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:

1. The names of all the parties who may be involved or have anything to do with the dispute;
2. A description of the what, when and where of the incident that led to the dispute, and
3. 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.