Stop! Before you make those repairs, there are some things you should consider. Otherwise, you could find yourself down the road facing claims that your repairs destroyed evidence of the defects.
Florida courts have recognized the importance of preserving evidence of defects, and courts can impose sanctions against parties that fail to do so. These sanctions include: striking pleadings, entering defaults on the issue of liability, exclusion of expert testimony, the imposition of evidentiary presumptions and adverse inferences, and even dismissals of claims.
So just what is the scope and extent of the duty to preserve evidence of defects? There is no hard and fast answer, but Florida cases dealing generally with destruction of evidence claims reveal several important questions that you should consider prior to making repairs:
- Is the repair work immediately necessary to prevent further damage to the surrounding structure?
- Is the repair work immediately necessary to protect the health, safety, and welfare of the owner?
- Has the potential defendant been advised of the defect, including the exact nature of all possible claims?
- Has the potential defendant been advised as to the scope of repairs recommended by experts?
- Has the potential defendant been advised as to when the repair work will take place?
- Has the potential defendant been given the opportunity to perform an independent inspection of the site?
- Has the potential defendant been given the opportunity to be present during the time that the repair work is scheduled to be performed?
- Will the repair work necessarily destroy the evidence of the defective condition?
- If items of evidence will be necessarily destroyed or concealed in the repair process, how crucial is the evidence to the claimant’s intended claims?
- What alternate sources of information will be available for review and examination by the potential defendant’s experts after the repairs are completed?
- Will these alternate sources of information realistically provide an expert with a reasonable ability to evaluate issues relating to possible defenses (e.g., causation)?
So before you make repairs to defective conditions in your home or business, be sure you’ve considered these questions. Better yet, talk to an attorney that can help you preserve the evidence and prepare your claim against the responsible party.
The old adage “time is money” is truer perhaps in the construction industry than anywhere else. Delays can cause significant economic damages for everyone involved on a construction project. But are those delay damages lienable? It depends.
Such damages may be lienable if the contract provides for the recovery of delay damages and if those contract provisions for recovery are followed. Otherwise, including delay damages in a lien may render it fraudulent under § 713.31, Florida Statutes. If a construction lien is found to be fraudulent, it operates as a complete defense to any action to enforce the lien and also exposes the lienor to a claim for damages under the statute.
For instance, in In re Hayes, 305 B.R. 361, 366 (M.D. Fla. 2003), the contractor entered into a stipulated sum contract with the owners to build a restaurant. The contract provided that any changes to the contract price or time were to be done by written change orders signed by both parties or by way of a formal claim. The estimated completion time for the project was extended during the course of the project and the contractor submitted a change order based on some of the delays which included a delay cost. The owner refused to sign the change order.
Then, the contractor submitted a substitute change order which listed the additional days to be added to the completion time but omitted the charges for those days. Although the contractor verbally warned the owner that the contractor would assess the charges at the end of the contract, it never made a formal claim. In other words, the contractor did not properly employ either method provided in its contract for the recovery of delay charges.
At the end of the project, the contractor filed a lien against the owner’s property which included an amount for delays. The court found the contractor’s lien to be fraudulent and noted that, while the contractor was entitled to be paid for its work, such payment was “subject to its own contractual obligations and limitations.” The court determined that the contractor had failed to comply with the contractual provisions for the recovery of delay damages, and therefore, the contractor’s lien was fraudulent and unenforceable.
So before you include amounts for delay damages in your lien, take a look at your contract. You should also consult with an attorney experienced in construction matters to help you determine what portions of your claim are lienable as well as to navigate Florida’s lien laws.
We hear this term, lienor, but it is often misunderstood. One does not have to record a Claim of Lien to be a lienor. The Act provides that anyone who has the right to file a Construction lien is a lienor. Previously we discussed what types of work might be liened. That consideration is a first step. Once your activity fits into one of those types of services, you are on the road to being known as a lienor.
Pursuant to Florida law there are six categories of potential lienors. These include the Contractor; any Subcontractor; any Sub-subcontractor; any Laborer; any Materialman and any Professional Lienor. If you do not fall within one of these categories you are likely not a lienor and not able to record a valid Claim of Lien. The Act defines each of these six categories. While the general contractor, subcontractor and sub-subcontractor are common terms, the others require a bit more explanation.For instance, a Laborer is a person, not a corporation, who is not a professional, but who, pursuant to an authorized contract, personally performs labor or services for improving the property and does not furnish materials or labor service for others. It is an important distinction as the Claim of Lien of a laborer has the highest priority.
There may also be confusion in identifying a Materialman as entities in this category provide materials pursuant to a contract with the Owner, the Contractor, a Subcontractor or the Sub-subcontractor. However, a materialman to a Materialman does not have lien rights and thus is not a lienor. A professional lienor includes an architect, a landscape architect, an interior designer, an engineer or a surveyor and mapper. Any lienor, whether for professional services or for construction services,who is required to be licensed in the state or local jurisdiction may not claim a lien in the absence of the required license.
Of course any of the entities in these categories may lose their status as “lienors” if they do not follow the requirements of the Construction Lien Act to perfect their Claim of Lien. As with almost any issue concerning the Florida Construction Lien Act, whether you are a contractor, an owner, an architect, or an engineer, we suggest you review your contract provisions that address payment and any pending claims on existing projects with your attorney.
We have all heard someone accused of defective design or construction say “we did it that way because that is the way we have always done it.” While there are circumstances that require analysis of industry standard behavior, those instances do not arise often. More often than not, your obligation is controlled by an interpretation of the contract documents: the construction agreement, the plans and the project manual including the specifications. The interpretation is dependent upon both the type of contract that exists between the parties and the type of direction that is provided by the project designer. Let’s begin with some fundamentals.
Under the traditional design, bid, build delivery system, the project owner grants to the contractor an implied warranty that the contract documents are fit for their intended purpose of constructing the improvement. This warranty is known as the “warranty of constructability” and referenced in legal circles as the “Spearin Doctrine.” This doctrine springs from a United States Supreme Court opinion written in 1918, the United States versus Spearin (248 U.S. 132 is the reporter citation). The Spearin Doctrine has been adopted throughout the United States. It was adopted specifically in Florida in a 1970 case between Wood Hopkins Contracting Co. and Masonry Contractors, Inc. (235 So.2d 548). The Spearin Doctrine stands for the notion that a contractor who performs the work and supplies the materials in strict conformance with the requirements of the contract documents may have no liability if the end result is not what was anticipated by the owner. Stated another way, if a defect in the resulting construction is due to a deficiency in the project plans or specifications then a contractor will not have any liability. That is typically our starting point.
Conversely, there is a different result in Florida if the contractor does not follow the project plans or specifications. When the contractor deviates from the project plans or specifications, the contractor may not avoid liability simply by providing evidence that the project plans or specifications were defective. That is because when a contractor fails to strictly follow the requirements of the contract documents, the Spearin Doctrine no longer applies. At the point the contractor’s deviation occurs, the contractor, not the owner, then warrants the sufficiency of its work and provides an implied guaranty with respect to the result of the contractor’s deviation. In Rouselle versus B&H Construction Co. the court ultimately found that when a contractor failed to follow the contract documents, the contractor was liable for the result (358 So.2d 614, a 1st DCA case).
Of course, both of these results may be affected by the type of specification that is at the heart of the unexpected result, design versus performance specification, or if the delivery system for the work is not design, bid, build. We will explore those differences in future posts.
This past spring, the insurance and banking lobbies created quite a stir in the water and fire damage mitigation and restoration industry. During March and April, water mitigation contractors and restoration companies in Florida experienced a sharp sense of panic, inundated their construction attorneys with emails and telephone calls, and organized to participate in the Florida legislative process. Why? Simply stated: Florida House Bill HB 909 (2013). HB 909 was filed on February 13, 2013 by Representative John Wood, and was referred on as favorable by the House’s Insurance and Banking Subcommittee and Regulatory Affairs Committee.
So what created the stir? If passed, the following provision would have been added to section 627.422, Florida Statutes:
- Any homeowner’s insurance policy may prohibit the assignment of rights or benefits under the policy, and a third-party beneficiary may not accept an assignment or recover against any policy that prohibits assignment. Any assignment of rights or benefits under a homeowner’s policy that prohibits assignment renders the coverage void.
The typical practice of many water mitigation and restoration companies is to include assignments of insurance benefits in their standard contracts so that they can step in to the shoes of their customers and pursue homeowners’ claims as an assignee of the homeowners. The practice developed because homeowners generally have fewer resources and more difficulty pursuing claims that have been denied by their homeowner’s insurance companies after experiencing water and fire damage.
Had HB 909 passed and become law, it would have required significant changes to the water and fire damage restoration industry in Florida. Much to the relief of water mitigation contractors and restoration companies, HB 909 died in the Florida House of Representatives on May 3, 2013, and assignments of homeowner’s insurance benefits will continue to be prevalent in residential damage mitigation and restoration contracts in the foreseeable future. For now, at least, mitigation and restoration contractors can breathe a sigh of relief.
But whether the assignment supports the objective of the mitigation or restoration company is a matter of interpreting the homeowner’s insurance policy. We will address this question and the steps available to one of these companies to protect themselves in a future post.
Sometimes it is good to review the basics. For instance, with Florida’s Construction Lien Act, it is easy to remember that alienor may obtain a lien for any unpaid “contract price” related to the permanent improvement of privately owned real estate. But what does the law consider to comprise that category of permanent improvements? The list includes most services used to improve a property and most identifiable materials incorporated into a project whether the work was performed pursuant to a written contract or an oral agreement. (See §§ 713.04, 713.05, 713.06 and 713.08 Fla.Stat.)
The term “improvement” includes construction, placement, repair or alteration over, beneath, upon or connected with the real property. But it also includes activities that are destructive such as any demolition or removal of existing structures and may even include restitution of property after a flood or fire.
The Act excludes certain work; however, just because of the status of the owner or the lack of identifying materials with a location. Thus, government owned property is exempt from liens and so are liens for materials sold to a contractor in bulk without specification for a particular job site. Extra work which is not acknowledged by written change order and made a part of the contract has been held to not be lienable; however, updated statutory language now provides that the “contract price” includes “extras” or amounts attributable to changes in the scope of work authorized by the Owner. (§713.01(5) Fla.Stat.)
The modifier for improvement, “permanent,” also plays a role. Thus, services provided which do not result in a “permanent” benefit to real property, such as lawn care, are not lienable. Similarly, the installation of personal property, such as lockers or refrigerators, is not lienable. The work may also be exempt from liens due to its value or who performed the work. When the total value of the direct contract between the Owner and the Contractor is less than $2,500, the work performed by subcontractors, or suppliers to subcontractors, is not lienable. Also, any work performed by a sub-sub-subcontractor or material suppliers to a sub-sub-subcontractor is not lienable.
The good news is most other services and materials provided to a construction project are lienable if the statutory procedures are followed. Interest and finance charges may also be added to a lien claim.
As with almost any issue concerning the Florida Construction Lien Act, whether you are a contractor, an owner, an architect, or an engineer, we suggest you review your contract provisions that address payment and any pending claims on existing projects with your attorney.
The Supreme Court of Florida recently blurred the lines between contract and tort law in a case involving breach of contract and negligence claims between an insured and its insurance broker. The Court used this vehicle to abandon the application of the economic loss rule in cases that involve parties who are in privity through contract. From this date forward, the Court determined that the doctrine will not apply to contract cases, limiting its use to cases involving product liability.
Why is this significant? It has been 25 years since any Florida court has either read or heard a discussion of tort claims between parties to an agreement in any context other than the economic loss rule. Thus, regardless of how any individual attorney may interpret the opinion, the results we receive with respect to tort claims between parties to a contract will likely be unsettled for some time. For, in the words of one of the justices writing in dissent: “we face the prospect of every breach of contract claim being accompanied by a tort claim.”
The impact will likely extend beyond litigation to the drafting of agreements. Should the opinion be determined to stand for the ability of contracting parties to bring claims against one another for negligence resulting in purely economic damages, we will need to seek methods to adapt our agreements to address that possibility. As this type of claim has not existed between parties in privity before this decision, a trial and error period in developing provisions to address these claims is sure to follow.
As a result, we suggest that you review your forms of contract and the status of claims in pending or anticipated cases with your attorney.
Of recent interest to architects, engineers and owners, Governor Scott signed into law an act relating to design professionals which limit their individual liability in certain circumstances. The new statute created by this law is section 558.0035, but it also modifies several other sections. Up until the passing of this law, an individual design professional, even when providing work product for the benefit of his/her employer, was individually liable for any claims relating to errors and omissions made by the individual. The new law provides that the design professional is not individually liable for damages occurring related to the individual’s work product when five criteria are met.
- First, the employer must have a contract with the claimant.
- Next, the individual employee cannot be named as a party to that contract.
- Additionally, that contract must include a statement in oversized print that “Pursuant to section 558.0035 an individual employee or agent may not be individually liable for negligence.”
- The business entity must have professional liability insurance for the exemption to apply.
- Finally, all of the claimant’s damages must by purely economic as the exemption does not extend to personal injury or property damage.
The law defines a “business entity” as any corporation, limited liability company, partnership, limited partnership, proprietorship, firm, enterprise, franchise, association, self-employed individual or trust. However, the law does not alter the law with respect to these entities, thus a partner in a partnership will likely still be individually liable for his/her own errors and omissions as well as the errors and omissions of the partnership’s professional employees.
As with almost any new law, it will take time before we know how the courts will interpret these provisions. As a result, we suggest that you review your forms of contract and the status of claims in pending or anticipated cases with your attorney.
On March 7, 2013, the Supreme Court of Florida filed its opinion in Tiara Condominium Assoc., Inc. v. Marsh & McLennan Companies, Inc. With this case, the Court took the final step of receding from the application of the economic loss rule in anything other than products liability cases.
Tiaraconcerns claims by an insured against its insurance broker for both breach of contract and negligence in performance of that contract. The case came to the Court as a certified question from the Eleventh Circuit and, in a five to three decision; the Court reached the following holding:
Having reviewed the origin and original purpose of the economic loss rule, and what has been described as the unprincipled extension of the rule, we now take this final step and hold the economic loss rule applies only in the products liability context.
The case marks a final step initiated in 1999 by the Court in its Moransais v. Heathman, decision. With Tiara, the Court completes its reversal of relying on the economic loss rule to evaluate tort claims between two parties who have also entered into a contract where the contract involves the same subject matter as the tort claim.
In dissenting, Justice Canady warned that as a result of this holding “we face the prospect of every breach of contract claim being accompanied by a tort claim.” Regardless of whether Justice Canady’s forecast proves correct, the decision will create an unsettled atmosphere in all Florida courts with respect to tort claims as the Court has now receded from case law that began with its 1987 decision in AFM Corp. v. Southern Bell Tel. & Tel. Co. By washing away 25 years of jurisprudence, the result will necessarily engender uncertainty.
A note of caution: it is far too soon to weigh the impact of this case. Yet, the justices on both sides of this opinion recognize the potential impact on Florida common law. The impact could extend beyond litigation to the drafting of construction contracts. To the extent that you have breach of contract cases pending in any Florida court, the impact is immediate. We suggest that you review your forms of contract and the status of claims in pending or anticipated cases with your attorney.
We will continue to update you on this issue as it develops.
You served as project architect on a substantial commercial project, utilizing various subconsultants. Your MEP sub specified a HVAC system designed and manufactured by a world known leader in the industry. Shortly after completion, the owner notified you that the system repeatedly breaks down, and that unless you replace it at your expense he will sue you for having “specified a lemon”.
You know the owner’s claim is nonsense – the problem is probably due to lack of maintenance, or possibly a manufacturing defect the owner should resolve under his warranty. You call your MEP sub who confirms just that. You explain all this to the owner, and politely refuse his demand. You are served with his Complaint before you can hang up the phone.
Your lawyer tells you not to worry. Your subconsultanting agreement with the MEP engineer has a standard indemnification clause requiring him to “defend, indemnify and hold [you] harmless” against all claims arising out-of-the alleged “fault or neglect” of the engineer. This is just such a claim. In fact, the owner’s Complaint against you even accuses the MEP engineer by name, alleging “Project architect, through its agent MEP sub, negligently specified …”.
Your lawyer makes a “friendly” demand on the MEP sub to undertake your defense and pay any damages the owner might be awarded as his contract requires. Your lawyer is told in no uncertain terms to pound sand. Your lawyer then advises you to file a third party complaint against the MEP sub, suing for any damages you might sustain on account of his fault or neglect including your costs and attorneys’ in defending the owner’s action. You don’t see any downside to that, but your lawyer hasn’t told you about all the risks.
You know you’re ultimately going to win against the owner’s borderline frivolous claim, but the cost of winning will surely be a six figure amount. By bringing in your sub, he will also run up a six figure tab in defending his spec. Your contract doesn’t say anything about the sub recovering attorneys’ fees and costs from you, and you expect to recoup yours from him under the indemnification provision. However your lawyer receives a “Proposal for Settlement” from the sub’s lawyer, offering to pay you a nominal $1,000 for dismissal of your third party action.
Your lawyer explains that if you reject the proposal, unless you recover within 75% of that $1,000 from the sub, then you can be required to pay the sub’s attorneys fees and costs. You feel sure you’re going to win against the owner and in so doing exonerate both yourself and the sub against the negligence charges. That will mean a $0 judgment against you, which in turn will mean a $0 judgment for you against your sub. However, since you didn’t realize an award of $750 or more against the sub, you’ll become liable for his attorneys’ fees. Thus by winning and exonerating the sub and therefore yourself, you are likely going to have to stroke the sub a six figure check. As William Bendix always said in the 1950s sitcom “Life of Riley”, “What a revoltin’ development this is.”
You ask your lawyer why he had you sue the sub in the first place, with such a strong defense of the owner’s claims. He says you really had no choice, other than give up your valuable contractual indemnity rights completely. He’s wrong, and there are several possible ways to maintain your indemnity rights and protect against the sub’s attorneys’ fee claims. We’ll take a look at some of those next time.