeups. Applicable sprinkler system installation standards have allowed the use of CPVC pipe for years.

Steel pipe manufacturers have been alerting their customers to the long term risks associated with installing CPVC in fire sprinkler systems. From material compatibility issues to problematic installation, from contamination to manufacturing defects, the last couple of years have seen an increase in CPVC failure notices and CPVC construction defect suits.

The plaintiff lawyers in the Wind and Latitude case have sued Allied Tube & Conduit, Tyco International, Tyco Fire Products, Lubrizol Advanced Materials, Viking Corp., Victaulic Co., Georg Fischel Harvel, Nibco, Spears Manufacturing, Atkore International and HD Supply Waterworks. They are alleging that these companies knew or should have known that CPVC resins would fail when exposed to other chemicals and solvents used in the construction process by affecting the integrity of both the CPVC pipe and its fittings.

Installers can expect to be drawn into this legal problem as the litigation spreads. Whether through a 558 notice, a deposition subpoena or a document request, or worse being named a defendant, fire sprinkler companies should preserve their records and seek the guidance of a board certified construction lawyer – sooner rather than later.

Falling Construction Debris

News flash – construction generates a lot of rubble, so much so that special precautions are regularly taken to safeguard workers, neighbors and passerbys from falling construction debris.

Construction workers realize the danger and protect themselves, wearing hard hats whenever they are at a job site. They know that the risk of being struck by falling debris and suffering some form of injury is very high. Some 10% of fatal construction injuries are attributable to falling objects. One unfortunate drywall delivery man lost his life last year when he was struck on the head by a tape measure which fell from the top floor of a high rise project in Jersey City. He had forgotten to put on his hard hat.

Neighboring businesses which happen to be located adjacent to an active construction site, however, must rely on the contractor’s adherence to a number of safety precautions. Because they can do little to protect themselves, such neighbors depend on contractors to closely monitor the extent of foundation excavations, to erect protective safety netting where needed and to incorporate barricades, warning signs and other steps to safeguard both nearby persons and property.

The $1.05 billion, 5.4 million square foot Brickell City Centre project in Miami recently found itself the subject of a series of claims by a small neighboring art gallery and frame shop related to exactly these issues. Having collected a box full of fallen debris, with chunks of concrete and an actual hammer, the shop sued, alleging that this massive construction enterprise was causing real damage to its business. From seeking an injunction to stop work until proper safeguards are put in place to also seeking compensatory damages because of alleged losses it claims to have suffered, the shop has mounted a David versus Goliath legal battle and has not let up its fight despite some initial adverse rulings. This case has yet to make its way through the court to some sort of final adjudication, but it does serve as a clear warning to all those running an active job site. Going the extra mile to safeguard workers and neighbors alike is something all construction managers must take seriously. In fact, the owner of this project has placed safety netting over the shop as well as plywood walkways surrounding the construction site. There’ll be more to come on this story for sure.

Construction defect damages

Having purchased a waterfront lot, a buyer hired a construction manager to oversee the work of building his new home. But when at the end of a year, the project was many months behind schedule and $4 million over budget, the buyer fired the manager and sued him for a number of construction defects discovered in the partially built house. The difficulty for the court wasn’t finding that the manager had breached his contract and was liable to the buyer; he was. It was determining the proper measure of damages due to the buyer from the construction manager. The trial court had looked for evidence of actual repair costs to calculate damages. However, the appellate court determined that wasn’t necessary in this case since making corrections would involve an unreasonable destruction of the structure. When that is the case, an estimate of the costs to remedy the defects is sufficient.

Shop Drawing Review and Approval

Often referred to as a “necessary evil”, shop drawings are diagrams, illustrations and schedules prepared by or for a contractor to show how a specific piece of the project will be installed or designed. Shop drawings are used in construction projects to provide details about individual components for certain items of work not fully detailed in the project plan and which may require additional drawings and coordination prior to construction. Shop drawings must go through a review and approval process to ensure that they are accurate and consistent with the contract documents.

A design professional cannot produce plans covering every detail of every project component. Many times, the architect or engineer merely creates an overall design concept, leaving the specifics to contractors who should be more intimately familiar with job conditions. Additionally, each component requires specialized knowledge, and contractors with expertise in particular areas are best suited to lay out such details. Finally, submitting shop drawings allows the contractor and design professional to make sure they are on the same page and to identify potential issues before ordering and installing materials.

Shop drawing claims

Despite their necessity, shop drawings can give rise to lawsuits, many of which center on the review and approval process. Generally, legal claims fall into one of three categories:

Failure to properly prepare shop drawings consistent with contract documents;
Failure to review drawings and verify that information is consistent and accurate; and
Failure to review and approve drawings in a timely fashion.

The general contractor has primary responsibility to review and approve shop drawings to ensure: drawings conform to design specifications, quantities and measurements are accurate, and each component fits with other components of the project. Even if the design professional reviews the drawings, the contractor remains liable for errors or omissions. As one industry expert explained, the design professional reviews for “conceptual compliance – not to order materials or to give assembly instructions or coordinate subcontractors.” Architects review shop drawings, while contractors approve.

Getting the lead out

bout a year ago, the United States Environmental Protection Agency’s (“EPA”) Lead-Based Paint Renovation, Repair and Painting Program (RRP) when into effect. The RRP is a Federal regulatory program affecting contractors and others that provide remodeling, repair, and related work, that “disturbs” painted surfaces in residential homes, apartments, and schools and day-care type facilities, among others, constructed prior to 1978.

Most contractors who regularly perform renovation and repair work on pre-1978 structures subject to the RRP are most likely already up to speed on its requirements. However, the post-boom economy has pushed many contractors to bid work they would not have considered in years past, and there are those contractors who only occasionally take on a renovation job. Either way, contractors need to be sure they have a basic understanding of the RRP.

According to the EPA, lead based paint was used in upwards of 38 million homes up until it was prohibited in 1978. Activities such as sanding, cutting and demolition, commonly required in renovation or repair work, often create lead dust. When lead dust is absorbed by the human body, specially a child’s body, it can according to the EPA create a myriad of negative health issues. If that isn’t enough reason to learn about the RRP, also consider that the EPA has the power to punish violators with penalties of up to $37,500 per day, per violation in the most serious of cases.

So, what does the RRP entail? It applies to any activity, performed for compensation, that disturbs paint in pre-1978 housing and child-occupied facilities, including but not limited to remodeling, repair, maintenance, electrical work, plumbing, certain painting, carpentry, and window replacement whether performed by a general contractor or trade contractor. Note that the applicability of the RRP has exceptions, including but not limited to, minor repair that disturbs only 6 square feet or less of paint per room on an interior or 20 square feet or less on the exterior, work on studio apartments, and housing that has been declared lead-free by a certified inspector, etc.

If a contractor wanst to perform work subject to the RRP (“RRP work”) the contractor must first become certified under the RRP by submitting a completed “Application for Firms” and paying the correct fee to the EPA (current fees appear to range approximately from $300.00 to $550.00).

All individuals performing RRP work on behalf of a certified firm must either be “certified renovators” or must have been trained by a certified renovator. An individual becomes a certified renovator by successfully completing an eight-hour training course through an accredited training provider. A certified renovator must be assigned to each renovation job.

Prior to starting RRP work, a certified firm must fulfill the RRP’s pre-renovation education requirements, depending on the type of structure to be renovated, which generally require distributing the EPA’s pamphlet and/or notices, among other potential activities, intended to notify the occupants of the facility of the nature of the work, location of the work and lead based paint hazards related to the work. After notification, the certified contractor must obtain a receipt of the notification from the occupant and maintaining the record(s) for three years.

During the work, the EPA’s “lead-safe” work practices must be followed. These practices generally include, containment procedures to prevent dust and debris from leaving the work area, prohibition of certain construction techniques, such as, open-flame burning and the use of power tools without HEPA exhaust control, and clean up designed to minimize exposure to lead-based paint.

The conclusion is clear. A contractor who performs such work should become certified under the RRP and depending on the extent of the company’s jobs, should have at least one certified renovator capable of implementing the RRP’s requirements. If you need additional information, take a look at the EPA’s website, www.epa.gov/lead. Better safe than sorry.

Dealing with construction defects after the developer leaves

Far too often, feelings of elation and the excitement of purchasing a new condominium can sour when the buyer becomes aware of one or more construction defects. A dream unit can become a nightmare once flaws, both patent and latent, are encountered after the developer has turned over the project and left the site. Who is accountable for the necessary repairs?

The answer, as with many legal questions, is, “it depends.” Historically, the condominium purchaser would look to the common law warranty of fitness and merchantability for relief, specifically alleging as grounds that the unit does not meet building and zoning codes or that the construction was not completed in a workmanlike fashion, that the plans and specifications were not fit for their intended use or simply that the premises are unfit and uninhabitable. However, the statutory implied warranty of fitness and merchantability, which runs from the developer, contractor and subcontractors to the purchaser of the unit, remains one of the most powerful legal tools.

Implied Warranties

For example, in Florida, the warranty of fitness as to the work performed and supplied by the contractor, subcontractors and suppliers runs for a period of three years from the completion of construction. The warranty of fitness and merchantability for the unit’s intended purposes running from the developer on the other hand extends for three years after completion of each condominium building or for one year after control of the condominium association has been transferred to unit owners other than the developer, whichever occurs last. This period cannot exceed five years in any event.

The choice between common law and statutory warranties is not mutually exclusive. The benefits and burdens do stand in contrast though, in that the statutory warranty runs for a finite period from an objective date in time while the common law warranty does not. The statutory warranty cannot be waived or disclaimed by contract while the common law warranty may be. The statutory warranty runs from the developer, the contractor and all subcontractors and suppliers while the common law warranty extends only from the developer. Furthermore, unlike the common law warranty, the statutory warranty is not restricted to first purchasers but inures to the benefit of each owner and his or her successors.

Express Warranties

It should be noted that, in a “cold” real estate market, developers may attempt to obtain an advantage by providing specific warranties, thus creating a selling point and greater incentive for their prospects. Under such circumstances, the developer may extend or broaden the scope of its common law and statutory warranties. These express warranties are binding on the developer and create a clear route for unit purchasers seeking to capitalize on the developer’s greater exposure to liability when construction elements go awry.

Negligence

In addition to the common law and statutory warranties, there are other alternative causes of action available to condominium unit purchasers who find themselves struggling with property defects. One is negligence. Under this theory, even remote purchasers have standing to sue the original contractor for any failure to meet the standard of reasonable care to safeguard those who may foreseeably be placed in peril. Although a greater degree of proof is required to prevail in a negligence action in contrast to a breach of warranty claim, negligence claims have distinct advantages for the unitpurchaser. In such actions, the statute of limitations is usually longer and more flexible, allowing more time for discovery of any defect. Additionally, an action in negligence may attach to design professionals such as architects and engineers, against whom a warranty action would not customarily stand, given their lack of privity of contract with the purchaser. The design professional will be held to a duty of reasonable care as to design.

Interestingly, while an action in negligence usually cannot be maintained against a contractor after the contractor has completed its work, turned the unit over to the owner, and the unit has been accepted by the owner, courts have recognized an exception where the defect is latent and cannot be discovered by a reasonably careful inspection. The statute of limitations for such latent defects does not begin to run until the defect is discovered. This has the practical effect of extending the life of a defect clause (where the warranty claim may have lapsed) by allowing a negligence action to pick up where warranty is no longer available. However, actions for latent defects generally must be commenced within ten years after the date of actual possession by the owner, or the potential claim expires. A word of caution, however – the statute of limitations for such negligence involving latent defects begins to run when the defect is discovered or should have been discovered with reasonable diligence. This can shorten the life of a negligence claim considerably.

Fraudulent or Negligent Misrepresentation

Additionally, the developer can be held liable for construction defects based on breach of contract or misrepresentation. When the contractor fails to deliver something promised within the contract, it is in breach. When it misrepresents what it can actually deliver, it is guilty of falsification. Misrepresentation is broader than breach of contract in that it can be either intentional or negligent in character and can take the form of negligent misrepresentation, active concealment or an intentional omission of material facts.

Conversion

Developers may also be liable for construction defects found in converted units. Certain condominium statutes contemplate that developers converting rental units into condominiums shall warranty the fitness and merchantability of such residential units, as to roof, structural, fireproofing, mechanical, electrical and plumbing, for some period of time. The developer may hedge this obligation by establishing reserve accounts for enumerated capital expenditures, and deferred maintenance covering the items otherwise contained within the aforementioned warranty of fitness. Similar to the new-construction warranties, the conversion warranty inures to the benefit of
each owner and successor owner.

When no one is prepared to accept fault for a given construction defect, the unit owner inevitably turns to litigation. The unit owner or the owners collectively may not limit their action to the developer, choosing rather to include all involved contractors, subcontractors and suppliers. The rationale in suing all potentially at fault parties is to circumvent the risk that the statute of limitations may prevent future suits against any one of these parties during the pendency of the suit against the developer. These usual suspects are often joined by various other co-defendants as the circumstances may dictate. Successor developers, the corporate parent of a developer corporation, officers of a developer corporation, design professionals, lenders, and the individual sellers of pre-owned units may unhappily find themselves in these construction defect lawsuits.

Lenders

Generally, lenders also have been found liable where they have controlled the construction or become an active participant in a project. Lenders may have to account to unit owners for construction defects when they foreclose on and then complete a construction project, in effect, becoming the developer mid-stream. When the lender morphs into the developer, it opens itself to claims from unit purchasers for express representations and for patent construction defects and breaches of warranties resulting from flaws in the portion of the project they complete.

Defenses

Once claims are made, they are predictably countered by allegations that the condominium association or unit owner failed to perform routine maintenance or that the contractor adhered to applicable building codes and standards in effect at the time of construction. Contractors and developers will argue that the building is in substantial compliance with all contractual requirements and that any deviation from plans and specifications are de minimis and do not affect the value of the unit. Claimants can expect to be accused of failing to mitigate their damages, or, in a negligence action, that they are comparatively negligent in failing to inspect and/or maintain the premises.

Understanding that determining fault is neither clear cut nor easy, all parties involved in the development, construction, sale or purchase of a condominium unit would do well to anticipate the worst. The inevitability of claims should encourage more careful drafting and contract analysis at the front end in hopes of minimizing the extent of misunderstandings which seem bound to occur. Better safe than sorry is an axiom worth heeding.

Mold and Mildew Claims

The World Health Organization estimates one in every six commercial buildings in the U.S. suffers from “sick building syndrome.” 20,000 new cases of bacterial pneumonia per year are spread through HVAC systems. And now, many people are attributing these other illnesses to mold.

Of the 100,000 mold species, 200 are known to be allergenic and approximately 50 are toxic. Toxic mold is more frequently found indoors than out. All molds thrive on humid environments such as wall cavities and water damaged buildings — they only need moisture and cellulose to survive. Individual reactions to mold range from a runny nose to nausea to more serious problems.

What Should You do About a Potential Mold and Mildew Damage Claims?

If you are a potential defendant (contractor, property owner…), consider having your contracts revised to limit potential mold claim exposure. This may be done by limiting damage claims to either the replacement of the defective product or service or the value of the goods or services sold, whichever is lesser. As well, include a mutual waiver of consequential damages. The key in any mold or construction defect claim is to attempt to eliminate tort and punitive damages while capping contract damages. If you are a potential plaintiff (homeowner, tenant, employee…), first seek medical attention. Next, determine the source of the water leak or mold growth. If possible, prior to any remediation, contact your insurance carrier, homeowners’ association, landlord, or employer and report the situation. Document the damage, illness, and request for relief. What you cannot and should not do is ignore the probability that a mold issue will impact you, one way or another.

How to contest a defect claim

Because purchasing a home is typically the largest purchase a person makes in their lifetime, it quickly becomes a roller-coaster ride of excitement and emotions, encompassing hours of research, projections, and financial analysis. So it should be no surprise that the thrill can quickly disappear and turn to anger if a homeowner discovers any problem with his or her substantial investment. All of a sudden, happiness turns to recrimination where a contractor is sure to be on the receiving end of what may be unwarranted accusations. But there are a few things a contractor should keep in mind in order to properly defend against any alleged defect claim.

Remaining calm and level headed so that you can properly evaluate the situation is a good start. Since the homeowner is so emotionally invested and because the sudden discovery of any abnormality or other defect is such a let down, there is a likely tendency for the unhappy buyer to begin finger pointing. Rather than responding out of hand, make clear to the homeowner that you are equally surprised and concerned, and that you are willing to inspect the problem and are surely prepared to address what in fact may be your fault.
This will allow you the opportunity to appraise the true extent of the alleged defect, analyze the expected cost for a resolution, and propose an effective solution while avoiding what might be a costly lawsuit. If your efforts prove fruitless or if litigation appears inevitable, there are still certain rights afforded to a contractor by law, rights with which the homeowner must comply in order to effectuate a proper defect claim. For example, it is imperative to ascertain whether the homeowner is even within the proper time frame for filing suit.

For example, in Florida, the statute of limitations on a discovered defect requires that a lawsuit must be brought within four years of actual possession. Be aware this time period becomes a bit sketchy when the defect is considered “latent”, a defect which is not discoverable even by the exercise of ordinary and reasonable care. When dealing with a latent defect, the statute of limitations allows four years from the discovery of the defect or when the defect should have been discovered through reasonable due diligence.

The Buyers Home has a Defect, Now What?

In most jurisdictions, it is not acceptable to simply allow a defect to sit idle without attempting to prevent the problem from worsening. This concept, known as mitigation, requires the injured party to exercise reasonable diligence and ordinary care to avoid aggravating the injury or increasing the damages. In fact, the failure to mitigate is commonly used as a defense to a defect claim by reducing the amount of damages awarded. Therefore, it is important to discover how much time has passed from when the homeowner noticed the defect to when action was actually taken.

What is important for every Contractor to know is that, in many jurisdictions, the homeowner is not allowed to actually repair the defect without first complying with certain notice requirements. Statutes have been implemented in an attempt to reduce the ever growing litigation surrounding construction defects. Certain legislatures around the country have imposed a mandatory notice provision to give the parties an opportunity to resolve any alleged defect issues without immediately resorting to litigation. By providing this stop-gap, the contractor is afforded the chance to conduct inspections and voluntarily correct the issue or offer a settlement before the relationship with the homeowner deteriorates into legal action.

Although the various notice statutes may differ between jurisdictions, the themes remain the same and all are designed to help expedite defect disputes. If and when you are contacted by a homeowner who claims to have discovered a defect with your work, do not panic – stay calm and review the situation; the law may just be on your side.

Reasons to Contest a Defect Claim

Whether a project is big or small, it seems inevitable that construction defect claims will surface. While the nature of these claims many vary, common patterns are generally present and construction professionals would do well to understand the distinctions.

Construction defect claims often fall into one of four categories: design defects, material defects, workmanship defects and subsurface defects.

Design professionals (such as architects and engineers) sometimes cause design defects. Building design can lead to issues in a structure’s performance, even if the design plans are followed precisely by everyone building the project. For example, complicated roof structures can lead to cracks, water intrusion or increased susceptibility to wind damage.

There can be material defects resulting from inferior or defective building materials. Using inadequate materials in a project can result in issues. For example, even though a window is properly installed, if it was manufactured and delivered with a defective seal, it may still become the source of future problems.

Workmanship defects are most often the leading cause of defect claims, leading to all types of construction problems. Even when plans are properly drawn and only the highest quality materials are delivered to the work site, careless installation can turn a project into a nightmare.

Of course, subsurface defects sometimes exist. They result from problems with the actual construction site, such as expansive soil conditions, subsidence issues or contaminated soils.

Several avenues are available to challenge all of these types of construction defect claims:

Procedural Prerequisites: Several states have enacted laws requiring a claimant to provide notice of the alleged construction defects and to provide those that may have caused them an opportunity to fix them. In most instances, this is a prerequisite to begin litigation. If the claimant fails to do this, then the defect claim may be (at least temporarily) barred.

Statutes of Limitation:

Once a claimant discovers or should have discovered the construction defect, most states have a time period (often four years) within which the claim must be brought to court. If the claimant fails to bring the claim during the allotted time period, then the claim may be time-barred.

Statutes of Repose:

Similarly, most states have set a time period (often 10 to 12 years) within which a claim can exist. Under such a statute of repose, if a claim is not brought within the stated time period, it will not be allowed at all, whether the defect was actually discovered or not. This is particularly important for hidden defects that are not obvious upon a reasonable inspection. If the repose period passes without a claim being made, the claim may be time-barred.

No Standing:

If a condominium association, for example, initiates litigation, questions may arise if the association has been granted the right under applicable covenants or governing documents to proceed on behalf of the members or to carry on litigation in its own name. Alternatively, claims involving multi-unit developments (i.e., condominiums, high-rises and townhome projects) often proceed as a class action. Class actions require that the class representatives be members of the class. Also, if the defects vary from unit to unit (as no claim is ever “typical”), this may be a reason to challenge the legitimacy of class treatment.

Negligence:

Most defect claim defendants will attempt to assign at least partial or shared responsibility for defects to some other participant in the construction process (often expressed in a counterclaim, cross-claim or third-party claim). Inadequate performance by others in the construction process may provide a basis for shifting blame. Indemnification clauses in prime contracts and subcontracts are customary and also provide justification for such defenses or claims.

Economic Loss Rule:

Construction defect claims are often presented as a mix of contract and tort remedies. When there is a contract between the parties, the claimant may be restricted to contract remedies and be legally prohibited from recovering economic losses in tort. However, even when parties do not have a contract with one another, the economic loss rule may prevent recovery if a defective product causes damages to itself but no damage to other property. For example, both aspects of the economic loss rule have been applied in litigation related to Chinese drywall claims. Be aware that the claim restrictions imposed by the economic loss rule do not extend to personal injury claims.

Strict Liability:

Claimants may assert claims for strict liability in cases involving the use of defective products. This means the manufacturer and all those in the distribution chain are liable for the ill-effects of a defective product. If the targets of the claim can demonstrate they neither manufactured nor distributed the product, then the claim may be defeated. This was recently the case in a Chinese drywall action pending in Florida. The trial court found that the homebuilder did not manufacture the defective drywall, and the homebuilder was not in the distribution chain for the defective drywall. However, the question that remains is whether the homebuilder’s general contractor or drywall subcontractors were themselves in the distribution chain.

Even the simplest construction project presents opportunities for defect claims to arise. Construction professionals must therefore be ever mindful of such potential claims, crafting their contracts and running their business operations with that thought in mind.

An Insurer’s Duty to Defend a Defect Claim

In today’s post-boom construction environment, claims by project owners of construction defects, wrongful or otherwise, are all too common. Because the potential for damages and litigation expense associated with such claims can be substantial, a contractor would do well to have a working knowledge of his rights and responsibilities under a commercial general liability (“CGL”) insurance policy, especially the carrier’s “duty to defend”.

Under a standard form CGL policy, an insurer will typically exercise two separate and distinct duties to the insured-contractor. First, the standard policy will typically provide a “duty to defend” the contractor when a lawsuit is filed, to the extent the suit raises claims potentially within the coverage afforded under the policy. The duty to defend is generally what it sounds like: the insurance company pays an attorney to defend the contractor, subject to the terms and conditions of the CGL policy. This coverage is critical considering the potential cost of defending a defect claim to completion. Second, the standard policy provides a “duty to indemnify” or to pay sums, to a third party, which the contractor may become “legally obligated to pay”. Again, this would be subject to the policy’s coverage and limits.

Construction Defect Claim Filed; Now What?

The first step after a claim is lodged is for both insurer and insured to determine whether the allegations against the contractor state a claim which potentially falls within defined coverage (e.g. the policy’s insuring agreement, endorsements, exclusions, and exceptions to the exclusions). The CGL insurer’s duty to defend is triggered by the allegations contained within the four corners of the complaint – not by the facts as may be later proved in court, nor the contractor’s version of the facts, or even the parties’ initial defenses. Where there is any doubt about whether the duty to defend applies, the issue must be resolved by a court in favor of the insured-contractor. Florida courts, for example, have held that the duty to defend is broader than the duty to indemnify because the insurer must defend the case even if the facts alleged are actually untrue or the legal theories presented are flawed.

At this point, you may be asking yourself, what are those magic words which cause the duty to defend to kick in? The short answer is an allegation that will “fairly and potentially” bring a claim within the coverage of the policy. The long answer is that, subject to the policy’s terms, exclusions and exceptions to exclusions, a standard CGL policy will provide coverage for an “occurrence” that has caused “property damage” (or bodily injury) within the policy’s coverage period. There is a lot to unpack in this sentence. Luckily, one state’s Supreme Court did just that in a 2007 case.

The matter involved a general contractor who hired a subcontractor to perform soil compaction and testing for a project. The soil compaction was performed in a defective manner which, in turn, caused structural damage to the building being built. The Court cited cases which generally held that the costs to properly fix the soil compaction itself would generally not be covered. However, the Court found that the structural damages to the building caused by the faulty soil compaction were covered as “physical injury” to “tangible property”. Therefore, generally speaking, the costs to repair property damage caused by a contactor’s (or its subcontractor’s) defective work are often covered where the costs to repair a contractor’s defective work are generally not.

As a rule of thumb, to trigger the insurer’s duty to defend, the allegations of the complaint should set forth a defect caused by the contractor or its subcontractor(s), (e.g. “occurrence”) which in turn caused damage to property other than the contractor’s (or its subcontractor’s) own work and which damages are within the coverage timeframe and terms and conditions of the policy. Know also that a construction defect caused by a subcontractor, not intended or expected by the general contractor, could constitute an “occurrence” under the language of the general contractor’s CGL policy.

Although the insurer typically assigns defense counsel, an insured may request a particular lawyer, possibly its own attorney, as long as he/she is experienced with the particular claims being alleged and he/she is willing to handle the matter in accordance with the insurer’s guidelines.

One thing is certain – a contractor’s ability to trigger coverage under an applicable policy is absolutely critical. Just one significant uninsured defect claim could easily bankrupt most contractors.

How To Handle Construction Disputes

It’s unlikely to be in the construction industry for very long and not run into a dispute. Disagreements between the parties – owners and contractors, contractors and subcontractors, subcontractors and supply houses – can crop up when one party fails to meet its obligations, contractual or otherwise. Sometimes these controversies result from a clear breach of a contract provision; other times they are simply the consequence of a party’s reaction to or disregard of a particular issue.

Maybe it is associated with timing – the job is off track and not moving as quickly as it should. Maybe it is a payment matter – change orders not being paid or payment applications far out pacing the actual progress on the job. Whatever it may be, real or not, a dispute is a serious event on a construction project, often causing progress to screech to a halt. What should you do? Start with a good contract. Negotiate the best terms possible to suit your needs and make sure you understand what you are getting yourself into before you start a job. Then document everything – keep good records as to performance, communication and payment. Corroboration will be needed to either prosecute your position or defend against any claim.

Unfortunately, all too often, dispute resolution alternatives are generally an afterthought for contractors whose attention is generally more focused on scope and price. But it will only take one bad experience with the legal system to bring home the fact that how disputes are addressed is as important as anything else found within one’s contract.

There are essentially four avenues to take when a dispute arises – direct negotiation between the parties, mediation before an impartial intermediary, arbitration before one or three arbitrators, or litigation before a judge or jury in state or federal court. Each comes with benefits and disadvantages, and contractors would be smart to understand the distinctions.

Meeting of the parties

The easiest, and what should absolutely be the first step when any dispute occurs, is a meeting of the parties to discuss their respective positions. It is by far the least expensive and could be the most immediately productive. And if it accomplishes nothing, it at least sets out the actual points of disagreement so the parties know, going forward, where they each stand.

Mediation

The next, and often the required first step to any eventual arbitration or litigation, is mediation. Often misunderstood as just another form of arbitration, mediation is quite different. It is a private and confidential process where the parties voluntarily agree to meet and, with the assistance of a neutral third-party mediator (jointly selected by the parties), try to work through their disagreement. The process does not involve the evidentiary and testimonial aspects associated with a trial or arbitration, but is rather a mediator’s shuttle diplomacy to seek an acceptable middle ground that both parties might accept. If a settlement is reached, it may be enforceable by law. Many states now require that mediation take place after suit is filed and before trial. It is a very worthwhile step in any dispute resolution procedure and is highly recommended.

Arbitration

Arbitration has historically been the preferred method for contractors and their lawyers to resolve a dispute. It is often noted in their contracts as the way an unresolved claim or controversy is to be addressed. Believed to be a simpler, faster and cheaper option than litigation, this has not always proven to be the case. Depending on the dollars involved in the misunderstanding, an arbitration would be before one, or a panel of three, disinterested and jointly selected arbitrators (generally experts in the field). The process is much like a trial, with discovery being taken and evidence presented. While both may be more limited in arbitration, the fact that construction issues these days may be difficult or intricate could result in any arbitration actually taking more time. The coordination of multiple parties, witnesses, lawyers and arbitrators could easily cause any presentation to be spread out over a number of months versus one continuous hearing. But most importantly, and not often understood by contractors, arbitration decisions are rarely appealable, even if based on an incorrect interpretation of the law. You would need to show fraud or bias to have a good chance of winning at overturning an arbitration.

Litigation

Then, there is the tried and true method of litigation – suing in state or federal court before either a judge or a jury. This approach has one clear advantage – any decision, judge or jury, can be presented for further appellate review. While costly, it remains an effective way to move a controversy to a resolution. The complexity of the issues can dictate whether a judge or jury would be the appropriate forum. But frankly, more and more cases reach a settled resolution before ever going to trial.

Finally, there is the matter of legal fees and costs. Are they recoverable? Absent a statutory provision and a corresponding claim, the attorney’s fees and costs you incur will not be recoverable, even if you win, unless you have a contractual provision which calls for the prevailing party to recoup his/her incurred legal expenses. Be sure to add such a provision along with your choice of dispute resolution alternatives when finalizing your contract. You’ll be glad you did.

Hidden versus obvious defects

A patent defect is open and obvious – one which can be discovered after inspection. On the other hand, a latent defect is one that is hidden or concealed, and which is not discoverable by reasonable inspection. A latent defect becomes patent when it is discovered or should have been discovered. Whether a defect is patent or latent is generally decided on a case by case basis, although Florida has determined that certain defects, such as leaky roofs, are necessarily patent and obvious.

Determining when a defect becomes patent is important because it impacts the statute of limitations – the deadline for bringing a lawsuit. The deadline for breach of construction contracts is four years from the time the defect was discovered but in no event more than 10 years after the date of the issuance of a certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion or termination of the contract between the professional engineer, registered architect or licensed contractor and his or her employer. Even if the defect is discovered after the expiration of a warranty, the limitations period does not begin to run until the defect is discovered.

Latent Defect Extension

If a homeowner has a problem with either the design, planning or construction of an improvement to his real property, he must initiate legal action within four years of the date of actual occupancy by the owner, the date of issuance of a certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion or termination of the contract between the engineer, architect or contractor and his or her employer, whichever date is latest; except that, when the action involves a latent defect, the time runs from the time the defect is discovered or should have been discovered with due diligence – this according to Florida Statute of Limitations §95.11.

Defect Repairs After a Natural Disaster

In a case involving repairs to a home after Hurricane Andrew, the homeowners, unhappy that necessary re-roofing work was not completed, sued their contractor on October 25, 2001. The contractor responded with a Motion to Dismiss the complaint based on the expiration of the applicable statute of limitations. The critical dates are that the contract for repairs was entered into in September, 1992; deficiencies with the completed work were noted by the County in November, 1993; and in January, 1994, the Dade County Department of Planning issued a notice of building violations regarding the homeowner’s roof system. The contractor then attempted to repair the roof problems and delivered additional materials to the home in June, 1995. However, the defects were still not fixed. As a result, the County refused to issue a final roofing inspection. Promises continued to be made by the contractor through October 15, 1998 that the roof problems would be resolved, but the contractor never returned to actually do the work.

The trial court determined that the latent defect time frame associated with the statute of limitations applied in this case and therefore dismissed the complaint as untimely – finding that the homeowners failed to bring the suit within four years of discovery of the roofing defect. The appellate court reversed, agreeing with the homeowners that the latent defect portion of the statute did not apply. Rather, the four years began to run from the date the contractor abandoned construction (the majority of the Court finding that this was October 15, 1998, the last date the contractor promised to return) and therefore the homeowners’ October 25, 2001 complaint was timely. Interestingly, there was a dissent in the Court’s opinion, one judge finding that the job was abandoned in June, 1995, the date the contractor was last at the homeowners’ property.

Latent vs Patent

Construction defects can arise at any time, sometimes years after the project’s completion. Defects are either patent or latent, and can involve issues with the project’s design, materials and supplies, or services rendered. While both types of defects can be very damaging, the law treats them differently.

A patent defect is open and obvious, or can be discovered after inspection. A latent defect is a defect that is hidden or concealed, and which is not discoverable by reasonable inspection. A latent defect becomes patent when it is discovered or should have been discovered. Whether a defect is patent or latent will be decided on a case by case basis, although Florida has determined that certain defects, such as leaky roofs, are necessarily patent.

Determining when a defect becomes patent is important because it impacts the statute of limitations, which is the deadline for bringing a lawsuit. The deadline for breach of construction contracts is four years from the time the defect was discovered but in no event more than 10 years after the date of the issuance of a certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion or termination of the contract between the professional engineer, registered architect or licensed contractor and his or her employer, whichever defect is latest. Even if the defect is discovered after the expiration of a warranty, the limitations period does not begin to run until the defect is discovered.

Fixing Mistakes

Contractors who discover construction defects or mistakes in their work face two challenges: ignore them and risk liability, or fix the problems and risk destroying evidence – also known as “spoliation.” If litigation develops down the road, contractors that destroy evidence – even with the best of intentions – can wind up paying damages in court.

Repairing faults in construction work

Unfortunately, there is no easy way to balance the immediate need to repair against the equally important need to protect evidence. Construction defects create a host of complications. Despite a compelling need to preserve evidence of fault, ignoring a construction defect or mistake in the work can tempt disaster. Oversights that compromise a building’s structural integrity can cause injuries and property loss. Errors also result in delays that tend to roll downhill, throwing subcontractors off schedule and jeopardizing the entire project. In many cases, it’s also impossible for a contractor to track down the exact party responsible for the defect, and equally problematic, the subcontractor at fault may not be trustworthy or skilled enough to remedy the defect.

Spoliation of evidence

Spoliation issues can arise even when contractors make good faith repairs. When evidence is destroyed, courts consider a number of factors to determine whether a contractor should be penalized for making a repair.

Intent

The court’s primary concern is the contractor’s intent. The court considers whether the contractor acted specifically to destroy evidence, or whether the spoliation was necessary to prevent harm and address safety concerns on the job site.

Notice

Contractors who take time to properly notify owners, potentially responsible parties, and other involved persons before acting generally fare better than those who don’t.

Injury to the Case

Courts try to determine just how much the spoliation may have hurt the case. If other evidence exists that provides insight regarding the defect, this lessens the effect of the spoliation.

How to protect yourself

When a defect is discovered, gather information about the parties who may have caused the problem. Prior to repair, immediately notify all subcontractors who might be responsible. Each subcontractor should have an opportunity to inspect the defect and assemble evidence, such as reports and photographs. Subcontractors well-versed in litigation might ask for an expert opinion regarding the defect.

When it’s time to make repairs, notify all the parties involved and do so by return receipt so you can show that you provided notice. Include the name, address, and contact number for the subcontractor making the repair and the date the work is scheduled to commence. Every potentially responsible party should have a chance to supervise the repair. Taking these precautions can’t always avoid spoliation claims, but they help minimize the loss of evidence should litigation develop later on.

Impact of Chapter 558

Chapter 558, Florida’s Construction Defect Statute, has been in place since 2003 and many contractors have received claim notices issued pursuant to this statute. While bothersome, it has provided homeowners, contractors, design professionals and others who participate in the construction process a mechanism to try to resolve any claims of alleged defects prior to suit being filed.

You should know that recent changes in this law require claimants to be more detailed in setting out the alleged defects and to also include the insurance companies of the contractors and designers in each notice. Other revisions involve the broadening of the term “completion” to now include issuance of a temporary certificate of occupancy, the need to note the location of any alleged defect, and the submission of documentary evidence in support of the claimed defect (along with the right of a party to assert any privilege that would prevent such disclosure).

All in all, these changes do a good job of reinforcing the intent behind the statute – resolution versus litigation of any defect claim.

Nuances of Florida Statute Chapter 558

Though well-intentioned as a means to resolve construction defect disputes prior to litigation, the application of Florida Statute Chapter 558’s procedures can be unwieldy in practice, with cases interpreting its provisions emanating from Florida’s courts in a piecemeal fashion. Abatement Pending a Claimant’s Compliance with Chapter 558 May Be Futile. Under Chapter 558 a claimant must serve written notice of a claim on the applicable contractor, subcontractor, supplier or design professional at least sixty (60) days before filing a construction defect action. If the claimant fails to do so and proceeds with a legal action, the case may be abated pending compliance with the Chapter’s provisions.

Non-Compliance with Chapter 558 Does Not Preclude a Plaintiff from Raising Affirmative Defenses

If an owner terminates a construction contract without a legally sufficient reason or prevents the contractor from completing the contract, the measure of the owner’s damages is generally the reasonable cost of making the work conform to the contract. Under such a circumstance, the owner can use the reasonable cost for doing so as a setoff for any sums it may owe the contractor arising from the owner’s breach of contract. This right of setoff exists even if the owner never complied with Chapter 558.

Specify the Defect and the Damages it Has Caused

Under Chapter 558 a notice of claim must describe the claim in reasonable detail sufficient to determine the general nature of each alleged construction defect and also must contain a description of the damage or loss resulting from the defect, if known. If a claimant fails to specifically describe the defect and the damages arising from that defect in its original notice of claim, and continues to fail to describe these items in its pleadings, it may be barred from presenting any evidence relating to non-noticed defects and damages.

For instance, where a plaintiff made a claim relating to missing lightweight concrete in a roof but did not indicate that it would seek recovery for additional roof defects or for the costs of replacing the roof, the plaintiff was not allowed to present evidence as to other defects on the roof and could not seek damages for the replacement of the roof.

Owner-Contractors Seeking to Make a Claim for a Construction Defect are Outside the Scope of Chapter 558

An entity that is both the property owner and the contractor for a condominium project is not a “claimant” for purposes of Chapter 558 and as such does not have to comply with Chapter 558 in the event it wishes to make a claim for construction defects.

The Rise of the 558 Notice

Contractors continue to see an increase in the number of 558 notices they’re receiving. These are those demands made under Chapter 558 of Florida Statutes setting forth pre-suit procedures on construction defect cases. Even though the law has been in place for some time, there are few decisions available explaining how the statute really works, especially if someone doesn’t strictly comply.

When homeowners, unhappy with the quality of work done, withheld final payment from their contractor, they were sued. One issue before the court was whether the contractor was afforded the opportunity to repair what the homeowners found to be unacceptable.The homeowners did give the contractor the required 558 notice but then denied the contractor access to the interior of the residence so he might cure the defects. The statute requires a claimant, in this case the homeowner, who receives a timely settlement offer to either accept or reject it within 45 days. If suit is filed without first accepting or rejecting the offer, the court must abate the suit upon a timely motion being filed. While the homeowners’ failure to allow the contractor access could be interpreted as a rejection of the contractor’s offer to repair, the court in this case did not take away the homeowners’ right to seek a set-off for the value of any repairs needed to remedy the contractor’s poor workmanship – a seemingly unfair result which calls into question the real effectiveness of this statute. That said, it remains clear that contractors need to be especially careful to continue to comply with all stated deadlines and do their part in adhering to this law.

Dealing with Condominium Defects

Typically, the condominium purchaser would look to the common law warranty of fitness and merchantability for relief on a defect claim, specifically alleging as grounds that the unit does not meet building and zoning codes or that the construction was not completed in a workmanlike fashion, that the plans and specifications were not fit for their intended use or simply that the premises are unfit and uninhabitable. However, the statutory implied warranty of fitness and merchantability, which runs from the developer, contractor, and subcontractors to the purchaser of the unit, can be one of the most powerful legal tools.

Negligence

In addition to the common law and statutory warranties, there are other alternative causes of action available to condominium unit purchasers who find themselves struggling with property defects. One is negligence. Under this theory, even remote purchasers have standing to sue the original contractor for any failure to meet the standard of reasonable care to safeguard those who may foreseeably be placed in peril. Although a greater degree of proof is required to prevail in a negligence action in contrast to a breach of warranty claim, negligence claims have distinct advantages for the unit purchaser. In such actions, the statute of limitations is usually longer and more flexible, allowing more time for discovery of any defect. Additionally, an action in negligence may attach to design professionals such as architects and engineers, against whom a warranty action would not customarily stand, given their lack of privity of contract with the purchaser. The design professional will be held to a duty of reasonable care as to design.

Interestingly, while an action in negligence usually cannot be maintained against a contractor after the contractor has completed its work, turned the unit over to the owner, and the unit has been accepted by the owner, courts have recognized an exception where the defect is latent and cannot be discovered by a reasonably careful inspection. The statute of limitations for such latent defects does not begin to run until the defect is discovered. This has the practical effect of extending the life of a defect (where the warranty claim may have lapsed) by allowing a negligence action to pick up where warranty is no longer available. However, actions for latent defects generally must be commenced within ten years after the date of actual possession by the owner, or the potential claim expires. A word of caution – the statute of limitations for such negligence involving latent defects begins to run when the defect is discovered or should have been discovered with reasonable diligence. This can shorten the life of a negligence claim considerably.

Defenses

Once claims are made, they are predictably countered by allegations that the condominium association or unit owner failed to perform routine maintenance or that the contractor did not adhere to applicable building codes and standards in effect at the time of construction. Contractors and developers will argue that the building is in substantial compliance with all contractual requirements and that any deviation from plans and specifications are de minimis and do not affect the value of the unit. Claimants can expect to be accused of failing to mitigate their damages, or, in a negligence action, that they are comparatively negligent in failing to inspect and/or maintain the premises.

Because determining fault is neither clear cut nor easy, all parties involved in the development, construction, sale or purchase of a condominium unit would do well to anticipate the worst. The inevitability of claims should encourage more careful drafting and contract analysis at the front end in hopes of minimizing the extent of misunderstandings which seem bound to occur. Better safe than sorry is an axiom worth heeding.

Warranty Claims

Florida’s Condominium Act requires that contractors and suppliers provide a warranty of fitness and merchantability as to work provided and materials supplied for condominium developments. So when the roofing work done on a condo’s boat storage building failed, the association called back the roofer who had performed the work. He tried unsuccessfully to repair the roof but eventually advised the association the problem was actually with the product and not his labor. The association then contacted the manufacturer; however, it too would not accept responsibility for the leaks.

In the suit that followed, the association opted to only go after the manufacturer and it relied solely on the guaranty provided by the manufacturer to the roofer to prove its case. The association argued that it was the beneficiary of that warranty.

Not enough, said the court. To hold the manufacturer responsible under the Condominium Act, the association needed to allege more of a relationship. It needed to allege and show that the manufacturer “furnished, sold and/or delivered materials to the project.” This is what the statutory warranty calls for. Had it done that, the association’s complaint against the manufacturer may have carried the day. But without that specific allegation and proof, the association’s case against the manufacturer failed.

Understanding Construction Warranties

Generally, a construction warranty is the seller’s or builder’s promise that what was built was built right, and is fit for its intended purpose. Construction warranties can be express or implied. Express warranties are contained in the contract and typically promise that the work is free from defects and conforms to contract documents. Implied warranties are either warranties implied by law or from the actions of the parties. Common implied warranties include:

WARRANTY OF HABITABILITY

The seller or builder of a home promises that the structure is suitable for living. Some examples of conditions that can make a home “uninhabitable” include defective septic systems and faulty foundations.

WARRANTY TO CONSTRUCT IN GOOD, WORKMANLIKE MANNER

The contractor or builder agrees to perform work according to appropriate professional standards. The warranty applies to the quality of services provided, but does not apply to the quality of the materials themselves.

Know that in Florida there are distinct warranties which apply to condominiums and homeowners’ associations. And like all things legal, one always needs to be careful in applying any one definition to a particular set of circumstances.

Statutory Timeframes for Construction Warranties

Knowing the applicable deadlines for bringing a construction warranty claim can make the difference between a win and a loss. Generally, a person has 4 years to bring a warranty claim in Florida, although there are exceptions and other rules that may come into play depending on the actual circumstances surrounding the claim.

Claims based on construction defects must be brought within 4 years of one of the following, whichever is latest: actual possession by owner, date of issuance of certificate of occupancy, date of abandonment of construction (if project not completed), or date of completion or termination of contract. Many of these defects are latent – hidden or concealed such that they are not apparent from routine inspection, for example, a leaky roof. In cases based on latent defects, the discovery rule applies – owners must file suit within 4 years of the date the defect is discovered or should have been discovered.

In addition, Florida requires any claim based on the design, planning, or construction of an improvement to real property to be brought within 10 years. Called the “statute of repose”, the 10-year limit is an absolute bar to filing a claim regardless of the cause of action. Since construction claims can arise decades after a project’s completion, the statute serves to limit the time in which claims can be brought.

Finally, a common source of confusion is the 1-year repair or “callback” period in standard construction contracts. This is a contract provision that requires the owner to notify the contractor of a defect and provide that contractor an opportunity to fix or repair his work. If the owner fails to provide this notice, or hires another contractor, the owner cannot charge the original contractor the cost of these repairs. Some mistake the repair period for the general 1-year warranty on construction work, after which the owner cannot bring a claim. This is not the case. The callback period is simply a chance to fix or repair defective work, but it does not prevent the owner from bringing other warranty claims that may arise.

Who’s at fault?

Frank Firstbuyer purchased a vacant waterfront lot, intending to build his home there. However, shortly after closing, he was advised that the southern edge of the property contained a number of invasive trees which would have to be removed. Building officials told him that before he could obtain a building permit, he would have to stabilize the land where the trees were located. Firstbuyer complied with these requirements but ultimately decided to purchase an existing home in a different area and put the lot up for sale.

The following year Stephen Secondbuyer purchased the property from Firstbuyer. The property was sold “as-is” with right of inspection. Secondbuyer visited the property several times but never hired any professionals to determine whether the property would be suitable for construction of a home. After closing, Secondbuyer was required to perform certain soil studies before he could pull his building permit. Those reports revealed that the middle of the property was full of muck. This resulted in an increase of almost $100,000 in construction costs. Secondbuyer decided not to proceed with construction. He too, opted to sell the property but then sued Firstbuyer for failing to disclose the defective condition of the land.

The Court ruled in Secondbuyer’s favor, determining Firstbuyer breached his legal duty to Secondbuyer when he did not advise of the existence of muck on the property. However, the appellate court disagreed, finding that no evidence had been presented which showed that Firstbuyer had any actual knowledge of the muck-muck which by the way was not located at the southern edge of the property where Firstbuyer had removed the trees and done some work.

While there is a legal theory that a seller must disclose the existence of any fact materially affecting the value of a property he or she is selling, suit under such a theory must show that the seller had actual knowledge of the defect, and that was not the case here.

Legal and Ethical Duties on a Construction Project

Natural and man-made disasters have a way of exposing all manner of shoddy work and poor design. Whether it is tornadoes in the midwest, frightening hurricanes in the southeast, tsunamis in the Pacific – all have revealed not only inadequate construction methods but worse, a failure in many instances to adhere to established codes of conduct.

Considering the Public Good

Builders and designers have ethical and professional guidelines to which they are expected to conform, not the least of which is the obligation to use their skills and knowledge in a reasonably careful and competent manner. They must also be cognizant of their responsibilities to the public, balancing the interests of clients and society alike. If at any time, the health, safety or welfare of one or the other could be in jeopardy, then architects, engineers, and contractors must take a step back, consider both their legal and ethical duties on a construction project, and rethink their planned approach.

Because of bad planning, use of substandard materials, faulty construction, and unenforced building codes, lives can be unnecessarily lost.

Legal and Ethical Duties Not the Same

To be clear, legal and ethical duties on a construction project are not the same. While satisfaction of the legal requirements associated with a particular project might appear to be sufficient, real life examples have illustrated this is not always enough. Thought to the overall impact of any design or construction decision must be part of every analysis. Cutting corners, fee-based conclusions, less than full research – none may be illegal but all could result in flawed determinations. Sure, pushing back is never easy, especially against the constant pressure of an owner seeking to move a project forward, but setting aside one’s ethical obligations for the sake of expediency is never a good idea. An ethical violation may not result in a lawsuit, or even subject one to disciplinary sanctions, but it could well lead to adverse and long-lasting consequences for the community one lives in. There are no black and white rules in most instances, but rather, and hopefully, a business climate which encourages and guides one to behave both legally and ethically.

Shop Drawing Review

Do you know that design professionals, including architects and engineers, can be held liable for issues that are not addressed during their review of shop drawings, especially when these develop into problems on a construction project? A construction lawyer will tell you that a professional has a duty to perform any requested service in accordance with the standard of care used by similar professionals in the same community working under like circumstances. This means the design professional must, at the very least, exercise reasonable care and skill.

Who Should Review Shop Drawings?

In the course of reviewing and approving shop drawings, a design professional should be cognizant of the contractual requirements specific to the job and should be sufficiently knowledgeable and skilled to recognize possible construction predicaments and design dilemmas.

It is therefore important that, in addition to basic qualifications, the individual professional to whom shop drawing review is assigned also be familiar with the governing contracts, related documents and design concepts for the particular work.
A design professional on a project would do well to insist that the general contractor’s schedule reflect sufficient time for all necessary shop drawing reviews.

Shop drawings are not short cuts to full and complete design. They should not be used as vehicles to suggest changes or substitutions to the project’s contractual requirements by any of the entities involved, be they the contractor, subcontractors, suppliers or design professionals. If it becomes necessary to make such changes, the contractor must initiate a specific request to the design professional to document a change order.

Shop Drawing Language

As for the design professional’s communication of the results of its shop drawing review, it has become clear that attempting to skirt responsibility by not using certain words may not really work. Unless specifically rejected, the shop drawing will be deemed approved. It therefore merits consideration that any rubber stamp used to convey the design professional’s opinion at least include these options: REVIEWED, APPROVED, REJECTED, REVISE and RESUBMIT. It is not recommended that the term Conditional Approval be used as it leaves open for interpretation too many aspects beyond the control of the reviewer. However, adding some limiting language to the stamp is wise, such as:

Review is limited to general conformance with Contract Documents and Design Concepts and does not release Contractor of its responsibility to determine and control construction means, methods, techniques, sequences and procedures as well as quantities of materials and dimensions of work.

Shop Drawing Risks

While the scheduling, review and coordination of shop drawings may appear to be mundane tasks, design professionals should be aware of liability risks that exist in this context. Indeed, in a recent construction dispute it was held that a chief design engineer breached the appropriate standard of care by approving a shop drawing calling for a certain type of wire without first determining whether the proposed materials would conform to project specifications while another case found that design consultants were guilty of delaying a project when they negligently failed to review, revise and coordinate certain shop drawings.

Shop drawing review is a serious matter – don’t take it lightly.

Determining the prevailing party

Sometimes the legal fees and costs incurred in a case exceed the actual amounts being litigated. That is why the decision of who is the prevailing party in a case can become so very important.

Florida’s Supreme Court addressed this issue in an interesting construction case where homeowners building a new house deducted the cost of repairs occasioned by a contractor’s admitted mistake.Apparently, a worker had inadvertently stapled some existing electrical wires when installing insulation in the homeowner’s attic. The trial court entered judgment awarding the insulation contractor $1,525, the net amount of its final bill after deducting the repair cost for its mistake. It also determined that the homeowners were the prevailing party and awarded them attorney’s fees of $55,982 and costs of $4,016.67. The District Court of Appeal reversed and certified this to the Supreme Court as a question of great public importance. The state’s highest court found that the prevailing party in such a case must be the litigant who prevails on the significant issues of a case.

While the fact that one of the parties obtains a net judgment is important, it is not, in and of itself, the determining factor as to who is awarded fees. The court must look at all the equities, and doing so in this case meant that the homeowner was the prevailing party despite the insulation contractor’s net judgment.

Oops – was that 100 or 1,000 feet? Who made the mistake?

During the construction process, it is inevitable that mistakes will be made– you just hope yours isn’t so big that it bankrupts you.

Unilateral or Mutual Mistakes

Mistakes are categorized as either unilateral or mutual. That means just what it says. A unilateral mistake is one made by only one party while a mutual mistake is one that is shared by both parties. So if only you misunderstood the construction plans and specifications and thought you needed to order 1,000 feet of conduit instead of 100, this would be a unilateral mistake – your problem, without any immediate relief unless you could show that someone intentionally deceived you in some way. These mistakes happen more often than you’d think, especially in a construction setting where quantities, prices and dates are so critical. The likely result, when one makes such a mistake, is usually no remedy at all.

On the other hand, if both parties to an agreement are mistaken because a document fails to correctly reflect what they both intended, then a court will likely reform or recast the document to correct the error. An example may help illustrate this. Let’s say that a lumber yard advertises 4×8 sheets of oriented strand board for sale at $1.00 each. It actually meant to say $10.00 each. You go in and buy ten sheets, expecting to pay $10.00 but are charged $100.00. Who would be right? A case with similar facts held that you would be. The store made an offer which you accepted. Though this may not have been the offer it actually intended to convey and it mistakenly left out a digit, the store would be out of luck. The law is clear in most every jurisdiction that in such circumstances what one may have intended does not really matter and is generally not enough to undo a deal.

However, if it can be shown that the non-mistaken party actually knew that the other party just didn’t understand the agreement, a court may step in. It may cancel the agreement (this is called contract recession), meaning the parties are no longer bound by that agreement and are back in the same position before they entered into the agreement. Or, if both parties misunderstood the agreement, the court may modify the agreement (known as contract reformation) to correctly reflect the parties’ understanding. But don’t count on either of these remedies to always save the day. Courts are reluctant to alter agreements, even when the result may be disastrous to the one making the mistake.

What ‘Construction Services’ Require Professional Liability: Construction Litigation

Design/Build Firms

Firms which decide to participate in the “Design/Build” Construction Delivery System agree to both construct and design the project. What distinguishes this form of project delivery system from the traditional method is the “single point of responsibility” which mandates the Design/Builder to be responsible for the design of the project as well. Again…please note: “The Design/Builder assumes the responsibility of the design services…in addition to the traditional construction means, methods, process, procedures, sequences and safety”

Construction Managers/Consultants

Construction Managers typically work with the “Owner” of a project and design professionals from the beginning of design until project completion. Some of the possible services that can be provided by Construction Managers are:

Project Management
Designer Selection
Designer Orientation
Designer Contract Preparation
Design Phase Milestone Schedule
Time Management
Cost Analysis/Management Control/Reports
Cash Flow Analysis
Construction Market Survey
Project and Construction Budget
Value Engineering Review/Analysis/Implementation
Establishment of Management Information Systems
Design Phase Procedures
Project Management including Progress Meeting & Conferences
Review of Design Documents/Recommendations
Approvals by Regulatory issues
General Conditions Review/Analysis/Implementation
Project Funding
Revisions of Master Scheduling
Monitoring the Design Phase Milestone Schedules
Pre-Bid Construction Schedules
Pre-qualifying Bidders/Advertisements & Notices
Bid Opening Review Analysis
Review and Implementation of Construction Documents
Permits/Insurance/Labor Affidavits
Quality & Warranty Review/Reports/Control/Analysis & Approval
Change Order Review/Analysis/Reports/Control & Approval
Progress Payments Review/Analysis/Reports & Approval
Contractors Safety Program Review/Analysis/Approval & Implementation
Services related to Investigation/Evaluation/Appraisals of existing Conditions/Facilities/etc.
Determination of accuracy of existing drawings or other information.
Claims & Litigation Support

Important Aspects to Remember About Construction Litigation

Don’t forget…when you review the possible services that can be provided by this delivery system…it is important to remember the vast majority of Construction Managers will be covered only by the usual Commercial General and Umbrella/Excess policies. The Commercial General and Umbrella/Excess policies respond to allegations of negligence…which cause Bodily Injury and Property Damage type claims as narrowly defined in these coverages. But…the vast majority of claims that may arise… most likely will not cause any type of Bodily Injury or Property Damage type claims to trigger these coverages… hence no coverage. As a result… Contractor/ Construction Managers Professional Liability coverage is required to respond to the vast majority of these claims that may arise from professional services. Also, the precise duties of Construction Managers must always be carefully defined in the contract with the Owner and coordinated with existing coverage.

Any Contractors Who Contracts Directly With Any Design Professional…Environmental Consultant or Related Professional…

Contractors are increasingly dealing directly with design professionals when providing construction services. If a contractor works directly with a design professional…the contractor can be vicariously liable for the performance of those design services. Obviously, the meaning for a contractor can vary, but whenever this relationship exists…the contractor may be vicariously liable for professional services rendered on the project by the chosen professional.

Not My Problem: Release of Liability Sticks

We’ve all seen them – those clauses on proposals, work orders and construction contracts stating that a repairman won’t be responsible or liable for any damage caused by his repairs. The question is, are they enforceable? A recent case has determined they can be, if properly written.

When homeowners discovered a leak under the floor of their home, they contracted a company to find it and fix it. Before repairs could begin, the homeowners had to sign a work authorization which included the following in bold print:

Technicians shall not be responsible for any damage whatsoever which may result from any locating procedures. Property owner agrees to hold harmless repair company absolutely in this regard.
To find and repair the leak, the technician drilled a hole into a floor tile. He then located the problem and fixed it. But he left the homeowners with a broken floor tile. When the owners couldn’t locate a matching tile, they had to have all the tiles replaced in the area. They filed a claim with the insurance company which paid them in full and then sought to recover what it paid the homeowners from the repair company. The court, however, determined that the work order signed by the owners also applied to the insurance company and the provision within the work order showed clear intent by the contractor to be relieved from any damage it caused.

No Good Deed Goes Unpunished

When an engineer agreed to help out a fellow professional whose license to practice had been revoked, he didn’t bargain on becoming the subject of disciplinary proceedings.

He had assumed the role of engineer of record on two ongoing projects, and reviewed the work performed to date by the now unlicensed engineer. He did so as a favor and without any compensation.

He directed and oversaw the work, supervising the unlicensed engineer’s employees and completing the unfinished design work. He then affixed his signature and seal to the plans.

At the disciplinary hearing, the engineer testified before a hearing officer and was quickly found not guilty of any violations. The plans he had sealed were prepared under his supervision and he had not associated any unlicensed persons in the practice of engineering. However, the Florida Engineers Management Corporation, the agency charged with making determinations of this sort, rejected the judge’s recommendation and went ahead with the imposition of fines and penalties against the assisting engineer. The District Court of Appeal disagreed, holding that the hearing officer’s findings based on competent, substantial evidence may not be rejected by an administrative agency. Good news for the good deed engineer.

Hedging Your Bet

We’ve all seen those plants and tree limbs which extend beyond someone’s property. What if that foliage obstructs traffic signs or blocks a driver’s view of an intersection? Is the property owner then liable for any resulting accident? Yes, according to Florida law. Property owners cannot allow their trees or hedges to grow into the public right-of-way. The law expects that owners can and should monitor their properties to determine if overgrown foliage poses a risk or danger to third parties. In fact, Florida’s Supreme Court expanded its explanation of landowner liability in this regard, dictating that owners will be held accountable if they permit conditions on their land to extend into public roadways and create a foreseeable hazard to traffic.

As for overhanging branches between two adjacent properties, the law is equally clear. Neighbors are allowed to prune those portions growing into their own property. Crossing over one’s property line to trim foliage or cut back an offending plant, however, is not advised. Not only could one be found guilty of criminal trespass, but too severe a pruning job could bring a lawsuit for damages.

Who’s at Fault: Architect or Engineer

When a building unexpectedly collapses, as happened in Surfside, everyone begins to think who may be to blame. And high on everyone’s list is likely to be the architect and the engineer.
Of course, it is generally assumed that the duties associated with the professions of architecture and engineering are as distinct as are the two disciplines. An architect focuses on the design of a building, making certain it is aesthetically pleasing, while an engineer assures that a building functions properly. However, Florida construction law shows that such a strict division of responsibilities may be incorrect.

For example, when a hurricane struck a job site causing partly installed tilt-up construction panels to collapse, a suit was brought for professional malpractice by the owner against his architect. The owner believed the architect should have known that the temporary bracing of the walls was inadequate and would not hold up against hurricane force winds. Moreover, the owner alleged, the architect should have realized that such a failure could cause the complete demolition of the walls resulting in the project being delayed as the walls were reconstructed. The architect countered that this aspect of the project was not his responsibility – and this was more an engineering than an architectural issue. To support his contention, the architect showed that there was no corresponding duty enumerated in his contract with the owner, and he argued, no contracting party ever has any obligation greater than that promised in its contract.

But in reality, the responsibilities of architects and engineers often overlap, especially on larger scope projects. Had the architect in our example looked a bit more closely at his construction contract documents, he would have found what the court discovered – a supplementary document marked as an exhibit to the architect’s underlying agreement with the owner, specifically stating that the architect’s scope of services, as well as his compensation, encompassed “structural engineering, including site visits during construction”. A surprise for the architect on this case but in fact not especially unusual on projects of this sort. The law in several jurisdictions actually anticipates that there will be times when incidental to one’s practice, a professional may perform services outside his or her specific discipline on a project, such that, for example, an engineer may perform architectural services and an architect engineering related tasks.

There will be changes – after The Champlain towers collapse

“Quality is remembered long after price is forgotten” So said Aldo Gucci, the chairman of the famous Gucci fashion house from 1953 to 1986.

On Thursday, June 24, 2021, at approximately 1:25 a.m. EDT, Champlain Towers South, a 12-story beachfront condominium in Surfside, Florida, partially collapsed. Ninety-eight people died.

While the full extent of the causes for the disaster may take many months to determine, a report in the Miami Herald based on interviews with engineers and construction experts has pinned one of the causes on multiple, extensive structural flaws that existed in the building for 40 years.

The report concludes that the project was “Flawed from day one.” Among the problems, according to the report, were that “the plans specified structural columns that were too narrow to accommodate enough rebar, meaning that contractors had to choose between cramming extra steel into a too-small column — which can create air pockets that accelerate corrosion — or inadequately attaching floor slabs to their supports.”

“While original design flaws alone were unlikely to have initiated the collapse that happened 40 years after construction, engineers consulted by the Herald said the deficiencies, in combination with concrete deterioration, could have been the difference between a single floor caving in and the kind of progressive collapse that killed 98 people.”

As everyone in the construction business knows, building codes are much more stringent now than 40 years ago. As was true in the aftermath of Hurricane Andrew, this collapse will likely trigger a wave of reform in the way buildings from the same era are inspected and repaired. After the collapse of the Champlain Towers South, even the politicians were asking: “Can we build these buildings better/ safer”? The clear answer to that question is “Yes.”

A recent article in the Miami Herald (9/12/2021) concluded that better ways to build are already available. For instance, rustproof polymer reinforcing rods and ultra-high-performance concrete that is largely impervious to saltwater. These products are already in use on some types of projects; however, according to Dr. Morteza Khatib, a structural engineer at the University of Miami, the primary reason they are not more widely used is cost.

“Polymer bars, for instance, might increase upfront material costs by around 20 percent. On the flip side, Khatib said, it could save condo buyers millions over a building’s lifetime by dramatically reducing repair costs.”

According to Atorod Azizinamini , a professor of civil engineering and director of the Moss School of Construction at Florida International University, another alternative that is both affordable and can greatly reduce the corrosion problem is ultra-high performance concrete (UHPC). The cement is mixed with barely any water and eliminates the ingress of salt water.

Architects, engineers, and contractors, all have to minimize the shortcuts on design and construction and instead maximize the safety quotient in all they do.

Dealing with Construction Defects at Champlain South Tower Condominium

As the nightmare of the Surfside building collapse sinks in, folks are beginning to explore who may be responsible for repairing and replacing the extensive damage.

Implied Warranties

In Florida, the warranty of fitness as to the work performed and supplied by the contractor, subcontractors and suppliers only runs for a period of three years from the completion of construction. The warranty of fitness and merchantability for the unit’s intended purposes running from the developer on the other hand extends for three years after completion of each condominium building or for one year after control of the condominium association has been transferred to unit owners other than the developer, whichever occurs last. This period cannot exceed five years in any event, and clearly the age of the Champlain South Tower will likely preclude these sort of warranties.

Express Warranties

It should be noted that many developers may attempt to obtain an advantage by providing specific warranties, thus creating a selling point and greater incentive for their prospects. Under such circumstances, the developer may extend or broaden the scope of its common law and statutory warranties. These express warranties are binding on the developer and create a clear route for unit purchasers seeking to capitalize on the developer’s greater exposure to liability when construction elements go awry.

Negligence

In addition to the common law and statutory warranties, there are other alternative causes of action available to condominium unit purchasers who find themselves struggling with property defects. One is negligence. Under this theory, even remote purchasers have standing to sue the original contractor for any failure to meet the standard of reasonable care to safeguard those who may foreseeably be placed in peril. Although a greater degree of proof is required to prevail in a negligence action in contrast to a breach of warranty claim, negligence claims have distinct advantages for the unit purchaser. In such actions, the statute of limitations is usually longer and more flexible, allowing more time for discovery of any defect. Additionally, an action in negligence may attach to design professionals such as architects and engineers, against whom a warranty action would not customarily stand, given their lack of privity of contract with the purchaser. But the design professional will be held to a duty of reasonable care as to design.

Fraudulent or Negligent Misrepresentation

When no one is prepared to immediately accept fault for a given construction defect, the unit owner inevitably turns to litigation. The unit owner or the owners collectively may not limit their action to the developer, choosing rather to include all involved contractors, subcontractors and suppliers. The rationale in suing all potentially at fault parties is to circumvent the risk that the statute of limitations may prevent future suits against any one of these parties during the pendency of the suit against the developer. These usual suspects are often joined by various other co-defendants as the circumstances may dictate. Successor developers, the corporate parent of a developer corporation, officers of a developer corporation, design professionals, inspectors, and the individual sellers of pre-owned units may unhappily find themselves in these construction defect lawsuits.

Defenses

Once claims are made, they are predictably countered by allegations that the condominium association or unit owner failed to perform routine maintenance or that the contractor actually adhered to applicable building codes and standards in effect at the time of construction. Contractors and developers will argue that the building is in substantial compliance with all contractual requirements and that any deviation from plans and specifications are de minimis and do not affect the value of the unit. Claimants can expect to be accused of failing to mitigate their damages, or, in a negligence action, that they are comparatively negligent in failing to inspect and/or maintain the premises.

Determining fault is neither clear cut nor easy especially in this situation, so all parties involved in the development, construction, sale and purchase of each condominium unit at Champlain South Tower should anticipate the worst.

Can you be held liable for a workplace injury?

Be careful – owners and contractors are now being held criminally liable for their carelessness and disregard of safety protocols.

Safety may be job one on any number of job sites, but state and federal prosecutors are now charging developers, general contractors and subcontractors with actual crimes. No longer are safety violators just facing monetary fines, they are looking at actual jail time.

A New York case involving a wall collapse at an excavation site which killed one worker and injured two others has an owner, his companies and the permit holder in the crosshairs. It didn’t help that the worker who died was an undocumented immigrant and a contractor was hired to just pull the permit. Worse, the owner continued to ignore warnings from workers at the project complaining that the area was not safe. The owner has been indicted for manslaughter.

The targets are not just owners. Two project managers were recently indicted in New York because of the reckless use of a crane which toppled over injuring several workers. The supervisors had not pulled the right permits and were not properly trained on the use of the crane. When it capsized, the crane was carrying a load twice its noted limit.

Another mishap in California illustrated a lack of proper training on the use of powered nailing tools. Apparently, a worker holding a switched on nail gun, accidentally discharged it, shooting a nail into his arm and seriously injured himself. The company was criminally charged for ignoring safety codes and overlooking obligations to properly protect its workers.

In Washington state, prosecutors charged an owner with negligent homicide after a worker died in a trench collapse. As so often is the case in these types of accidents, the excavation site had not been properly shored. This was seen as a willful and intentional disregard of established safety regulations and amounted to criminal negligence.

And in Miami, while a number of companies face significant fines as a result of the tragic Florida International University bridge collapse, the incident remains under review as to the possible imposition of criminal charges. Federal authorities have already cited folks for serious worker safety violations, including the lack of proper safety lines but more importantly, the lack of proper oversight which allowed workers on the bridge after it developed significant cracks.

So companies would be smart to have regular compliance audits, keep accurate records and promptly deal with OSHA citations. As well, having in place ample insurance coverage which includes protection for officers and directors is a must. Of course, all bets are off if those seeking insurance coverage have actual prior knowledge of a dangerous condition and do nothing to address it. Today, construction accidents not only trigger monetary fines but the potential for real jail time.

The Importance of Insurance

You might assume your insurance (typically your commercial general liability insurance) will cover claims for your defective work. Unfortunately, this is not always true.

Your general liability insurance is intended to protect you for claims that your work caused damage to other property. Other properties in this case refer to property separate and apart from your work. For instance, if you are painting a building and paint falls on the car down the street, your insurance will likely cover the repair of the car that got splattered. Conversely, if you are installing windows and the windows were installed improperly causing water damage in the building, your insurance may cover the water damage inside the building. But it won’t cover your claims for defective work as to the windows or the installation of the windows themselves. In many cases where there are claims for defective work, they always have two components – the damage to other property (in some cases that’s very large and in other cases it’s very small) and the damage or the replacement and repair of the defective work (again, sometimes that can be small or large).

What’s important for you to understand is what your insurance actually covers and what it doesn’t. This way you can deal with claims that may be asserted against you for defective work. Some clients come to our office with a claim which they think incorrectly can be lodged against their insurance. They believe that since they are insured, everything should be covered under their insurance. That’s just not the case. Every policy is different, each has limitations and exclusions, so read your policy and speak to your agent.

Insurance – don’t start a job without it

Insurance is a “what if” product that goes hand in hand with construction work. Whether you’re building a single family home or an office high rise, there are a lot of different players and plenty of moving parts, all of which don’t necessarily always fit together correctly. Insurance can provide protection from loss due to construction defects, accidents, and natural disasters. It might even cover the cost of defending against claims. Most people appreciate the peace of mind that comes with knowing they’re protected. But what happens if you ever need to file a claim?

Each policy has rules regarding when and how policyholders must file a claim. Many insurance companies give their customers a maximum deadline by which to file formal claims and present damage estimates. Regardless of your insurer’s timeline, however, it’s good practice to put your carrier on notice as soon as you discover damage or evidence of a loss. It provides your insurer with a chance to conduct inspections and evaluate the damage.

Sometimes those counting on being paid for a loss are unpleasantly surprised when their insurer denies coverage. Whether you’re an individual homeowner submitting a claim for a construction defect or a subcontractor, developer, or builder filing a claim for liability coverage, insurance companies don’t always pay up. Even with a comprehensive policy in place, there may be exclusions which result in a limitation of coverage, or no coverage at all.

As an example, suppose a homeowner discovers a leaky roof, which causes water damage and a subsequent mold problem. The homeowner files a construction defect claim, and the contractor files a claim for coverage with its liability provider. The Florida Supreme Court has held that although a liability policy might exclude the cost of repairing a defect, the insurer must pay for any consequential damages. So in the leaky roof example, this means that the insurer might not have to pay for the roof repair, but it must offer coverage for the water damage and mold that occurred as a result.

Even with its coverage quirks, insurance remains an important ingredient on every construction project – mandatory on just about every job. You wouldn’t want to do business without it.

The Additional Insured Endorsement

Construction often involves multiple parties performing different work, making it essential that coverage is in place for all aspects of a project. Adding someone as an additional insured is a common way to get this done. It protects the owner as well as general contractor from liability arising out of any subcontractor action.

Do you actually have additional insured coverage?

The one responsible for adding an additional insured generally makes the request to his agent. In turn, the agent customarily issues a certificate noting the additional insured on the actual policy. The certificate will specify the additional insured’s name and the extent of applicable coverage. But the certificate, in and of itself, is not enough. An Additional Insured Endorsement to the actual policy is required to confirm that a party seeking the additional insured coverage has obtained it.

To get it right, and before proceeding with the work, be sure to see the Additional Insured Endorsement and a copy of the insurance policy.

Contractor’s Professional Liability Coverage

This information is being presented from the Contractor’s vantage point. Hopefully, this will also provide valuable information for any design professional seeking to gain greater knowledge and information regarding the risk management concerns that apply to a Design/Build project led by a construction firm. Knowing these concerns and how contractors can minimize their unusual liability exposures should be helpful for any design firm entering into an agreement on a design/build project. In addition, contractors and all others who are involved should be knowledgeable about this specific delivery system as it is unique and different from the design/bid/build delivery system.

Please note…the Professional Liability exposure is ever present for the Design/Builder even though the professional services are subbed to qualified and insured design professionals. The Contractor’s Professional Liability policy would respond in the event the Design/Builder had an in-house design staff or if they subcontract out all the professional services/exposures to design professionals.

All Design/Builders will most likely be insured with Commercial General Liability and Excess/Umbrella type policies…and the following exclusions are always a part of these coverages:

A damage to work exclusion
A damage to the product exclusion
An impaired property exclusion
Professional Liability exclusion
Absolute pollution exclusion

In addition, these policies only respond to bodily injury, property damage and personal injury claims as defined in these policies for claims, which result from theDesign/Builder’s negligence.

Why do You Need Professional Liability Coverage?

The reason this coverage is needed is that the contract with the owner will normally require that the contractor be their single point of responsibility. As a result…the contract documents will require the Design/Builder to assume not only the responsibility for the construction means, methods, procedures, sequences, safety, etc. but the responsibility for the design exposures. Obviously…specific contract documents will determine exactly what the Design/Builder’s responsibilities are in this area.

Another advantage to the Contractor’s Professional Liability policy is that it responds to claims arising from their negligent acts, errors or omissions, which is not the case with the other coverages mentioned above. The Contractor’s Professional Liability coverage addresses some of the obvious gaps which are a part of the Contractor’s Commercial General and Excess/Umbrella Liability policies. The Contractor’s Professional Liability policy also insures the subjective “standard of care” that professionals are required to provide versus the objective standards that contractors are usually required to provide as a contractor.
To recap…when dealing in the Design/Build delivery system the professional exposures are created in the following ways:

Single point of delivery,
The language contained in the owner’s contract with the contractor,
Contractor’s direct liability for the in-house professional services rendered,
Contractor’s vicarious responsibility for services subcontracted to design professionals:

With this coverage, the contractor’s surety (bonding) company should also be much happier! It removes them even further from the possibility of an owner or other third party claimant. Don’t forget…“bonding” does not provide protection for these exposures but this specific coverage does insulate the surety more from being sued and having to incur tremendous defense costs before they are dismissed from a suit.

In addition, any costs/expenses incurred by surety arising out of the bonding process which relate to the design/build process will fall back on the bonded contractor, As a result of the property damage and economic type loss exclusions, it is estimated that 60-75% of all Property Damage type claims are not covered!

Please remember, this is a claims-made policy and there is no standard policy form. As a result, it is suggested that a thorough review be conducted.

Owner-Controlled Insurance Programs for Public Construction Projects

The Florida Legislature recently passed a new law that allows state agencies, as of October 1, 2004, to purchase owner-controlled insurance in connection with a public construction project, if necessary and in the best interest of the public agency. However, an agency may only purchase such insurance if the estimated total cost of the project is for any of the following three amounts: $75 million or more on any project, $30 million or more for two or more public schools in one year, or $10 million or more for one public school. Projects for the Department of Transportation, and projects which were advertised or begun before October 1, 2004, are specifically excluded.

Insurance Programs Requirements

Other requirements include that the bid or proposal must specify the insurance coverage that will be provided and the minimum safety requirements that must be met, that the contractor or subcontractor must not be prohibited from purchasing any additional insurance, and that the program maintains insurance for the minimum of 5 years. The agency is responsible for the payment of all deductibles. The program, however, must not include surety insurance.

As an additional protection, liability insurers must offer the contractors involved in the above projects additional coverage for current or completed operations for any period beyond the period for which the program provides liability coverage. The period of such additional coverage must be sufficient to protect contractors against liability for actions brought against them within the applicable statutory time period.

Get that Release

After a developer and a contractor had completed construction of a condominium building, they were asked back by the association to perform some warranty repairs to the exterior cladding. The building was experiencing water intrusion through the stucco exterior. The developer and contractor signed an agreement with the association which included a statement that once these repairs were completed, the association would make no further claim and release both the developer and the contractor.

Following a hurricane the next year and more water damage, the association submitted an insurance claim. When the claim wasn’t being immediately paid, the association sued the insurance company. In turn, the insurance company sued the developer and contractor for defective workmanship on the exterior cladding.

But the insurance company lost this battle. The developer and contractor produced the agreement and release they had gotten from the association, and the court agreed with them. The release they had obtained relieved both of them of further liability.

As any construction lawyer would advise you, get that release whenever you settle a claim. It will come in handy if someone pops up down the road making a claim on the same issue you already settled.

Contribution, Indemnity and Legal Subrogation

South Florida is experiencing unprecedented growth in residential, commercial, and public construction. Such a booming construction industry will likely spawn disputes, many involving tort claims evolving from defective work, charges of professional malpractice, and allegations of breached contractual covenants, all with the resultant arguments between owners, sureties, design professionals, and contractors, as to the extent and proper allocation of liability. As a result, contribution, indemnity and subrogation will be hotly litigated issues, with the rights of each party to any of these claims being dependent on contractual, statutory and equitable principles.

This article illustrates that pleading a proper claim is essential, if not always easy. Clarifying the distinctions among contribution, indemnity and equitable subrogation, the author examines the complexities surrounding these causes of action, further differentiating the claims under these theories by latency of the defects involved.

Contribution.

Contribution is a discharge of common liability by a party on its behalf and on behalf of other joint tortfeasors. Contribution entails joint or several liability.

In Florida, the Uniform Contribution Among Tortfeasors Act, Florida Statutes Chapter 768.31, governs actions for contribution. The cause of action for contribution requires neither a contractual relationship between the parties, nor permits the same as the basis of the action; the statute is the exclusive remedy. However, the statute does require a presence of common liability for damages and that the party seeking contribution make a payment in excess of its pro rata share of common liability. The right to contribution vests only once a party settles the entire tort liability.

Common liability refers to “a joint causing of damage or injury and not to actual likelihood of success in a tort action”, or to a “common commission of a tort”. Moreover, a party seeking contribution has a burden of proving that common liability exists between the parties, and that the settlement it entered into was reasonable. An important caveat exists as there is no right to a claim of contribution where a party shares liability with another party who enjoys a form of immunity.

The existence of common liability is well illustrated by Salley v. Charles R. Perry Construction, Inc., where a building owner’s assignee, Florida Farm Bureau Federation, sued Salley, the architect, for negligent design and selection of glass for the windows. The court held that the architect sufficiently alleged common liability with the contractor, by claiming that the contractor negligently substituted a different type of glass, and that the contractor was negligent in installing the glass. In fact, the court stated, common liability resulted because the two parties “were engaged in the common enterprise of designing and constructing a single building, with duties to Farm Bureau that were intertwined in both time and substance.” Therefore, because the architect and the contractor were engaged in a common effort to erect a building, and the contractor substituted defective glass for specified glass, contractor and architect had common liability such that the architect had a right of contribution against a contractor.

These types of actions are fairly common in the construction industry, as the involvement of various parties and frequent litigation inevitably lead to claims for contribution.

Indemnity.

The concept of indemnity is founded on a breach of duty owed to a party seeking indemnity, or on an express or implied contract between the parties. Indemnity shifts the entire burden of payment from one party to another, based on the underlying relationship between the parties, and the duty created thereby.

A party properly pleads common law indemnity by alleging that: (1) it is wholly without fault; (2) it is liable to the injured party only because of vicarious, constructive, derivative or technical liability; and (3) that the indemnitor is at fault.

The entry of a judgment against an indemnitee is a prerequisite to indemnitee’s cause of action for indemnification. Courts, however, permit a defendant in the underlying action to file a third-party complaint prior to the conclusion of the underlying case. Filing of a third-party complaint allows all interested parties to resolve their claims in a single action.[17]

The main characteristic that distinguishes indemnity from contribution is the blamelessness of the indemnitee; an indemnitee must only be “vicariously, constructively, derivatively, or technically liable for the wrongful acts” of the indemnitor. Consequently, an indemnitor must compensate an indemnitee for all damages incurred by indemnitee, including costs and attorneys’ fees.

Equitable Subrogation.

Unlike contribution and indemnity, courts apply the doctrine of equitable subrogation to prevent unjust enrichment. Equitable subrogation affords relief in situations in which one pays a debt or discharges an obligation which should have been paid by another. Courts allow equitable subrogation where “one person has satisfied the obligations of another and equity compels that the person discharging the debt stand in the shoes of the person whose claim has been discharged, thereby succeeding to the rights and priorities of the original creditor.”

To establish a cause of action for equitable subrogation, a party must show the following elements: (1) subrogee made payment to protect its own interest; (2) subrogee did not act as a volunteer; (3) subrogee was not primarily liable for the debt; (4) subrogee paid off the entire debt; and (5) subrogation would not work injustice to the rights of a third party. Furthermore, one must allege that the parties were not joint tortfeasors, and that they did not have common liability. The party who made the payment also must have a right or interest of its own to protect, and must not be a mere volunteer acting without an obligation.

although contribution, indemnity, and equitable subrogation provide distinct remedies, they are closely related. Parties need to ensure that they properly plead their cause of action, as otherwise they may be negatively impacted by the differing statutes of limitation.

Parties involved in construction litigation, therefore, need to remember that the main distinction between equitable subrogation and contribution lies in the fact that if another party is found liable for the entirety of the damages, the payor party may not maintain a cause of action for contribution. On the other hand, if a party does not comply with the requirements of the contribution statute, it is barred from bringing an equitable subrogation claim because “to permit the insurer to bring an action for subrogation in these circumstances would effectively eliminate the need for a contribution statute.”

Latency of Defects.

The issue of defect latency instills a further intricacy into the conceptual distinctions among these three causes of action.

The frequently discussed Florida Supreme Court case, Slavin v. Kay, facilitated comprehension of the consequences of acceptance of defective work. The Court held that a contractor does not assume liability for a patent defect upon acceptance by the owner. In the case of latent defects, the contractor remains liable for the injury caused even after the owner accepts the work. The Supreme Court reasoned that the law presumes that the owner has made a reasonably careful inspection prior to acceptance, and has a predetermined knowledge of the defects. Subsequent caselaw extended the Slavin doctrine to architects and engineers.

A contractor, architect or engineer is liable only if the court determines that the defect at issue is latent and non-discoverable by a property owner in the exercise of reasonable care. The primary determination of latency depends upon whether the defect is apparent through the use of one’s ordinary senses from a casual observation of the premises. Where an owner accepts work with knowledge that a contractor, architect or engineer has not properly performed, or where the defects were discoverable after reasonable inspection, such acceptance waives a contractor’s, architect’s, or engineer’s liability for the defect.

Although courts are reluctant to rule as a matter of law that a defect is patent in cases where a defect is not open and obvious, some have nevertheless concluded that a defect is patent under appropriate factual patterns. For example, courts have determined that the following constitute patent defects: a diagonal tie rod which extended eight inches beyond flower pot; pillars obscuring ingress and egress views from a shopping center driveway; a lack of a guard grille over the air conditioning duct; road defects incurred through repaving work[44]; a missing metal peg on climbing tower; defects in the bridge roadbed; lack of parking area and barricade to separate traffic.

Indemnification Clauses Are Not Always Enforceable

A standard clause in many construction related contracts often requires one of the parties to indemnify and hold the other harmless. This means that if something goes wrong and there is a claim or a lawsuit, one of the parties to the contract will need to be responsible – even if the claim or lawsuit is made against the other party to the contract! Persons who draft such contracts should be forewarned though that there may be statutory requirements that could render the clause void and unenforceable absent certain restrictive language.

For example, one statute in Florida invalidates any indemnification clause unless the contract contains a monetary limitation that “bears a reasonable commercial relationship” to the contract and “is part of the project specifications or bid documents, if any.” If these monetary limitations are not met, the indemnification clause will be useless and have no legal effect.

The statute also holds that the indemnification may not indemnify for acts, omissions or defaults of anybody other than the indemnitor (the one providing the benefit), its contractors, subcontracts and agents or the indemnitee (the one receiving the benefit), its directors, officers, agents or employees. As to contract language that indemnifies for acts, omissions or defaults of the person actually benefiting from the clause, such clauses may not indemnify for their own gross negligence or intentionally wrongful acts.

When are Indemnification Clauses Permitted

Regarding construction contracts with public agencies, indemnification clauses are permitted only to indemnify a party from wrongful acts of the indemnifying party in performance of the contract (as opposed to wrongful acts of other persons). Otherwise, such indemnification clauses are deemed void as against public policy.

To some extent, the cases that interpret the statute serve to limit its scope. These cases generally rule that either the person seeking indemnification did not fall within the class of those types of parties covered by the statute, or that the type of contract under which a party seeks indemnification was not covered under the statute. In each of these cases, the indemnification language in the contract at issue did not contain the required restrictive language.

When an individual plaintiff was injured due to an alleged elevator malfunction and sued the owner who in turn sued an insurance company for indemnification, the court ruled that the statute restricting application of indemnification clauses did not apply because the contract at issue was a service contract, as opposed to a construction-related contract.

In another case, the court held that when an engineering firm was a third party beneficiary (i.e., receiving a benefit in a contract between two other parties) it could sue for indemnification even if the contract did not otherwise comply with statutory requirements. The third-party beneficiary was not bound by the limitations in the statute.

A third case held that the statute would not apply if the party seeking indemnification was not looking to be indemnified for its own active negligence. These interpretations reinforce that parties to construction contracts must be careful to comply when seeking indemnification for another’s wrongdoing. A contractor must have clauses it can enforce, and be sure that all statutory requirements are met. The indemnification must contain a monetary limitation that bears a reasonable commercial relationship to the contract.

Applicable statutes contain limitations as to the types of parties, acts, and omissions that may be subject to indemnification clauses. For example, a statute that has undergone several revisions over the years may contain language that is confusing at first glance.

Always take care to review such clauses with an attorney knowledgeable in this area of the law. Otherwise, a contractor may suffer a painful lesson when faced with claims or litigation for which it thought it was protected under an indemnification clause.

Indemnification Clauses: Often Found, Rarely Understood

The notion of shifting liability for personal injury or damage to property from one party to another has become commonplace, especially within construction contracts. In its most basic sense, contractual indemnity has someone agreeing to hold another harmless for certain specified claims, losses or damages.[1] While governed by the terms of a given contract, such indemnification provisions may be further defined through judicial interpretation. This article examines a number of key cases, recent statutory implications and the likelihood of enforcement. Indemnity and hold harmless clauses are normally applied at all responsibility levels. The contractor is generally required to indemnify the owner, the subcontractor is then expected to indemnify the contractor and usually the owner, and even the sub-subcontractor may be asked to hold parties harmless. A good starting point in understanding the significance of these often confusing and esoteric clauses is to review how the courts have construed them.

A Florida case, an engineering firm, after settling a claim brought against it by a subcontractor’s injured employee, sought indemnification from the general contractor. The indemnity provisions at issue provided:

6.30. To the fullest extent permitted by law, CONTRACTOR shall indemnify and hold harmless OWNER and ENGINEER and their agents and employees from and against all claims, damages, losses, and expenses including but not limited to attorneys’ fees arising out of or resulting from the performance of the work, provided that such claim, damage, loss or expense (a) is attributable to bodily injury, sickness, disease or death . . . and (b) is caused in whole or part by any negligent act or omission of CONTRACTOR, any Subcontractor, anyone directly or indirectly employed by any of them or anyone for whose acts any of them may be liable, regardless of whether or not it is caused in part by a party indemnified hereunder. (emphasis added).

6.32. The obligations of CONTRACTOR under paragraph 6.30 shall not extend to the liability of ENGINEER, his agents or employees arising out of the preparation or approval of maps, drawings, opinions, reports, surveys, Change Orders, designs or specifications.

The engineer also sued the surety which had issued a performance bond for the project. The bond contained a provision indemnifying the owner and engineer, as follows:

[Surety] shall indemnify and save harmless the said Owner and the Engineer and his agents against payments of any and all damages that may happen to persons or property. arising out of any act, neglect or omission of said principal [Contractor], his or its agents, suppliers, subcontractors or employees with relation to the work.

The Court concluded that if the engineer paid all or part of the $3.55 million to settle the claims of the subcontractor’s employee based on potential liability for negligence that was unrelated to design (the exclusion within the contract), then the engineer would be entitled to indemnity from the contractor and its surety for monies paid to the subcontractor’s employee, even if some of the fault could be attributed to the engineer. While indemnifying a party for its own negligence might seem unreasonable or unfair, such clauses are certainly enforceable as long as they clearly express this intent.

Even the Florida Supreme Court has addressed the issue. In Charles Poe Masonry, Inc. v. Spring Lock Scaffolding Rental Equip. Co., 374 So. 2d 487 (Fla. 1979), a contractor’s employee sued the lessor- manufacturer of scaffolding when he was injured in a fall from the scaffold. The lessor- manufacturer, in turn, sued the lessee-subcontractor, the contractor, and owner for indemnity. The relevant provision at issue stated:

The LESSEE assumes all responsibility for claims asserted by any person whatever growing out of the erection and maintenance, use or possession of said equipment, and agrees to hold the COMPANY harmless from all such claims.

The Court found that such general terms demonstrated nothing more than an undertaking by the lessee (subcontractor) to hold the lessor (manufacturer) harmless from any vicarious liability that resulted from the lessee’s erection, maintenance or use of the scaffold. Courts have found that general language purporting to indemnify someone for his or her own negligence is not sufficient. Therefore, an indemnification clause that includes a general provision indemnifying the indemnitee “against any and all claims” does not sufficiently express an intent to indemnify for consequences solely from the negligence of the indemnitee.

Examples of how Indemnification Clauses Played Out in Court
In Winn Dixie Stores v. D & J Constr., 633 So. 2d 65 (Fla. 4th DCA 1994), Winn Dixie sought contractual indemnity from D&J for injuries sustained by the contractor’s employee. The employee had fallen in a puddle caused by a roof leak, something not part of the contractor’s work. The indemnity agreement covered

any claim or loss arising in any manner out of the presence or activity of D & J [the contractor] or any of our servants, agents or employees or representatives or out of the presence of such equipment when such persons or equipment are on your premises for the purposes of performing services . . . notwithstanding such accident or damage may have been caused in whole or in part or negligence of you [Winn Dixie] or any of your servants, agents or employees.

Based upon the above language, the Court found that Winn Dixie was entitled to indemnity from the contractor even though the contractor was not at fault, simply because the contractor was on the owner’s premises when the accident occurred.

Since 1972, Florida has had statutorily provided criteria for an indemnification clause in a construction contract.[2] In George’s Crane Serv., Inc. v. Signal Serv. Indus., Inc., 819 So. 2d 233 (Fla. 4th DCA 2002), the Court found that an indemnification agreement which did not meet the criteria of Fla. Stat. 725.06(2)(1999). Specifically, there was no “specific consideration” for the indemnification that was “provided for” in the contract. The Court had earlier concluded that a construction contract which allocated a percentage of the contract,i.e., 1% of the contract price for the contractor’s indemnification obligation satisfied the statutory requirement that indemnification be supported by specific consideration. However, these cases addressed the prior versions of the statute which required either a monetary limitation or specific consideration from the person indemnified.[3]

The current version of the indemnification statute provides that a construction contract which permits one party to indemnify another party for the other party’s own negligence shall be void and unenforceable unless:

(1) there is a monetary limitation on the extent of the indemnification that bears a reasonably commercial relationship to the contract [note: the monetary limitation on the extent of the indemnification provided to the owner of real property by any party in privity of contract with the owner shall not be less than $1 million per occurrence, unless otherwise agreed to by the parties]; and

(2) is part of the project specifications or bid documents.[4]

As well, the current version of the statute provides that a contract which requires one party to indemnify a public agency for that agency’s negligence is void, illegal and unenforceable. Perhaps the fact that most public contracts are not negotiable, while private contracts are, is the reason for this distinction. Also unenforceable are claims or damages resulting from gross negligence or willful, wanton or intentional misconduct of the indemnitee, its officers, directors, agents or employees or for any statutory violation or punitive damages (unless the statutory violation or punitive damages are caused or result from the acts or omissions of the indemnitor or its agents, employees or those working under it).

What to keep in mind

When entering into a contract with an indemnification provision, several issues should be kept in mind, namely:

who is indemnifying whom;
does the contract clearly express an intent to indemnify a party against its own negligence;
do the terms of the agreement determine whether the indemnitor is obligated to reimburse the indemnitee for a particular claim;
what is being indemnified, i.e., personal injury, property damage, attorneys’ fees and costs of defense, economic loss;
is there a monetary limitation on the extent of the indemnification that bears a reasonable commercial relationship to the contract and is such monetary limitation part of the project specifications or bid documents, if any;
is there a provision requiring that the risk be covered by insurance such that the indemnity is limited to the amount of the insurance coverage (contractual liability insurance).

With such clauses becoming standard issue in construction contracts, it is especially important to understand how much or how little can be negotiated in or out in this regard. A poorly written provision could lead to the erroneous presumption of protection when none actually exists. Worse, it could result in a litigation nightmare or a very costly claim. Because indemnification is both a sword and a shield, be sure the clause you agree on is one you also truly understand.

The Differences Between Hold Harmless, Indemnification and Duty to Defend

They’re usually lumped together. Full of legalese, often impossible to decipher and generally presented on a take it or leave it basis, these hold harmless, indemnification and duty to defend provisions are regularly found in most construction contracts. Most contractors just accept them, hoping for the best and not giving them a second thought. The problem is that each one of these provisions has serious implications.

Though often found together, they each have a very different meaning. A “hold harmless” clause is the provision which, if drafted correctly, has the effect of releasing one from liability. “Indemnification” shifts liability from one party to another. And a “duty to defend” means just that and is a separate and distinct obligation from any duty to indemnify or a duty to hold harmless. This duty to defend requires one to provide a defense and pay the legal expenses associated with such defense – no small obligation, especially when you consider this duty is triggered whatever the merits of the claim may be. The duty to hold harmless and the duty to indemnify only arise if the outcome of a claim is adverse to the indemnitee – the one receiving the benefit of the hold harmless or indemnity.

Because construction disputes so often involve multiple parties and complex issues, the potential costs associated with each of these provisions can be very significant. For example, the cost of a legal defense can quickly outpace the cost of the actual underlying claim. When confronted with any of these clauses, step back. Read them carefully to be sure what you’re getting into. It may be a lot more than you think.

Settling a Defect Claim

There is no running away from the fact that we live in a highly litigious society, and there is no question that having to file a construction lawsuit to enforce your rights or being brought into a lawsuit to defend yourself is at best an expensive proposition and at worst a gut wrenching experience. Even if you are able to adequately recover your litigation costs, the process of dealing with construction disputes is both long and emotionally draining, sure to challenge your patience and test your will. It is believed that you have a 1 in 4 chance of having a potentially devastating lawsuit filed against you sometime in your future.

Accepting the threat of litigation in your future is the first step; understanding how to best resolve any dispute which arises is the more difficult next step. Always know that somewhere, likely buried in the positions put forth by the opposing parties, lies a resolution, where each party compromises its demand just enough to eliminate the necessity of a costly judicial action. Finding that place where a settlement can be reached and where the respective parties can agree to accept something less than what they hoped to achieve isn’t always easy, but it is possible.

However, resolving a controversy without entering into a proper settlement agreement is tantamount to leading a horse to water and not letting it drink. Settlement agreements are interpreted and governed by the law of contracts. It is therefore critical that the parties not only reach an agreement conceptually but also sign a document which is clear, concise and lists the actual terms of the settlement. This will demonstrate that the parties have mutually agreed upon the essential elements of their resolution. While uncertainty as to nonessential terms or small items will not preclude a settlement agreement from being enforced, an inability to show that the parties had a meeting of the minds on resolving their construction disputes could be fatal to actually making a compromise stick.

Settlement agreements are highly favored by judges as a means of conserving judicial resources, and therefore courts will enforce them when possible. Parties will do themselves a favor in making sure that any settlement they reach is one which is reduced to a written document and signed. Case after case has been unnecessarily litigated because the parties never got around to formalizing their settlement. Courts are reluctant to enforce what one party only thought the other party agreed to. It is bad enough to find yourself in the middle of a dispute; it is ever so much worse to think you have settled a controversy and then be hauled into court because the deal was never actually formalized or signed. Remember to always ink the deal.

Settling with all the right parties

A college hired a general contractor to renovate one of its residence halls. This included some bathrooms and shower stalls. After completion of the project, the school discovered a number of leaks caused by defective work in the bathrooms. The college sued the general contractor for breach of contract and the plumber for breach of its warranty, alleging improper installation of shower pans and drains in the bathrooms. The plumber quickly settled. Eventually so did the general contractor. However, the general contractor then cross-claimed against the plumber, seeking payment from the plumber of the monies the general contractor paid to the college.

The plumber cried foul saying it had been released from claims for improper work when it settled with the college. But the plumber was wrong. The court concluded that just because the plumber settled with the college, didn’t mean it was released from claims for indemnification being made by the general contractor. A tough lesson for the plumber who had forgotten to make the general contractor part of its settlement with the college.

Three Parts of Every Construction Settlement

When settling any type of construction dispute, make sure to formalize the settlement in a written document. Have it signed and dated, and include the following:

The names of all the parties who may be involved or have anything to do with the dispute;
A description of the what, when and where of the incident that led to the dispute, and
The consideration for the settlement – what are the parties giving and getting to obtain a release and settlement of the dispute.

Had the plumber answered these three questions, he would have realized that to be totally and fully released on this job, he would have to include the general contractor in his settlement with the college.

Resolution without litigation

Finding yourself sued by an unhappy buyer of a property you helped build is no longer an unusual occurrence. In fact, such claims have become commonplace enough that Florida now has a law in place to address such issues. Chapter 558 provides a roadmap for parties with very specific time frames, provisions and procedures for dealing with such claims prior to suit. These steps are mandatory conditions precedent to filing defect lawsuits. If the proper procedure is not followed prior to filing suit, that suit will be suspended until the aggrieved party properly completes the required steps. This applies to many different classes of persons in the construction industry, and governs claims against contractors, subcontractors, suppliers, and design professionals. It does not, however, apply to projects that have not reached the stage of completion of the building or improvement. The Florida legislature has recently defined this to mean issuance of a Certificate of Occupancy or equivalent, or substantial completion

The first step a party with a construction defect claim must take is to serve written notice of that claim on the contractor, subcontractor, supplier, or design professional whom it maintains may be responsible for the alleged defect. Service must be made by certified mail, hand delivery or courier with evidence of delivery. If the claim arose as a result of work performed under a contract, then the claimant must also serve the notice on the other parties to the contract. The notice of claim must not only describe the construction defect but as well the damage resulting from such defect, and it must be served at least 60 days prior to the filing of any lawsuit, or 120 days if the claim involves an association representing more than 20 parcels. Within 30 days after service (or 50 days in the case of an association representing more than 20 parcels), the party to whom such notice of claim was served may inspect the property subject to the claim. The claimant must provide reasonable access to the property to determine the nature and cause of the defect claim.

Florida Statutes also impose time frames for responses to these notices. Within 45 days after receipt of the notice of a construction defect claim, (or 75 days in the case of an association representing more than 20 parcels), the party to whom the original notice of claim was served must file a response to the claimant. The written response must include one of the following: (a) a written offer to settle the claim at no cost to the claimant; (b) a written offer to settle for a monetary payment that does not involve an insurer, with a hard timetable of payments; (c) a written offer to settle by way of a compromise that includes repairs and a monetary payment; (d) a written statement that disputes the claim and will not remedy or settle the claim; or (e) a written statement that monetary payment, if any, will be determined by an insurer within 30 days of notification to the insurer by serving it with the claim.

Once a party served with a notice of claim disputes the claim and refuses to either remedy or settle the claim, the claimant may immediately file a lawsuit on the claim. However, the statute expressly provides that it is not intended to preclude partial settlements or compromises. So, the parties are free to litigate only those portions of the claim that they were unable to settle or compromise.

If a settlement offer is made, the claimant has 45 days from receipt of the settlement offer to either accept or reject it. If the claimant files a lawsuit prior to accepting or rejecting the offer, the proceeding can be held in abeyance until the offer is either accepted or rejected.

If a claimant accepts an offer to repair the claimed construction defect, the claimant must provide the party who made the offer, along with its agents, reasonable access to the property to perform the repairs. However, if the party who made the offer fails to timely make the required repairs, or fails to pay money in settlement of the claim as agreed, then the claimant may file a lawsuit based upon the claim set forth in the original notice of claim. On the flip side, if the party who made the offer lives up to its bargain by making the required repairs, or by paying the agreed upon monies in a timely manner, then the claimant is forever barred from filing a lawsuit over the claim set forth in the original notice.

These procedures apply to each construction defect, although multiple defects may be included in a single notice of claim. There is no requirement to send out a separate notice for each claim. In the event that a lawsuit is eventually filed, Florida Statutes only allow the suit to be filed with respect to those claims which were properly noticed in the manner set forth above. The statute further states that these procedures do not substitute for notice requirements involving insurers and insureds.

The statute also contains a pre-suit discovery provision mandating the exchange of any …design plans, specifications, and as-built plans; any documents detailing the design drawings or specifications; photographs, videos, and expert reports that describe any defect upon which the claim is made; subcontracts; and purchase orders for the work that is claimed defective or any part of such materials…

within 30 days of a written request for same by either the claimant or any person served with the notice of claim. The written request for exchange of documents must cite Florida Statute § 558.004(15) and include an offer to pay the reasonable costs of reproduction of the foregoing.

It should be noted that all contracts entered into after October 1, 2009, for improvement of real property entered into between an owner and a contractor, or between an owner and a design professional, must contain substantially the following notice: “ANY CLAIMS FOR CONSTRUCTION DEFECTS ARE SUBJECT TO THE NOTICE AND CURE PROVISIONS OF CHAPTER 558, FLORIDA STATUTES.”

All these timelines and requirements serve a purpose. As the legislative intent at the beginning of Chapter 558 makes clear, the primary goal of this law is to provide an alternative manner of resolving construction defect disputes and thus reduce the need for litigation while still protecting the rights of property owners. The notice, response and dispute resolution mechanisms may appear cumbersome but effectively provide a way to resolve construction defect claims without resorting to litigation.

Get Paid for Uncovering Defective Work

A case decided late last year has held that the cost to take apart and actually demolish work so as to effect a repair (better known as rip and tear) should be covered by applicable insurance. This is a departure from the long held belief that while the cost to repair a contractor’s faulty and defective work may be covered depending on policy provisions, the cost to get to that fault or defect, specifically the cost to take apart perfectly fine work to uncover the contractor’s defective work, would not be. Accessing defective work is not uncommon in any construction scenario. For example, a contractor may have to chip away at intact and sound stucco to get to cracks in the masonry causing a water leak.

Contractors, who so often struggle to obtain coverage for defect issues, now have an avenue to seek payment when uncovering defective work.

Drafting Construction Documents

Lien Law Disclosure

The first is the Lien Law Disclosure. If your contract is in excess of $2,500 and is for the construction or repair of a residential dwelling up to four units, then your contract is required to include a certain disclosure. This disclosure needs to be at least twelve point-font, bold and all caps and needs to be either on the front page of you contract or needs to be on a separate page signed by the Owner. In essence, this disclosure informs the Owner that if they don’t pay you, you have the right to lien their property and possibly sell it in a foreclosure proceeding. This disclosure is only required by those that have a direct contract with the Owner. If your contract is as a Subcontractor or Supplier, this disclosure is not required by you. Additionally, if the Owner hasn’t suffered any prejudice because you did not include the disclosure, a court will likely not impose sanctions upon you. If the Owner happens to be a licensed General Contractor, the law says they didn’t need the disclosure in the first place.

Construction Defect Disclosure

Next is the Construction Defect Disclosure requirement. If you have a contract with an Owner, you’re obligated to include a certain disclosure that informs the Owner that to the extent there is a construction defect, Chapter 558 of Florida Statues will control. Chapter 558 in short is a procedure that exists prior to a lawsuit to give the Owner and the contract an opportunity to hopefully resolve claims regarding construction defects.

Recovery Fund Disclosure

Next is the Recovery Fund Disclosure. This disclosure is required for any contract between a contractor and residential owner in excess of $2,500. The disclosure informs the owner that to the extent the contractor violates one of the provisions of Chapter 489, which includes financial mismanagement or any type of fraud committed by the contractor. The homeowner may be able to recover his or her loses from the recovery fund – a fund maintained by the state solely for the purpose of compensating owners because of the violations of contractors.

Municipal Disclosures

Finally, are certain Municipal Disclosures. Certain counties and even certain cities require that you include certain provisions in your residential construction contracts. As an example, Miami-Dade County in Chapter 10-33 of their municipal codes requires that a contractor signing a contract with a residential owner needs to include approximately one entire page of disclosures. These disclosures are in addition to, not in lieu of all of the other disclosures we talked about.

If you do the type of construction work that requires these disclosures, it’s imperative that you take the time to amend your contracts so that your contracts comply with the law.

Construction Defects; Going to Trial

You would think that words such as “leak” and “repair” are easily understood but that wasn’t the case for one particular roofer. He agreed to perform roof maintenance and repairs for a community in return for set monthly payments. He would “repair each tile roof leak discovered within 72 hours.” The warranty document given by the roofer after the contract was signed excluded leaks caused by natural disasters. Sometime later, after a hurricane had extensively damaged a number of roofs within the community, the roofer made clear that such repair work was not covered under his contract. When he didn’t repair the damaged roofs, the community withheld his next monthly payment and the contractor sued.

The trial court struggled with the language in the contract, finding it ambiguous. Did the parties mean occasional leaks caused by normal wear and tear or multiple leaks as might be caused by hurricane damage? And would temporary or permanent repairs be accomplished within the warranted 72 hours? Of course, each side presented a different interpretation. Because the intent of the parties could not be determined from the contract terms alone, the court decided to hear the testimony of the parties and their experts to sort through their competing claims. While the roofer eventually prevailed, he learned a lesson that some additional clarity up front when negotiating and writing his contract would have been well worth the extra effort, saving unnecessary aggravation and heartburn later when the unexpected occurred.

Construction Liens

A contractor agreed to build a two story garage, but early in the project realized he had made a mistake. He had constructed the foundation footer shorter than the length needed. He advised the owners and proposed a resolution. When the parties couldn’t agree on how to proceed, the owners asked for a final invoice. Eventually the contractor filed a lien followed by a complaint for damages when he was only able to obtain half of the amount he had requested from the owners.

The owner’s primary defense was that the contractor’s lien was barred by his lack of substantial performance – after all, the contractor hadn’t finished his work. This the contractor openly acknowledged but he argued that he was prevented from doing so by the owners and his failure to complete his work should be excused. He was eventually proven right. The applicable law states that even when a contractor has failed to substantially complete a contract, he may enforce his lien rights if his performance has been excused or waived by the owner. Otherwise, an owner could always prevent a contractor from enforcing his lien rights by simply terminating him before he had finished his work. This contractor may have initially made a mistake but the owner’s actions were based on an incorrect interpretation of Florida lien law.

Alternative Dispute Resolution (ADR)

Many of you in the construction industry may already be familiar with dispute resolution models, such as mediation and arbitration, in resolving construction disputes. However, a number of reports and studies show an increasing trend toward one model of dispute resolution in particular– the Dispute Review Board (DRB). In fact, Florida recently used a DRB to reach a settlement in a dispute related to the ongoing PortMiami tunnel project. The disagreement arose when it was discovered, after digging began, that limestone needed to be grouted for the project to continue. This unanticipated work carried a heavy cost, which the Florida Department of Transportation (FDOT) has agreed to pay as part of the settlement.

Use of DRBs is not unique to Florida. A DRB was first used in Colorado in 1975 during construction of the Eisenhower Tunnel, and the construction industry has since reported using them with great success. In 1996, the Dispute Resolution Board Foundation (DRBF) was created and has developed a best practices and procedures manual to encourage the use of DRBs in construction disputes.

THE DISPUTE REVIEW BOARD (DRB)

Typically, DRBs are made up of a panel of three impartial individuals with industry experience. According to the DRBF’s website, a DRB is a “board of impartial professionals formed at the beginning of the project to follow construction progress, encourage dispute avoidance, and assist in the resolution of disputes for the duration of the project.” The Board members are usually selected and then approved by the owners and contractor before construction begins. Members remain current with the project by periodically visiting the jobsite and reviewing project documents.

When there’s a conflict, the DRB writes a recommendation that the parties can choose to adopt. This recommendation is based on review of the contract, meeting notes, correspondence, and any statements made by the parties. The recommendation explains how the Board evaluated the facts and the reasoning behind their advice. Importantly, the Board’s recommendation is not binding on the parties, although in many cases the parties choose to follow the recommendation.

The DRB model differs significantly from other forms of dispute resolution, particularly mediation and arbitration, both of which are commonly used in construction disputes. Mediation often takes place when parties to a lawsuit are ordered to try to settle before going to trial. A mediator is a neutral party who helps the parties reach a compromise agreement on their own terms but does not render a decision. Unlike a mediator, an arbitrator (could be one or three depending on the size of the dispute) makes a binding decision based on his or her interpretation of the law. Arbitration is common in construction disputes because many construction contracts have clauses requiring the parties to arbitrate.

Proponents of mediation and arbitration emphasize that these models save time and money by avoiding lengthy and expensive litigation. However, mediation and arbitration are not without their own risks, so you should understand the pros and cons of all your options, including litigation, before deciding on the best choice. As the case of the PortMiami tunnel demonstrates, Florida construction cases can be quite complex. Arbitrators may incorrectly interpret the law. If that happens to you, you may find it difficult to overturn the arbitration award. Unlike court decisions which can be appealed, an arbitration award is unlikely to be vacated unless there is evidence of fraud, corruption, misconduct, or similar ground. That means you may be stuck with an arbitration award that incorrectly evaluated the facts or law of the case. Finally, while arbitration and mediation offer the neutral advice of an impartial decision-maker, the costs of these procedures can sometimes match that of complex litigation.

Government Rules & Regulations

OSHA Record Keeping

While some industries are not required to keep OSHA injury and illness records unless specifically requested to do so, all employers, including those partially exempted because of their size or classification, must now report to OSHA any workplace incident which results in a fatality, in-patient hospitalization, amputation or loss of an eye (non-routine work place injuries). Construction companies take note – employers must report a worker fatality within 8 hours and hospitalization, amputation or eye loss within 24 hours. Employers with 10 or fewer employees during the previous calendar year remain exempt from routine OSHA injury and illness record keeping. As well, companies in certain low hazard industries are also exempt from routine record keeping – from florists to shoe stores, junior colleges to appliance stores, some 80 industry classifications are now exempt. A complete list is available at www.osha.gov/recordkeeping2014.

What is clear is that workplace safety remains a key element for every construction company. OSHA’s focus here hasn’t changed, especially not with the construction industry continually ranking among the most dangerous. Private industry construction workers had a fatal occupational injury rate nearly three times that of all workers in the United States, with the leading 4 causes for construction injuries being falls, being hit by an object, getting caught in between objects and electrocution.

A freak accident last year underscored this point. A measuring tape came loose from a construction worker’s tool belt while he was working atop a 50 story high-rise. When his tape fell, it struck a man on the head as he was delivering wall board to the project. The delivery man was unfortunately not wearing a hard hat and subsequently died from his injury. OSHA’s hope is that better recordkeeping and faster reporting will allow it to assist employers in making their work environments more safe.

Should I Use a Private Inspector on my Construction Projects?

We’ve all been there – waiting longer than expected on a plan review or a routine inspection. It happens all too often, especially when there’s an uptick in construction activity. To overcome some of these delays, many states, and municipalities, including Florida and Miami-Dade, allow the use of private, third-party inspectors.

How do you get a private inspector on your job site?

Florida Statutes (§553.791) allow the owner of a building to contract directly with a private provider to furnish building code inspection services. The owner is required to have a written agreement in place with the provider and to notify the local building department at the time of permit application or no less than 7 business days prior to the first scheduled inspection by the local building official or building code enforcement agency.

The notice must include the services to be performed; the name, firm, address, telephone number and fax of each private provider; the provider’s professional license or certification number; a summary of qualifications or resume of the provider; and a certificate of professional liability insurance if that is required by the local building official. As well, the owner must submit an acknowledgment in substantially the form outlined by Florida Statutes.

If after construction has commenced, the local building department isn’t able to provide timely inspections, the owner can elect to use a private provider if notice is given to the building department no less than 7 business days prior to the next scheduled inspection.

In fact, an owner can also have his or her plans reviewed by a private provider.

Who is a qualified private provider?

A private provider is any person licensed as an engineer under Florida Statutes Chapter 471 or as an architect under Chapter 481. As for performing inspections, if the inspection is of a residential addition or alteration limited to 1,000 square feet or less, the term private provider also includes a person holding

a certificate under Part XII of Chapter 468 issued by the Building Code Administrators and Inspectors Board.

Is it that simple?

All the private inspector needs to do is inspect the project at each phase of construction required under applicable codes and must provide notice to the local building department of the date and approximate time of each planned inspection no later than 2:00 p.m. the prior business day. The building department may still send one of its inspectors to verify that the private provider is performing all required inspections. Upon completing all inspections at each applicable phase, the private provider shall record such inspection on a form acceptable to the building department and submit this report within 2 business days to the building department. And the private provider needs to prepare and submit a certificate of compliance under oath at the completion of all inspections.

Despite some possible risks associated with an owner or builder hiring its own private inspector (and the potential for fraud), the benefits are obvious when there is a need to keep a project moving on a faster schedule than the local building department can provide.

The Anatomy Of A Condominium Construction Defect Case

It is no surprise to any construction professional that we live in a litigious society. No contractor, sub-contractor, or material supplier in South Florida is immune from being involved in a construction dispute—whether it is a claim under Chapter 558 of the Florida Statutes (the “Florida Construction Defect Statute”) or lawsuit brought in one of the courts (State or Federal).

This fact is all too-well known to those in the construction industry who are involved in the construction of condominiums. Both claims under Chapter 558 and matters brought before the courts can, and usually are, lengthy and very costly: even when the construction professional has legally done nothing wrong.

This article focuses on what a “typical” condominium construction defect case looks like. Of course, each case is unique; however, there are common elements that found in most of these matters.

At the outset, a claimant (usually the Condominium Association) may not file a construction defect lawsuit without first complying with the requirements of Chapter 558. Under that Statute, a defect may arise from defective materials, a code violation, or work that falls below certain standards of the construction industry. Once the claimant has complied with Chapter 558 and is not satisfied that its claims have been fully satisfied, it may file a lawsuit in an appropriate court (usually in the county where the property is located).

Named as potentially responsible parties in these cases may be the Developer, Design Professionals (Architect and Engineer of Record together with any specialty engineers retained, e.g., MEP, HVAC, or structural), the General Contractor and its principal subcontractors and suppliers. It is not unusually to have between 15-40 parties named in such a lawsuit.

In these cases, the Claimant/ Association generally alleges that it is the entity responsible for the management and operation of the Condominium which is the subject of this suit. The Claimant further states that it has retained an engineering firm to perform an evaluation of the condition of the Condominium and that the engineering firm has identified a substantial list of construction defects for which the Claimant is seeking compensation.

As against the Developer, the Association frequently alleges:

Breach of Statutory Implied Warranty (Fla. Stat. Section 718.203): implied warranties of fitness and merchantability for the purposes and uses intended citing both alleged design and construction defects.
Violation of Florida Building Code: by constructing and delivering to the ASSOCIATION the Property including but not limited to the Property’s common elements, failed to comply with all applicable local, state and national building and codes and regulations, including, but not limited to, the Florida Building Code, in contravention of the Florida Building Codes Act.
Negligence: breached its duty to the ASSOCIATION because the Property was constructed with defects and/or defective materials in violation of applicable building and safety codes and of good practice and industry standards, and failed to perform inspections and using reasonable care to assure the construction and materials were properly installed in conformance with the applicable building and fire safety codes and in compliance with the approved plans and specifications.

As against the General Contractor and its sub-contractors, the standard allegations are:

Breach of Statutorily Implied Warranty (Section 718.203, Fla. Stat.):
- Failure to construct in accordance with the Florida Building Code.
- Failure to construct in compliance with the permitted plans and specifications.
- Failure to construct in accordance with industry standards.
- By delivering the Project with defects and deficiencies caused by its defective work
Negligence:
- Failing to construct the Condominium in compliance with the Florida Building Code.
- Failing to construct the Condominium, in compliance with the permitted plans and specifications.
- Failing to construct the Condominium in accordance with industry standards.
- By constructing the Project and delivering the Condominium to the ASSOCIATION with defects and deficiencies caused by defective work.

Statutory Violation of Fla. Stat. 553.84. This claim merges, in part, with the two above in that it solely concerns the alleged failure to construct the Condominium in compliance with the applicable building codes and regulations.

As against the Design Professionals, including the specialty engineers, in is common for the Association to limit its claims to “Professional Negligence.” Included within this claim are:

the design professional was responsible for the design of the Condominium and undertook to provide its services, drawings, plans, and specifications for the construction of the Condominium.
as a professional licensed entity, owed a duty of care to the Unit Owners and members of the ASSOCIATION to properly prepare the drawings, plans, and specifications and perform and provide professional services in accordance with the standards and practice of its industry and to exercise a reasonable degree of skill and care to insure that the construction of the Condominium complied with governmentally approved plans and specifications, the Florida Building Code and the State Minimum Building Codes Act.
The design professional failed to perform one or more of these enumerated duties.
The failure to perform these duties damaged the Association.

Served with a complaint

If you are served with a complaint naming you as a party in a construction defect lawsuit, you need to act swiftly to protect yourself. This usually means immediately contacting an attorney experienced in handling construction defect litigation. Florida law gives you only 20 days to respond to the Complaint. Your attorney should file a response with the Court or obtain an extension of time from the Court or the opposing attorneys to file your response. Your attorney will also review a copy of the Complaint, determine your insurance coverage, and notify your insurance carriers.

Once you are notified of a potential claim against you (either by a Chapter 558 Notice or Complaint), Florida law requires that you preserve all of your records concerning the project that is the subject of the claims. This includes all communications, contracts, photographs, or other records that you have, whether kept electronically or otherwise. Destruction of relevant documents after you are aware of potential claims may have serious detrimental consequences in presenting your defense.

Meet With Your Attorney

The next step will be for you to meet with your attorneys to discuss the project and to review allegations of the Complaint. Every attorney-client relationship begins with a face-to-face meeting. The only question is when it should happen. Don’t wait too long to meet with your lawyer, however, because there are many time factors at play.

Ask your lawyer what you should bring with you to your meeting. Your lawyer will probably give you an idea of what you should and should not bring with you.

Gather all of the paperwork and records relevant to the Project that is the subject of the lawsuit. This may include financial records, contracts, e-mails, letters, memos, phone records, employee handbooks/agreements, business papers, incident reports, photographs, video, diary, or journal entries, and so on. The basic rule of thumb is to bring everything that is relevant. If in doubt, bring it (unless your lawyer tells you not to). In the long run, this will make your attorney’s job easier, allow him/her to be able to provide you with better advice, and may even save you in attorney’s fees down the road.

At this meeting just relax and answer your lawyer’s questions as completely and honestly as you can – even if you think that a particular fact may be bad for your case. If you don’t know the answer to a question, it is okay to say so. Your lawyer is not judging you. He or she just wants to try to help you by preparing the best defense possible.

Your attorneys will review the actual Complaint served on you to determine what specific claims are made against you in this lawsuit.

Respond to the Complaint

Initially, your attorneys may respond to the Complaint by seeking to have it dismissed based upon some deficiency in the Complaint, itself: for instance, an incorrect statement of the law or failure to file the lawsuit timely (before the expiration of either the statute of limitations or statute of repose). Alternatively, if the Complaint is not deficient “on its face,” your attorneys may file a response called an “Answer and Affirmative Defenses.”

The Answer opposes the allegations in the Complaint, essentially saying that they are not true. An Affirmative Defense is a defense in which you introduce evidence, which, if found to be credible, will negate your liability, even if it is proven that you committed the acts alleged in the Complaint. Examples of affirmative defenses are that you already settled the claims with the Plaintiff by prior agreement; that another party is partly responsible for the damages claimed; or a discharge in bankruptcy. Additionally, a contractor’s performance of its duties by fully complying with the plans and specifications of the design professionals may relieve it of liability. These are only a few of the potential defenses that may be available to you. Your attorneys will discuss those defenses that apply to your specific case.

As with all relationships, transparency in communications is critical. Be sure your attorney has all available information and do not hesitate to ask questions about anything you do not understand. An experienced construction attorney should be eager for you to understand your case: that makes everyone’s life easier.

Avoid Communication Issues

Communication problems create problems in all types of relationships—including between an attorney and client. If you don’t know what’s going on in your lawsuit, you might assume you have a bad lawyer. To the contrary, your attorney could be doing a great job. Either way, a lawyer who doesn’t communicate case progress is invariably increasing, not decreasing, your stress.

Depositions

In construction defect cases, it is likely that one or more representatives from each party will be required to attend his/her deposition. Depositions are generally taken to discover relevant information, including discussing the contents of relevant project documents. Depositions are generally taken at the law office of the opposing attorney who is deposing you but can also be taken in a neutral office space provided by another attorney or the court reporter.

Set up an appointment with your attorney prior to your deposition. This meeting gives you the opportunity to ask questions regarding your deposition and get an idea of the types of questions you may be asked. If you have answered written questions pertaining to your case—known as interrogatories—you will want to review these with your attorney and become familiar with the answers you provided. Credibility is key during a deposition. If you fail to tell the truth or you make an inconsistent statement, count on being held accountable during your trial. You do not want to be reminded that you said something different during your deposition and asked if you are lying by opposing counsel.

Many people actually look forward to a deposition, believing they will finally have the opportunity to tell their side of the story. It is important to realize this is not your “day in court.” In fact, the exact opposite is true, as a deposition is not your story, rather a question-and-answer session orchestrated by opposing counsel. Since opposing counsel is not your friend, assume he or she has a goal of learning information about your case to use against you later. The opposing counsel wants to know what you know, wants to pin you down to a specific story, and hopes to get lucky enough to catch you in a lie, thereby destroying your credibility at trial. You will have your opportunity to tell your story at trial, so keep your answers short, concise, and truthful during the deposition. Keep in mind at all times that your deposition is a very serious event and can have significant bearing on the outcome of your case. Make sure you are confident in your ability to answer questions regarding your case and discuss any concerns you may have with your attorney before the day of the deposition.

Expert Testimony

Construction defect cases more times than not focus on the testimony of experts. If scientific, technical, or other specialized knowledge will assist the judge or jury in understanding the evidence or in determining a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education may testify about it in the form of an opinion or otherwise. Like any witness, an expert is subject to impeachment, as is the testimony the expert presents. Challenges to the expert’s qualifications and the validity of an opinion may be made to the court in its gatekeeper role.

Your attorney will likely talk with you concerning hiring an expert to review the facts of your case and to render opinions regarding the claims asserted against you. The expert is another tool that your attorney may use to present your case in the best way possible.

Keep in mind that lawsuits rarely, if ever, move as quickly as either the client or the attorney wants or expects. This is especially true in complex litigation, such as a Condominium defect case. These cases usually involve multiple parties (frequently 20-40) with each party seeking to obtain all of the relevant information and fully present its position. Again, frequent, and open communications between the client and the attorney is essential.

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