In Kritikos, the 4^th District Court undertook the review of a trial court order granting a partial directed verdict on the issue of damages against a property owner and in favor of a construction superintendent, reasoning that because the property owner had failed to introduce evidence of “actual costs of repairs,” but rather relied upon estimates, then the property owner Plaintiff had failed to prove damages.  See id.  The 4^th District Court reversed the trial court, holding that the use of estimates of costs to repair were perfectly acceptable evidence and could be used to support a jury verdict for this measure of damages.  See id.  Accordingly, a Defendant in cases such as these cannot rely solely upon the fact that a Plaintiff has not gone “out of pocket” to anticipatorily make repairs in order to avoid damages measured by the costs of bringing a structure back to its original – or perhaps more accurately, its originally designed – condition.

However, the 4^th District Court also discussed in detail the application of the “betterment” defense.  As noted initially above, the Courts of Florida have repeatedly recognized that a construction Plaintiff is entitled to that for which they bargained, and not an upgraded version, so long as the costs of bringing the property back up to its originally designed and contemplated condition does not involve “unreasonable economic waste.”  See Grossman Holdings, 414 So.2d at 1039.  In Kritikos, the 4^th District Court reinforces this position and incorporates the 2^nd District Court decision in Temple Beth Shalom v. Thyne Construction Corp., holding that:

The proper measure of damages for construction defects is the cost of correcting the defects, except in certain instances where the corrections involved an unreasonable destruction of the structure and a cost which is grossly disproportionate with the results to be obtained.  If in the course of making repairs the owner elects to adopt a more expensive design, the recovery should be limited to what would have been the reasonable cost of repair according to the original design.  38 Fla. Law. Weekly D931a, quoting Temple Beth Shalom, 399 So.2d 525, 526 (Fla. 2d DCA 1981).

This holding, coupled with the relatively well developed case law in this area, should provide a construction Defendant with a ready defense, should a Plaintiff seek compensation for costs incurred in designing and/or “repairing” a structure which purports to “correct” deficiencies, but rather provides an upgraded structure or design.  Counsel should be vigilant to recognize when a construction Plaintiff seeks to essentially obtain a “free improvement” to their property, and demonstrate to the court that such an effort is inappropriate and contrary to well-established doctrine in this body of law.

The “Frye” standard, comes from a 1923 Federal case, Frye v. United States, discussing the admissibility of a polygraph test as evidence.  Under the “Frye” standard, the trial judge must determine whether the expert’s testimony is based on a scientific principle that is “sufficiently established to have gained general acceptance in the particular field in which it belongs.”  However, the Florida Supreme Court has carved out a “pure opinion” exception to the “Frye” standard, which allows an expert witness to give testimony that would not otherwise meet the “Frye” standard, so long as the expert is merely offering an opinion, as opposed to a scientific fact.

In the 1993 case of Daubert v. Merrell Dow Pharmaceuticals, the United States Supreme Court implicitly overturned the “Frye” standard in Federal Court, and adopted what is known as the “Daubert” standard.  This standard, after which the proposed bill is modeled, allows a trial court to admit expert testimony so long as the court finds it to be based on scientifically sound principles.

Proponents of the proposed bill argue that the current “Frye” standard, in conjunction with the “pure opinion” exception, allows unfettered expert opinions based on questionable scientific principles. They believe that the proposed bill would ensure the scientific validity of expert testimony and prevent “junk science” from ever reaching a jury’s ears. Opponents of the bill argue that it will drive up litigation costs due to the resources needed to educate the trial court on a particular scientific principle, so that the court can rule on whether the proffered testimony is based on a sound scientific theory.  Additionally, they argue that this time consuming process will create an additional and unnecessary backlog in the courts’ dockets throughout Florida.

This hotly contested debate is nearing an end, as the Senate passed the bill on Friday, sending it back to the House of Representatives for review of the amendments.  Should the bill ultimately reach Governor Scott for ratification, it is expected that he will support the bill.

This is important to our clients because there are generally many expert witnesses that are engaged to and participate in construction litigation.  In addition to sometimes educating counsel on scientifically specialized topics, these expert witnesses – who range from architects to civil/structural/MEP engineers to Division I/Division II/Specialty Contractors, among others – provide opinions or “scientific facts” upon which a case may turn.  Accordingly, given the importance (and expense) of these experts, this is a hot-button issue we will watch with great interest.

SB 286 is now being converted into an “act” for presentation to the Governor.  If presented while the legislature is in session, the Florida Constitution allows a 7-day period following presentation of the act to Governor Scott within which Governor Scott can either sign or veto the bill. If the legislature adjourns sine die before an act is presented to the Governor or while an act is in the Governor’s possession, the Governor has 15 days from the date of presentation in which to take action.  The last day of this year’s regular legislative session is May 3, 2013.  There is no indication that Governor Scott intends to veto this bill.

The version of SB 286 that ultimately passed both the Senate and House was similar to the originally-introduced bill.  The only material amendment to the original version of the bill was the addition of geologists within the act’s definition of design professional.

The act permits business entities providing professional services to limit by contract the liability of their individual employees or agents for negligence arising from the performance of professional services under a contract.  Florida courts have routinely held that provisions within in a professional services contract which place limitations on the liability are enforceable as to the professional association/business entity only and have not extended the contractual limitations of liability to the individual professionals performing the contracted services on behalf of the professional association/business entity.  The act provides the professional association/business entity the ability to extend the contractual limitations of liability to the individual professionals it employs.

The act, if executed by Governor Scott, will take effect on July 1, 2013.  The Legislature has not expressed an intent that the law apply retroactively.  For the protections afforded to design professionals to be enforceable, the professional services contract must comply with the requirements of the act, one of which is to “include a prominent statement, in uppercase font that is at least 5 point sizes larger than the rest of the text, that, pursuant to this section, an individual employee or agent may not be held individually liable for negligence.”  Due to the act’s contract requirements, it is very unlikely that this law can be retroactively applied because it is impossible for existing contracts to contain the disclaimer or waiver.  Therefore, we do not anticipate any successful litigation with respect to the retroactive application of the law to contracts in effect before July 2, 2013.

Nonetheless, it will be prudent for design professionals – architects, interior designers, landscape architects, engineers, surveyors, and geologists – and their related business entities to familiarize themselves with this proposed new law and ensure strict compliance with the contractual requirements of the law moving forward.

We will provide a final update on the Design Professional Bills and the new Florida Statute the Design Professional Bills propose, § 558.0035, Florida Statute, when Governor Scott either signs or vetoes the bill.

April 25 – 26, 2013

JW Marriott Orlando Grande Lakes Resorts

MARK YOUR CALENDAR! Cole, Scott & Kissane is pleased to announce that on April 26, 2013, we will be once again hosting a complimentary Claims Management Seminar at the beautiful JW Marriott Orlando Grande Lakes Resort, 4040 Central Florida Parkway, Orlando, Florida 32837, with keynote speaker: FLORIDA GOVERNOR RICK SCOTT.

This seminar is our firm’s way of thanking you for all your hard work throughout the year and is our completely complimentary gift just for you. For those who will be staying over night, we kick off the Seminar with a cocktail reception and light dinner on April 25th, also at the JW Marriott from 5:30 p.m. to 9:30 p.m. Seminar materials will be available and sign-in begins at 7:00 a.m. on April 26th. A continental breakfast will be served from 7:00 a.m. to 9:00 a.m. at the sign-in location. We invite all guests to attend a complimentary luncheon at noon. We have some great raffle prizes and special gifts for each attendee. State approval pending for CE and CLE credits. Please note that CE and CLE credits will differ contingent upon your selection from each of the four breakout sessions. 

You MUST pre-register to attend this event, which can be done by clicking here. For your convenience there are other registration options: fax, mail, phone and email. Instructions for registration and class schedule for each break out session are outlined in the online registration packet.

If you have any questions, please do not hesitate to contact Samantha Webster at 321-972-0006 (samantha.webster@csklegal.com) or Janeena Lluy at 305-350-5319 (janeena.lluy@csklegal.com).

We look forward to seeing you in Orlando!

By way of background, the Economic Loss Rule is a judicially created doctrine that sets forth the circumstances under which a tort action is prohibited if the only damages suffered are economic losses.  Although the roots of the Economic Loss Rule are primarily found in the products liability arena, it has been expanded over the years to include circumstances where there is contractual privity and one party seeks to recover damages in tort arising from a contract.  The purpose of the expansion of the Rule was to prevent parties to a contract from circumventing the provisions of the contract by suing under a cause of action in tort.  In Tiara, the Court has now reverted to the original interpretation of the Economic Loss Rule holding that the “application of the economic loss rule is limited to products liability cases [receding] from prior case law to the extent that it is inconsistent with this holding.”  Tiara at 1.

The facts of the case are fairly straightforward:  Tiara Condominium Association retained Marsh & McLennan as its insurance broker. One of Marsh’s responsibilities was to secure condominium insurance coverage and secured windstorm coverage through Citizens Property Insurance Corporation with a loss limit of $50 million.  In September 2004, Tiara sustained significant hurricane damage related to two storms. Tiara began the process of an expensive loss remediation with the belief that they would be entitled to coverage for each storm.   However, when Tiara sought payment from Citizens, it was informed that the loss limit was $50 million in the aggregate, not per occurrence. Although, Tiara and Citizens settled for approximately $89 million, that amount was less than the more than $100 million spent by Tiara.  Tiara then sued Marsh and the trial court granted summary judgment in favor of Marsh on all claims.  The appeals court certified a question to Florida Supreme Court seeking a determination of whether the Economic Loss Rule bars an insured’s suit against an insurance broker where the parties are in contractual privity with one another and the damages sought are solely for economic losses.

After a lengthy discussion on the history and application of the Economic Loss Rule, the Florida Supreme Court never even addressed the original question being posed to them, as they ultimately decided, without exception, that the Economic Loss Rule applies only in the products liability context, receding from all of its prior rulings to the extent that they have applied the economic loss rule to cases other than products liability, including the Tiara case.

While the underlying facts of Tiara are not related to the construction defect litigation, the holding will likely create significant ripples in that arena and how it might be applied to construction defect cases.   Specifically, in the seminal case of Casa Clara Condominium Association v. Charlie Toppino And Sons, Inc., 620 So.2d 1244 (Fla. 1993), the Court made a determination that a cause of action against manufacturer of defective concrete was barred by the Economic Loss Rule where there was no personal injury or damage to property other than the product itself, notwithstanding absence of privity. The Court looked at the subject home in Casa Clara as a single product, as opposed to a group of disparate components, stating that “[g]enerally, house buyers have little or no interest in how or where the individual components of a house are obtained. They are content to let the builder produce the finished product, i.e., a house. These homeowners bought finished products—dwellings—not the individual components of those dwellings. They bargained for the finished products, not their various components.”

This would appear to indicate that a home or building is a product that would fall under the Florida Supreme Court’s new interpretation of the Economic Loss Rule.  Of course, only time will tell how this will all shake out, but it will likely lead to future litigation as Plaintiff attorneys likely attempt to re-broaden the scope of the newly narrowed Economic Loss Rule.

Presently, tort claims against individual engineers, surveyors and mappers, architects and interior designers, and landscape architects are not barred by the economic loss rule[1] even though the individual professional was performing services pursuant to a contract between the individual professional’s employer and the property owner that contained provisions limiting liability.   Florida courts have routinely held that provisions within in a professional services contract which place limitations on the liability are enforceable as to the professional association/business entity. See e.g. Fla. Power & Light v. Mid-Valley, Inc., 763 F.2d 1316 (11th Cir. 1985)(applying Florida law).  However, Florida courts have not extended such contractual limitations on liability to the professionals individually performing the contracted services.  See Witt v. La Gorce Country Club, 35 So.3d 1033 (Fla. 3d DCA 2010) and Moransais v. Heathman, 744 So.2d 973 (Fla. 1999).

For example, in Witt, Defendant Witt was a professional geologist licensed in Florida.  Witt’s company, Gerhardt M. Witt and Associates, Inc. (“GMWA”), entered into contracts with La Gorce Country Club for geological consulting services related to a water treatment system. The contracts between GMWA and La Gorce each contained limitation of liability provisions, limiting the liability of [GMWA] and its subconsultants to the total dollar amount of the approved portions of the scope for the project. Within 14 months after the project was completed, the system failed completely.  Accordingly La Gorce sued GMWA and Witt, individually, for professional malpractice, among other things.

The Third District Court of Appeal ultimately held that Witt and GMWA were liable to La Gorce for professional malpractice, but that the limitation of liability provision applied only to GMWA and not to Witt.  The court noted that Witt was not a party to the contract and that the Florida Statutes contained a section that recognized a cause of action against an individual professional geologist for professional negligence, irrespective of whether the geologist practices through a corporation. Based on Florida Statutes and Moransais, the court determined that a cause of action in negligence exists irrespective, and essentially, independent of a professional services agreement.  Thus, the court held that the limitation of liability provision was, as a matter of law, invalid and unenforceable as to Witt.

SB 286/HB 575 seeks to amend this current state of the law by extending contractual provisions limiting liability entered into between a business entity[2] and property owner, to individual professionals, like Witt.  The bills specifically create Florida Statute Section 558.0035, amends Florida Statute Section 558.002 to include as (3) a definition of “business entity,” and amends Florida Statute Sections 471.023(3) (liability as to engineers), 472.021(3) (liability as to surveyor and mapper practices), 481.219(11) (liability as to architects and interior designers), and 481.319(6) (liability as to landscape architects) to include the provision “except as provided in s. 558.0035.”

Based on the current proposed bill text, Florida Statute Section 558.0035 is created and permits business entities to limit by contract the liability of individual employees or agents of that business for negligence arising from the performance of professional services under a contract.  Section 558.0035 enumerates a number of conditions that must be met though in order for the liability limitation to apply.  Specifically, those conditions are:

• The business entity must execute the contract with the claimant or with another entity for professional services on behalf of the claimant;
• The contract must include a prominent statement in uppercase font that is at least 5 point sizes larger than the rest of the test, that the individual employee or agent may not be held liable;
• The individual employee or agent must not a party to the contract;
• The business entity must maintain professional liability insurance if required by the contract;
• The conduct by the design professional giving rise to the damages occurs within the course and scope of the contract; and
• The harm is solely economic and the harm does not extend to persons or property beyond the contract.

In its current form, the bill provides an effective date of July 1, 2013.

To date, SB 286 has been referred to the Senate’s Regulated Industries, Judiciary, and Community Affairs Committees and HB 575 has been referred to the House’s Civil Justice Subcommittee, Business and Professional Regulation Subcommittee and Judiciary Committee.  The bills will be heard by a respective committee and if passed by that committee will proceed to the next committee.  Should the bills pass through all committees; one of the two companion bills will be ultimately voted on by the entire Senate and House.  If the bill does not move through the committees, or is not ultimately voted on by the Senate and/or House before the close of session the bill will be said to have “died” either within the respective committee or on the floor of the Senate or House.

To date, SB 286 has already started moving during the pre-session committee meetings.  The Senate Regulated Industries committee voted on the bill on February 6, 2013.  The bill passed with an 8-0 vote.  SB 286 is now in the Senate’s Judiciary Committee and is waiting to be calendared on the committee’s meeting agenda.  In contrast, HB 575 is awaiting discussion and a vote in the House’s Civil Justice Subcommittee.

We intend to continually track these two bills through session and will update this blog with news, votes, amendments, and potential implications concerning these bills.  Please check back frequently for more Capitol Reports concerning SB 286 and HB 575.

Florida Statute § 768.0425, titled “Damages in actions against contractors for injuries sustained from negligence, malfeasance, or misfeasance” states:

(1) For purposes of this section only, the term “contractor” means any person who contracts to perform any construction or building service which is regulated by any state or local law, including, but not limited to, chapters 489 and 633; and the term “consumer” means a person who contracts for the performance of any construction or building service which is regulated by any state or local law, including, but not limited to, chapters 489 and 633.

 (2) In any action against a contractor for injuries sustained resulting from the contractor’s negligence, malfeasance, or misfeasance, the consumer shall be entitled to three times the actual compensatory damages sustained in addition to costs and attorney’s fees if the contractor is neither certified as a contractor by the state nor licensed as a contractor pursuant to the laws of the municipality or county within which she or he is conducting business.

Emphasis added.

While the public policy behind the statute is to protect a consumer, a recent decision from the Fourth District Court of Appeal evidences how the courts are balancing consumer protection and punitive damages in their statutory interpretations. In Home Const. Management, LLC v. Comet, Inc., 2013 WL 440101 (Feb. 6, 2013), the Plaintiffs, Home Construction Management, LLC (“HCM”) and Abraham “AVI” Omer (“Omer”), were contacted by Comet, LLC (“Comet”) for construction management services to assist with the construction of a single family residence in Florida. Comet and HCM entered into a written contract for completion of the project. Omer was an agent of HCM and was the agent involved in the construction management of the project. Eventually, HCM and Comet had a dispute which resulted in the termination of their relationship. Comet filed suit against HCM and Omer for disgorgement of contract payments and treble damages pursuant to Florida Statute § 768.0425, as neither HCM nor Omer were licensed contractors. The trial court found that HCM entered into a contract with Comet, and breached that contract. It did not find that Omer entered into any contract with Comet, but found that both HCM and Omer engaged in contracting without being properly licensed. Therefore, the trial court entered treble damages against both HCM and Omer, pursuant to Florida Statute 768.0425, and held them jointly and severally liable for the damages.

The issue on appeal was whether Omer could be jointly and severably liable for treble damages, as he did not personally enter into a contract with Comet. See Florida Statute § 768.0425(1). HCM and Omer argued that Omer was not a contractor, as defined by Florida Statute § 768.0425, and thus the damages the trial court awarded against him for contracting without a license under Florida Statute 489.128 could not be trebled. HCM and Omer further argued, that even if the appellate court upholds the trial court’s finding that Omer performed contracting services without a license, it is un-rebutted that Omer did not “contract to perform” those services. Comet argued that Omer directly negotiated with and retained subcontractors, received subcontractor’s invoices, supervised subcontractors, and paid the subcontractors. Comet further argued that Omer and HCM engaged in contracting, and Omer acted alone and personally participated in the actions at issue before the court. Therefore, Omer’s direct and personal participation subjected Omer to individual liability under Florida Statute 768.0425 at the trial court level.

On appeal, the Fourth District Court narrowly interpreted Florida Statute § 768.0425, and stated that since Omer was not a party to the written contract, he did not “contract[] to perform” within the meaning of Florida Statute § 768.0425(1).  The appellate court was silent as to whether Omer was considered a “contractor” pursuant to the Statute. The Court reasoned that  since treble damages are punitive in nature, they must be construed strictly in favor of the one against whom the penalty is imposed.

On the other hand, the Third District Court of Appeal previously refused to limit the application of Florida Statute § 768.0425 in Hancock-Gannon v. McNully, 800 So. 2d 294 (Fla. 3d DCA 2001). In this case, a homeowner sued an unlicensed roofing contractor and construction company that pulled project permits for substandard roof repairs. The Plaintiffs sought treble damages “for injuries sustained resulting from the contractor’s negligence…”, as per Florida Statute § 768.0425(2). The Defendants argued that the court should limit the statute’s application to “personal injuries”, as Florida Statute § 768.0425 is part of Chapter 768, entitled  “Negligence” and sections 768.041 through 768.31 discuss personal injuries and death, not damage to property. The Third District Court stated that the Defendant’s presented a “flimsy argument” and thus did not limit their interpretation of injuries to personal injuries.

Extensive case law in the area of unlicensed construction activities exemplify the serious nature of the consequences arising from unlicensed contractor activities. While consumer protection is paramount in the realm of unlicensed contractor activities, these cases seem to present a tug-of-war between the districts of the public policy behind imposing punitive damages and protecting a consumer.

The appellate court affirmed the decision of the trial court in which summary judgment was granted in favor of Santa Rosa Beach Development Corp I (“SRBD”) and Ard Contractors, Inc. (“ARD”) in their defense of a subrogation claim by Landmark American Insurance Company, the property insurance carrier for the Beach Colony Resort on Navarre East Condominium Association, Inc. (“Association”).  The Association sought damages for Landmark’s failure to provide insurance coverage for structural damages allegedly caused by Hurricanes Ivan and Dennis in 2004 and 2005.  Landmark brought a third party claim against SRBD and ARD for subrogation.

SRBD was the Developer and ARD was the General Contractor in connection with the construction of the Condominium. Prior to incurring any damage from Hurricanes Ivan and Dennis, the Association entered into an Agreement for Warranty Repairs (the “Agreement”) with SRBD and ARD in which SRBD and ARD recognized that they owed certain warranty obligations to the Association  and the SRBD and ARD agreed to perform certain repairs to the stucco exterior cladding of the building pursuant to Fla. Stat. Section 718.203.  Upon execution and delivery of the warranties, the Association entered into a release of SRBD and ARD which provided, in pertinent part, as follows:

Upon execution and delivery of such warranties, Association, shall proceed directly against the manufacturer and applicator in the event any claim arises with respect to the sufficiency or adequacy of such repairs, or otherwise arising out of or relating to such repairs in any way, and shall make no claim against Developer (SRBD) or Contractor (ARD) with respect thereto.

Following the Hurricane, the Association notified Landmark of losses sustained to the building.  Landmark investigated the claim and determined that the water damage was the result of improperly designed and installed exterior cladding.  Landmark’s policy excluded coverage for any “loss or damage caused by or resulting from…fault, inadequate or defective…design, specifications, workmanship, repair, construction…” After Landmark denied the claim based on the conclusion that the water damage was caused by the failure to properly install the stucco exterior cladding, the Condominium filed suit for breach of contract.

After raising numerous defenses to Landmark’s third party complaint for subrogation filed against them, SRBD and ARD moved for summary judgment on the grounds that the Agreement released them from liability.  After hearings on the motion, the trial court granted SRBD and ARD’s motions, and the appellate court affirmed.  The courts specifically looked at the scope of the release, and determined that the release was for all work performed by SRBD and ARD to the defective stucco cladding and to correct damage caused by the water intrusion due to the defective stucco cladding.  The repair work and release were not determined to be limited to the stucco, only.  The Court determined, based upon testimony of Landmark’s own expert, that the release covered the same matters that were the subject of Landmark’s third party action.

Contractors, developers, and design professionals should be cognizant of the breadth of releases entered into with the Condominium Associations, and must always look to obtain such a release when performing warranty repairs.  In this matter, SRBD’s and ARD’s right to preclude the Association from seeking any claims against them arising out of the warranty repairs provided them a complete defense to a subrogation claim by the property insurance carrier. This perfect example of proactive defense, as opposed to reactive defense, was the difference between paying out on a subrogation claim and not paying at all!

While the name alone expressly states its purpose, to create homes for low-income families, what it does not state is the tangential benefits to the surrounding communities. Yes, since inception the LIHTC is responsible for creating over 2.5 million units for low–income families, however, it is also responsible for producing 140,000 jobs annually and generating $1.5 billion in state and local taxes and other revenues. These are jobs in all sectors of the economy, from construction to government jobs,  created to manage, regulate and oversee the entire construction process from conception through completion and then the day to day maintenance and management of the project into the future.

Undeniably, the need to create safe and secure housing for low-income families should be reason enough to support these programs. That being said, the economic benefits to local communities who choose to promote and support subsidized housing programs truly benefits everyone, not just the lucky families who call these projects home, and should not be overlooked.