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.