Florida Court Clarifies That Pre-Suit Notice for Construction Defect Claims Tolls Statute of Repose

Richard J. Maleski and Joseph F. Rich | Cozen O’Connor | September 20, 2018

Florida imposes a statutory requirement to provide pre-suit notice to recovery targets when the potential claim involves construction defects. While the required notice tolls the statute of limitations for such claims, an open question remained regarding what effect the notice would have on the statute of repose. That is, what happens when pre-suit notice is given prior to the expiration of the statute of repose and the claimant then files a lawsuit after the expiration of the repose period? A new opinion from Florida’s Fourth District Court of Appeal helps clarify this issue and shows that the tolling also applies to Florida’s statute of repose.

In section 558.004, Florida Statutes, the legislature mandated that a claimant give pre-suit notice of a construction defect (or damages arising from a construction defect) to the responsible party at least 60 days before filing a civil action (120 days in the case of an association involving more than 20 parcels). If the claimant fails to abide by this pre-suit notice provision, the civil action may be stayed pending compliance with the provision. The statute clearly tolls the statute of limitations upon serving the pre-suit notice but does not mention what effect it may have on the statute of repose. In Florida, there is a 10-year statute of repose for claims arising out of improvements to real property and the pre-suit notice requirement for construction defect claims crosses over into areas covered by the statute of repose, although its ultimate effect on the tolling of claims was not previously defined.

In the recent case of Gindel et. al. v. Centex Homes et. al., No. 4D17-2149 (Fla. 4th DCA Sept. 12, 2018), the Fourth District Court of Appeal held that compliance with the pre-suit notice requirements of section 558.004, Florida Statutes, tolls the statute of repose in addition to the statute of limitations. In so holding, the court looked to the definition of “action” in Chapter 95, Florida Statutes, which governs statutes of limitations. The definition includes “a civil action or proceeding.” In Gindel, the court held that to only toll the statute of repose upon the filing of a lawsuit would render meaningless the “or proceeding” portion of the definition. The court further explained that because the pre-suit notice provision in section 558.004, Florida Statutes, is mandatory, the “proceeding” is instituted when the claimant complies with the initial requirement; i.e., the pre-suit notice provision. The court reasoned that to hold otherwise would penalize claimants for complying with the statutory requirements.

While this decision is favorable for claimants in construction defect actions, subrogation professionals should make themselves aware of the pre-suit obligations imposed by Chapter 558 and ensure timely compliance to preserve their subrogation rights on claims involving Florida’s statute of repose.

Insurer’s Summary Judgment Motion to Reject Claim for Construction Defects Upheld

Tred R. Eyerly | Insurance Law Hawaii | July 23, 2018

The Third Circuit upheld the district court’s order granting summary judgment in favor of the insurer on a claim seeking coverage for construction defects. Lenick Constr. v. Selective Way Ins. Co., 2018 U.S. App. LEXIS 15197 (3d Cir. June 6, 2018).

Westrum was the general contractor for a 92 unit development, and it subcontracted with Lenick to perform rough and finish carpentry and to install paneling, windows, and doors provided by the developer. After the project was completed, it was discovered that some units experienced water infiltration, leaks and cracked drywall.

The condominium development sued Westrum, alleging contract and warranty claims. Westrum impleaded Lenick, asserting claims for breach of contract and indemnification. Lenick sought a defense from its insurer, Selective. Selective defended under a reservation of rights.

Lenick then sued for a declaratory judgment that Selective was obligated to defend and indemnify. The parties filed cross-motions for summary judgment. The district court found that the allegations in the underlying case against Lenick were not covered and Selective had no duty to defend or indemnify.

On appeal, Lenick argued that under Pennsylvania law, the damage occurred to areas of the property on which Lenick did not work, invoking coverage. The court disagreed. Damages that were a reasonably foreseeable result of faulty workmanship were not covered, even when damages occurred to areas outside the work provided by the insured.

Lenick also argued that the property damage was caused by defects in the materials provided to it by the developer. But this theory was not supported by the underlying pleadings, only by extrinsic evidence. Because the pleadings did not contain allegations sufficient to support a claim that the windows, doors, and/or panels used by Lenick malfunctioned, causing the property damage to the project, the argument for coverage failed.

The district court’s granting of summary judgment to Selective was affirmed.

Supreme Court of Idaho Rules That Substantial Compliance With the Notice and Opportunity to Repair Act Suffices to Bring Suit

Lian Skaf | The Subrogation Strategist | July 10, 2018

In Davison v. Debest Plumbing, Inc., 416 P.3d 943 (Ida. 2018), the Supreme Court of Idaho addressed the issue of whether plaintiffs who provided actual notice of a defective condition, but not written notice as stated in the Notice and Opportunity to Repair Act (NORA), Idaho Code §§ 6-2501 to 6-2504, et. seq., substantially complied with the act and if the plaintiffs’ notice was sufficient to bring suit. Section 6-2503 of the NORA states that, “[p]rior to commencing an action against a construction professional for a construction defect, the claimant shall serve written notice of claim on the construction professional. The notice of claim shall state that the claimant asserts a construction defect claim against the construction professional and shall describe the claim in reasonable detail sufficient to determine the general nature of the defect.” Any action not complying with this requirement should be dismissed without prejudice. The court held that the defendant’s actual notice of the defect was sufficient to satisfy the objectives of the NORA and, thus, the plaintiffs’ action complied with the NORA.

In Davison, Scott and Anne Davison hired general contractor Gould Custom Builders (Gould) to remodel a vacation home in McCall, Idaho. Gould subcontracted out the plumbing work to Debest Plumbing (Debest). This work included installing a bathtub. When the Davisons arrived at their home for the first time on July 25, 2013, they noticed a leak from the subject bathtub. The Davisons contacted Gould and, the next morning, Gil Gould arrived with a Debest employee to inspect the home. In addition to inspecting the home, the Debest employee repaired the leak and helped Gould remove some water-damaged material.

It was undisputed that Debest was at fault for this loss and that the Davisons never provided written notice of the defect directly to Debest. Although Debest admitted that the leak was its fault, the parties’ adjusters could not agree on the repair cost. Thus, the Davisons filed suit against Debest.

Debest filed a motion for summary judgment on the Davisons’ breach of contract and warranty claims for lack of privity and on their negligence claim for not complying with the written notice requirement of the NORA. In addition to dismissing the Davisons’ contract claims, the lower court awarded summary judgment on their negligence claim based on their failure to comply with the NORA.

The Supreme Court of Idaho reversed the lower court’s grant of summary judgment for the negligence claim.[1] The court analogized the facts herein to a case in which the plaintiffs substantially complied with the notice requirement of the Idaho Tort Claims Act by sending written notice to the district’s attorney, who forwarded it to the district secretary, instead of the plaintiffs sending it to the secretary directly. The court reasoned that, similarly to that case, the plaintiffs in this case met the objective of the NORA because the defendant had actual notice of the defective bathtub. Since the statute does not state that the plaintiff must specify the cost of remediating the defect, it found Debest’s argument that actual notice was insufficient to provide notice of the scope of the damage unpersuasive.

The court’s ruling in Davison establishes that, as long as plaintiffs satisfy the objectives of Idaho’s NORA, they fulfill its notice requirement and can proceed with a lawsuit. However, it should also serve as a warning for practitioners to be mindful of applicable statutory notice requirements and the fact that they have to satisfy them prior to filing suit. While the facts in Davison may have been sufficient for the court to find that the plaintiffs complied with the NORA’s notice requirement in this instance, courts will not, necessarily, find compliance in all cases where a plaintiff claims that the defendant had actual notice of the defects at issue. Furthermore, depending on the language of another state’s statute and/or that state courts’ interpretation of the applicable statute, actual notice may not suffice.


[1] The court affirmed the dismissal of the contractual claims and vacated an award for attorney’s fees.

New Jersey’s Highest Court Scrutinizes Statutes of Limitation and the Discovery Rule in Construction Defect Cases

Robert C. Neff, Jr. | Wilson Elser | July 11, 2018

The typical construction defect case presents an up-front analytical challenge: the defense attorney is presented with boxes of project materials, perhaps an extensive case history and prior discovery, and likely an unhappy (but these days, resigned) client. So you start with the basics: a review of the complaint to assess the allegations; a review of the contract documents, particularly the scope of work, for an understanding of the client’s role in the project; and a conference with the client to review the project and the expected course of the litigation.

At the same time, you speak with the carrier involved for an understanding of the terms of the applicable policy, and whether that may affect your strategy. Is there an ability to spread the risk, perhaps through a contractual indemnification provision? Or might your client be on the hook to defend and indemnify another party?

There is so much to do that sometimes a statute of limitations or statute of repose evaluation might take a back seat, unless it’s obvious. After all, particularly if your client was brought into the suit late, aren’t these cases typically subject to the discovery rule? And aren’t there often multiple owners, such that this new owner bringing suit wouldn’t have had prior knowledge of any defects?

Well, yes and yes. But a new case in New Jersey illustrates the importance of reviewing this potential affirmative defense and the related statute of repose defense, and making the review part of every initial analysis. Most importantly, the case gives defendants the ability to defend against the assertion that the statute of limitations was tolled until the most recent owner (and plaintiff) discovered the cause of action.

Background
In Palisades at Fort Lee Condo. Ass’n v. 100 Old Palisade, LLC, 2017 N.J. Lexis 845, 169 A.3d 473 (Supreme Court of New Jersey, September 14, 2017), Palisades at Fort Lee Condominium Association, Inc. (plaintiff) sued the general contractor and three subcontractors, alleging various defects in a commercial/residential high-rise under plaintiff’s control at the time suit was filed. However, the complex had gone through two ownership changes prior to suit being filed, and the building had been completed more than six years earlier.

The relevant timeline was as follows: in December 1999, Palisades A/V Acquisitions Co., LLC (A/V) retained defendant general contractor AJD Construction Co., Inc. (AJD) to build the complex. The project architect certified that the project was “substantially complete” as of May 1, 2002. A/V then rented units in the project for two years, after which, in June 2004, it sold the complex to 100 Old Palisade, LLC (Old Palisade), which converted the units into condominiums. On October 1, 2004, an engineer retained by Old Palisade found the complex to be in good condition.

In July 2006, the unit owners took control of the Condominium Association and retained another engineer to inspect the complex. That engineer issued a June 13, 2007, report detailing construction-related defects, and the Association eventually sued various defendants in 2009 and 2010. The allegations were the typical breach of warranty and negligent workmanship allegations found in most construction defect complaints.

Rulings
In New Jersey, the statute of limitations to file such a suit is six years, as set forth in N.J.S.A. 2A:14-1. Ruling on a motion to dismiss for violation of the statute of limitations, the trial court found that the statute began to run on May 1, 2002, when the complex was “substantially complete.” Because suit had been filed after May 2008, the court granted the motion and dismissed the case.

The Appellate Division disagreed, concluding that the Association’s claims accrued when it assumed control of the complex and became “reasonably aware” of the claims of construction defect based on its June 2007 engineer’s report. The Supreme Court granted certification, but did not completely agree with either the trial or appellate courts, illustrating the difficulties inherent in the application of the statute of limitations and the discovery rule in construction defect litigation.

First, the Supreme Court disagreed that it is simply a matter of determining when a project is “substantially complete” when setting the accrual date. The discovery rule applies, it noted. So if an owner does not reasonably first discover a cause of action until after the project is substantially complete, then the full six-year statute does not begin to run until the date that the cause of action is discovered.

The Supreme Court therefore rejected the trial court’s opinion that, because damages and an at-fault party were discovered within the initial six-year period commencing with the substantial completion of the project, the plaintiff had to file the action within the initial six-year period. “We therefore reject defendants’ argument that, so long as plaintiff discovered the basis for an actionable claim within six years from the date of substantial completion, plaintiff had to file within the time remaining in the limitations period.”

Instead, the Supreme Court determined the statute of limitations does not begin to run until “the date that the plaintiff knows or reasonably should know of an actionable claim against an identifiable defendant” if that date is after the date of substantial completion. While defendants lost that argument, they won another, perhaps less obvious, argument.

The plaintiff in Palisades was the third owner of the project in question, a 41-story high-rise consisting of a 30-story residential tower atop an 11-story parking garage, including mid-rise apartments, townhomes and recreation facilities. A/V owned it in 1999, Old Palisade took ownership in 2004, and the plaintiff, the Condominium Association, owned it in July 2006 when 75 percent of the unit owners took control of the Condominium Association.

Plaintiff attempted to argue that the statute of limitations did not begin to run until the Condominium Association received its expert report in June 2007, notifying it of the defects. In fact, that is how the Appellate Division ruled. It made no difference to the Appellate Division that the prior owners had known of defects in the project. Instead, the Supreme Court held that a current owner stands in the shoes of a prior owner for statute of limitations purposes, and has no right to revive what may have been a lapsed claim simply because of a change in ownership:

“The statute of limitations clock is not reset every time property changes hands… A cause of action, for purposes of N.J.S.A. 2A:14-1, accrues when someone in the chain of ownership first knows or reasonably should know of an actionable claim against an identifiable party.”

Rejecting plaintiff’s argument and that of its amicus curiae supporters, the Supreme Court explicitly held that a condominium association is not exempt from that rule: “Old Palisade took title subject to the rights of A/V Acquisitions, and the plaintiff Condominium Association took title subject to any limitation on the rights of the two predecessor owners.”

As a final point, the Supreme Court noted that its holding does not abrogate the effect of the statute of repose, which in New Jersey is 10 years. Repose statutes are specifically enacted to save architects, planners, designers, builders and contractors from indefinite liability through operation of the discovery rule. Thus, the 10-year period begins to run on the date of substantial completion and cannot be extended.

At the end of the day, the Supreme Court found in Palisades that it could not determine the accrual date of the statute of limitations, and that a hearing would have to be held with respect to when each of the three owners knew or should have known of a cause of action as against each defendant. It remanded the case for that purpose.

Analysis
Back to the beginning: a statute of limitations analysis must be conducted at the start of each case. In Palisades, the motions to dismiss based on the statute of limitations were filed at the conclusion of all discovery. While an initial analysis might yield the conclusion that certain discovery will be needed to ascertain the appropriate accrual date (or dates, in the case of multiple defendants), counsel will then know what discovery to seek during the discovery period.

In addition, as a practical matter − and if the managing judge or counsel are in agreement − discovery limited to the statute of limitations can be conducted in the beginning of the case, early motions can be filed, and an early hearing held, potentially obviating the need for a lengthy full-discovery period.

…And potentially winning the case on an affirmative defense short of trial for one of those resigned, but now pleasantly surprised, clients.

How to Be an Effective Expert Witness in a Construction Dispute

Kent B. Scott | Babcock Scott & Babcock, PC | June 28, 2018

Being an expert witness in a construction dispute can be a difficult and stressful experience, but one that is made easier by following a helpful set of rules that govern the process. An expert witness is placed in a very controlled environment where every question is calculated and precise. This setting is atypical of daily life and as a result, being a good witness will take practice and refinement over time. Faced with the task of being an expert witness in a construction dispute, it’s not just about intelligence and experience. Instead it’s about preparation, understanding the audience, the rules, and the “central themes” of the dispute. Giving testimony is not a conversation, it has its own language and its own rhythm. Question, listen, pause, answer only what is asked, stop. Guessing, interrupting, and volunteering are wrong and dangerous in the narrow and artificial world of testimony, where every word is taken down, under oath, and scrutinized.

In this world, the questioner (lawyer) appears to be in control. That’s a lie, but even the
most experienced expert witness can fall victim to it. The expert witness has the right and the responsibility to take control. When it comes to meetings or other interactions, most people know that the way to take control of the situation is not by shouting the loudest, but by using clearly established techniques and rules. Being an expert witness is just a different kind of meeting, a way of communicating, and there are rules to be effective and be in control. The purpose of this article is to give you the rules and techniques to help you and your expert witness in a construction dispute.
Rule #1 – Instruct Your Expert To Take Their Time.
The first thing an expert witness should always remember to do is slow down and control the pace of the questioning. Lawyers often come with a strategy that involves rapid fire question and answer in the hopes that the witness will make a mistake that can be used to strengthen the opposing lawyer’s case. This tactic is easily counteracted by a witness slowing things down and taking time to think through an answer before giving it.
Rule #2 – Remind Your Expert They Are Making A Record.
It is important to remember that everything said as a witness is going to be recorded.
Every answer given in a deposition or in trial will be used by each side and can either you’re your case, or it can hurt it. It is crucial that witnesses remember to think through answers and to convey them as intended. This will be very difficult to master but is vital to the process.
Rule #3 – Tell The Truth.
While this initially seems obvious, it is often much harder to do than anticipated. This is
because telling the truth in an expert environment is a very narrow concept. Answers given in this setting should be restricted to only what the witness saw, heard or did.
Rule #4 – Be Polite.
The lawyer sitting across the table will frequently try to attack the credibility of a witness.
In order to do this, the lawyer may personally attack the witness. If a witness becomes hostile or defensive it is unlikely they will be thinking clearly and can say things that may be misconstrued. Stay focused and be polite. This will allow the witness to continue to control the pace and flow of the questioning to say what they intend to.
Rule #5 – Responding To Vague Questions.
It is imperative that a witness not respond to any questions they do not understand.
Don’t be afraid to speak up an say “I don’t understand your question.” If a question is vague or unclear, they must simply ask the lawyer to restate it or rephrase it. It is more important to take a little more time and truly understand the intent of the question, than guess or speculate when answering.
Rule #6 – If The Witness Does Not Remember.
Situations will arise for a witness where an attorney will ask a question the answer to
which the witness has no recall. Litigation often carries on for years and it can be difficult to recall certain details if questions are directed later on in the process. If a witness is presented with a question they do not remember, it is important to say “I don’t recall” and stop. Remember this is not a test; they are not being graded on how much they remember.
Rule #7 – Do Not Guess.
While in daily life it is appropriate to guess or infer particular things into a conversation, it is extremely dangerous to do this as a witness. A witness is only expected to answer to the best of their ability as to what was seen, heard or done. A witness should not take it upon them self to try and answer questions if they do not know the answer.
Rule #8 – Do Not Volunteer.
The rhythm of a witness should ultimately be “question, listen, pause, answer, stop.” The lawyer may ask broad questions in the hopes of discovering new information but it is critical the witness stick strictly to the question they are presented with.
Rule #9 – Be Careful With Documents.
Oftentimes lawyers will use documents to supplement their arguments or to ask specific
questions. It is important that the witness treat these documents mechanically and keep in mind documents are just written versions of what someone believed. There is a simple, unvarying protocol witnesses should follow when asked a question relating to a document: (a) ask to see the document. Don’t allow anyone to draw your expert witness into a debate with a document without the document being in front of you. (b) It is important the witness read it. The three issues that will pertain to any document are credibility, language and context. (c) The witness must ask for the question again. It is basic fairness, once the lawyer has read the document and picked a small piece to talk about, the witness be awarded the same time to review the document and answer.
Rule #10 – Use Your Lawyer.
A witness’s strongest ally will be his or her lawyer. You – as the lawyer – is there to object to any questions the witness shouldn’t be answering and are also aware of what the goals in the litigation process are. It is important the witness utilize their lawyer and ask questions if they are unsure of anything throughout the process. While the lawyer cannot answer the questions for the witness, you are there for support and will be the best tool to get the desired results.
Remember, these rules will not come easily. Being a good expert witness involves acting and speaking contrary to what is typical in the everyday world. The rules conflict with what your expert is used to and are often counter-intuitive. But, if they are practiced they can impose a degree of discipline and control on the legal process that makes it significantly more fair and productive. I hope that when you find yourself using an expert witness in a construction dispute these simple rules will help your case.
Kent B. Scott is a shareholder at the Salt Lake City based construction law firm of
Babcock Scott & Babcock, PC. Licensed in Utah, and all levels of Federal Court, including the U.S. Supreme Court, his practice focuses exclusively on the construction industry. He can be reached at kent @babcockscott.com or (801) 531-7000.