New Tactics For Navigating Florida Construction Defects Law

New Tactics For Navigating Florida Construction Defects Law

Chapter 558, Florida Statutes requires property owners, contractors and developers to participate in a presuit process to resolve construction defect claims before proceeding to litigation.

This legislation and recent case law have posed many challenges to practitioners seeking productive ways to maximize the benefits from the Chapter 558 presuit process. Sometimes it is best to avoid application of the requirements by waiver or opting out. On the other hand, there are instances where early evaluation can lead to a settlement and avoid years of litigation. Without formulating a strategy to maneuver through the process, participants can waste valuable opportunities to evaluate a claim but also can incur significant fees when presuit resolution appears improbable.

Here are five strategies that attorneys representing participants in the Chapter 558 presuit process can utilize to achieve the objectives of their clients:

1. Take Advantage of Presuit Discovery

Parties should take advantage of the statutory provisions for presuit discovery to further narrow the issues for settlement purposes and to gain information to assist in defending the claim. Certain documents can be acquired to bolster a claim or defense such as expert reports, plans and specifications. Recently, Chapter 558 was amended to provide that claimants’ maintenance records and other documents related to the discovery, investigation, causation and extent of alleged defects identified in the notice of claim may be produced upon written request. Having access to these records may provide developers or contractors with insight into other potential defenses such as claimants’ lack of maintenance, failure to mitigate damages, abuse, misuse, environmental causes, casualty losses, normal wear and tear, or acts of third parties. This is especially true for Florida condominium associations alleging construction defects, since Fla. Stat.

§718.203 provides that the failure to exercise routine maintenance is a defense to a statutory implied warranty claim. In addition, claimants must now provide more specific information as to the locations of the defects throughout a building in order to pursue a claim. This can pose a huge challenge to claimants because unless they can show the defect and where it exists, they may not ultimately be able to pursue recovery of damages for that specific claim. Conversely, construction records can be used by claimants to identify whether contractors deviated from project plans and specifications, or whether value engineering contributed to the alleged defects.

2. Evaluate Whether Insurance Coverage Provides a Defense During the Presuit Process

Historically, upon being served with a Chapter 558 notice of claim, developers, contractors and others would notify their insurance carrier to trigger insurance coverage. This would result in the carrier providing a defense during the Chapter 558 presuit process including paying for experts to assist in the investigation. Recently, one Florida case now requires the recipient of the notice of claim to spend their own money to investigate and participate in the Chapter 558 presuit process without participation of its insurance carrier.

In Altman Contractors Inc. v. Crum & Forster Specialty Insurance Co., Case No. 13- 80831-CIV (S.D. Fla. June 4, 2015), the court determined that an insurer’s duty to defend is triggered by a formal “suit” defined as litigation, arbitration or other formal dispute resolution proceeding. The court decided that under the specific language of the standard form CG 00 01 policies at issue, while Chapter 558 Fla. Stats. provides a notice and right to cure mechanism for resolving a dispute, it is not the same thing as a formal proceeding which would trigger the insurer’s duty to defend.

In line with Altman, Fla. Stat. § 558.004(13) now provides that a notice of claim does not constitute a claim for insurance purposes “unless the terms of the policy specify otherwise.” On this point, many commercial general liability insurance carriers still use the standard form CG 00 01 insurance policy language discussed in Altman to justify a denial of coverage to developers, contractors and others.

In the wake of Altman, developers’ and contractors’ counsel should review their clients’ commercial general liability insurance policies to determine whether these policies contain terms that would provide insurance coverage for presuit claims, such as those alleged in a Chapter 558 notice of claim. Through this process, a strategy can be employed to determine the extent of a party’s participation in the Chapter 558 presuit process. In some instances, it may be best not to participate and wait for a lawsuit or arbitration to be filed to trigger coverage and a defense under the policy.

From a practical standpoint, when securing new or additional insurance coverage for new Florida construction projects, attorneys representing contractors and developers should seek terms to trigger insurance coverage once a notice of claim is served as opposed to waiting until a lawsuit or arbitration proceeding is filed. Acquisition of coverage would obligate insurance carriers to pay for their insureds’ defense costs incurred during the Chapter 558 presuit process, including legal fees, design consultant fees, testing and travel costs.

From the claimant’s standpoint, it is imperative to obtain the contractor’s and developer’s insurance information, to determine whether the policies exclude insurance coverage and/or a defense for presuit construction defect claims. This information may be obtained by serving an insurance demand letter upon the contractor and developer, in accordance with Fla. Stats. §627.4137. In the event that insurance coverage is not available, it may be a better strategy for a claimant to file a lawsuit to trigger coverage, causing the insurance carrier to appoint counsel to defend and later agree to a stay of the proceedings while satisfying the requirements of Chapter 558. By this practice, a carrier may be more engaged on behalf of a party to more fully engage in the Chapter 558 presuit process to achieve a resolution. Otherwise, a claimant may waste 120 days for the process to be completed only to ultimately initiate litigation.

3. Know When It’s Time to Discontinue the Presuit Process

Sometimes disputing a claimant’s notice of claim from the outset may make better economic sense for contractors or developers as opposed to participating in the Chapter 558 presuit process. Attorneys need to counsel their contractor and developer clients on when it may be appropriate to ignore a notice of claim or to respond to the notice of claim with a written rejection of the claims. This may be useful where the construction agreement does not already contain a clause opting out of the Chapter 558 presuit process and where the claimant refuses to voluntarily waive the presuit procedure.

Under Fla. Stat. §558.004(6), if the contractor or developer served with a notice of claim fails to file a timely response to the claim, or disputes the claim and will neither remedy the defect nor compromise and settle the claim, the claimant may, without further notice, proceed with filing a lawsuit, without any further requirement to stay the litigation later on to comply with the Chapter 558 presuit process. Once this happens, the contractor or developer’s insurance carriers’ duty to defend may be triggered and the carriers’ arguments for denying coverage pursuant to Altman and Fla. Stat. §558.004(13) is greatly diminished.

Once the insurer’s duty to defend is triggered by a lawsuit or arbitration proceeding, the contractor or developer should be in a better position financially, not only to defend, but to properly investigate the claims, participate in destructive testing, engage in discovery and ultimately negotiate an amicable resolution of the alleged construction defect claims.

4. Waive the Chapter 558 Presuit Process Altogether

Parties may also mutually agree to waive the Chapter 558 statutory requirements once the initial written notice of claim is served. The parties can mutually agree on a more streamlined process to schedule inspections of alleged defects, exchange relevant documents and negotiate a settlement of the claims directly with the claimant and each other, with the assistance of their attorneys and design consultants. In this collaborative process, the parties can also agree to a presuit mediation once the information has been exchanged. This strategy can often lead to achieving a global resolution without dealing with the time deadlines and other restrictions imposed by Chapter 558.

5. Opt Out of Chapter 558

Fla. Stat. §558.005(1) expressly authorizes parties to agree in writing to waive the presuit requirements of Chapter 558. At the outset of the construction contract negotiations, attorneys should consider drafting construction contracts between owners and contractors which state that the parties mutually agree to “opt out” of the Chapter 558 presuit process altogether. This process provides more flexibility for the parties to fashion their own procedure to lead to a resolution of construction defect claims without litigation.

—By Steven B. Lesser and Michele C. Ammendola, Becker & Poliakoff PA

Steven Lesser is a shareholder and chairman of Becker & Poliakoff’s construction law and litigation practice. He is based in Fort Lauderdale, Florida.

Michele Ammendola is a senior attorney in Becker & Poliakoff’s Fort Lauderdale office.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general
information purposes and is not intended to be and should not be taken as legal advice.

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