Florida Supreme Court Confirms 558 is Not a Civil Proceeding, Allowing Contractors and Design Professionals to Resolve Defect Disputes as Intended by the Legislature

Brian A. Wolf and Joseph R. Young | Smith Currie & Hancock | December 14, 2017

Contractors and design professionals are entitled to notice of alleged defects in their work and the opportunity to fix them without intervention by insurance companies and needless litigation. Today, Florida’s Supreme Court in Altman Contractors, Inc. v. Crum & Forster Specialty Insurance Co., No. SC15-1420 (Dec. 14, 2017), held that the Florida Statute Chapter 558 dispute resolution process is not a civil proceeding. This means that contractors and subcontractors who receive a 558 demand are free to participate in the notice and right to cure process without notifying their insurers of non-covered claims for construction defects unless otherwise specified in their insurance policy.

Chapter 558, Florida Statutes, was enacted almost 15 years ago with the express purpose of resolving construction defect claims without expensive and time-consuming litigation. Chapter 558 was originally known as the notice and right to cure statute. Unfortunately, the statute is now more commonly referred to as the “construction defect statute.” The trend has been for owners, contractors and design professionals to engage in expensive and protracted processes often lead by condo-lawyers and their engineering consultants, and on the other side, insurance companies, their lawyers and adjusters.

In Altman Contractors, Inc. v. Crum & Forster Specialty Insurance Co., the contractor’s reaction to an extensive 558 notice was an attempt to force its insurer to pay for the 558 process. Altman Contractors argued that its commercial general liability policy contractually obligated its insurance company to defend against the 558 process because it was no different than a lawsuit. Altman attempted to convince the Supreme Court that the 558 notice and right to cure process was a “civil proceeding” as defined by language of their insurance policy.

The Supreme Court expressly held that the chapter 558 presuit process is a mechanism for resolving disputed construction defect claims but it is not a civil proceeding. The Court reasoned that chapter 558 is a notice and repair process which is not equivalent to a lawsuit because participation is voluntary and does not involve a third-party acting like a judge. The Court noted that the 558 process does not take place in a court setting and the parties are free to resolve or not resolve the defect claims as they choose.

It is critical to note that the Supreme Court determined that that the 558 process would fit the insurance policy’s definition of a “suit” if the insured submitted to the 558 process with the insurer’s consent. The Court reasoned that the 558 process is an alternative dispute resolution proceeding as defined by the insurance policy that Crum & Forster Specialty Insurance Co. sold to Altman Contractors, Inc. The Supreme Court relied on the language of the insurance policy which included a specific definition of a “suit” in the context of the insurer’s duty to defend.

The Court’s holding is important because it allows contractors to request and obtain consent of their commercial general insurance company for the insurance company to pay for and participate in the 558 process. The Court’s holding provides contractors with guidance for triggering their insurance company’s duty to pay for the defense of a 558 proceeding. If the contractor elects to trigger defense coverage, then it is incumbent on the contractor to notify its insurer of the 558 claims and specifically request the insurer’s consent to the process before participating in the 558 process.

Contractors and design professionals who receive a 558 notice and demand to cure should take care to consult with their construction attorney to review their insurance coverage and determine whether and how to involve insurance in the 558 process. The determination will depend on whether any of the defects alleged in the 558 notice are covered by insurance and the specific triggering language of all applicable insurance policies.

Fashion Trends for Design Professionals: Wearing Many Different Hats

Brian L. Lynch | Faegre Baker Daniels | January 18, 2018

With the rise in alternative project delivery systems, design professionals are often expected to provide services beyond those required under the “traditional model.”1 As one may expect, this expansion of services can also increase risk for the designer and affect legal relationships and liabilities for all contracting parties. The growing complexity of construction — coupled with designers wearing multiple hats due to changing relationships and increased scopes of work from different project delivery systems and industry practices — has had a significant effect on designer liability.

Today, design professionals can wear any one of following three “hats” during a project:

  • An independent contractor in the preparation of the construction plans and specifications.
  • An agent of the owner in observing the construction work as it progresses and administering the contract.
  • A quasi-judicial officer with certain immunity when acting as arbiter in resolving disputes between the owner and the contractor.2

Hat No. 1: An Independent Contractor

First, during the preparation of construction plans and specifications, a designer’s legal role is that of an “independent contractor.” Under state licensure statutes and state and local building codes, the designer bears a unique responsibility as an “independent contractor” which cannot be delegated except to other licensed professionals. The principal consequence of this classification in performing design services is that a designer may be held liable for negligence to parties with whom there is no contractual privity that results in injuries to persons or property and, in some jurisdictions, in economic losses.3

Hat No. 2: An Agent of the Owner

Second, a designer may provide a vast array of services during the administration and construction phases, acting as an agent for the owner within the scope of his or her contract with the owner.4 For example, Section 4.2.1 of the new AIA Document A201-2017, General Conditions of the Contract for Construction, specifically states that “[t]he Architect will have authority to act on behalf of the Owner only to the extent provided in the Contract Documents.” Whether a designer is an agent or independent contractor during these phases can have significant implications for all contracting parties, such as whether a) the owner is bound by the designer’s actions; b) the designer may be liable to contractors and other third-parties for harm caused by their acts as an owner’s agent; and c) whether a designer can be found liable to a contractor seeking tort damages for economic loss.

Hat No. 3: An Independent Arbiter

Lastly, a designer may serve as an independent quasi-adjudicator of disputes between the owner and contractor as provided for in the contract documents. Frequently, a designer is given the authority to interpret contract documents due to its status as the party knowledgeable about design intent. For example, Section 4.2.11 of the new AIA Document A201-2017 states that it is the role of the designer to “interpret and decide matters concerning performance under, and requirements of, the Contract Documents on written request of either the Owner or Contractor.” In rendering these interpretations, Section 4.2.12 requires the designer to “endeavor to secure faithful performance by both Owner and Contractor, will not show partiality to either, and will not be liable for results of interpretations or decisions rendered in good faith.” This role, however, is fraught with potential conflicts of interest, as a designer is normally employed and paid by an owner. One of the most prevalent is when a designer is required to reexamine positions taken as the owner’s agent during the administration and construction phases. But if acting in good faith in its role as a quasi-arbitrator, designers are granted immunity from suit for their decisions.5

Because design professionals can wear any number of “hats” during a construction project — which each have an important effect on legal relationships and liabilities — it is important that all contracting parties understand which roles the design professional plays on their project.

For more on the distinct professional roles of a designer, see Bruner & O’Connor Construction Law §§ 17.4 to 17.9.

1 For an overview of the “traditional model” of project delivery, see 1 Bruner & O’Connor Construction Law §§ 2:13, 2:29 to 2:30, 6:1 to 6:4.
2 See 5 Bruner & O’Connor Construction Law §§ 17.4 to 17.9.
3 See, e.g., Eastern Steel Constructors, Inc. v. City of Salem, 549 S.E.2d 266 (W. Va. 2001) (holding architect liable to contractor for economic losses arising out of defectively prepared plans and specifications on the basis of both professional negligence and implied warranty).
4 “Possible services include: (1) advising the owner regarding contractor selection; (2) observing the work for compliance with the plans and specifications; (3) certifying contractor payment applications; (4) reviewing shop drawing submittals; (5) monitoring project scheduling; (6) certifying substantial and final completion; and (7) certifying grounds for contract termination for default.” 5 Bruner & O’Connor Construction Law § 17:6.
5 See, e.g., Wilder v. Crook, 34 So. 2d 832, 834 (Ala. 1948)

In a Win for Design Professionals, California Court of Appeals Holds That Relation-Back Doctrine Does Not Apply to Certificate of Merit Law

Garret Murai | California Construction Law Blog | December 5, 2017

The year was 1995. The old guard was still in power in Sacramento. “Button-Down” Pete Wilson was Governor. Willie Brown, the self-nicknamed “Ayatollah of the Assembly,” was Speaker of the Assembly. And Bill “Huggy” Lockyer was Senate Pro Tem. Names that, for many reasons as of late, seem . . .  well . . . let’s just say, “quaint.”

Their time, however, was coming to an end. Three years earlier, California voters approved Proposition 140, which instituted term limits for the first time in California. And by 1996, the first slate of legislators would be “termed out.” The immediate impact: It was the time for making deals because you didn’t know who would be keeping house next.

At the time, I was lobbying for a trade association in Sacramento representing the architecture profession. One of the key legislative priorities for the association was protecting and “preserving” a statute that had originally been enacted in 1979 and scheduled to have sunsetted in 1984. For more than 10 years, it had been kept alive by legislative extensions.

The law, Business and Professions Code section 411.35, was designed to limit frivolous lawsuits against licensed architects, registered professional engineers and licensed land surveyors by requiring attorneys to consult with another design professional as a condition of filing a complaint or cross-complaint against a licensed architect, registered professional engineer, or licensed land surveyor.

Also known as a “Certificate of Merit,” the law was supposed to sunset in 1995, but the association was able to get the sunset removed. Business and Professions Code section 411.35, as currently amended, provides that “on or before” serving a cross-complaint alleging the professional negligence of a licensed architect, registered engineer, or licensed surveyor, a certificate of merit must be signed by the attorney and filed with the court representing that either:

  1. The attorney has consulted with at least one architect, professional engineer, or land surveyor licensed to practice in California or any other state, who is in the same discipline as the architect, professional engineer, or land surveyor, and the attorney has concluded based on the consultation that there is reasonable and meritorious cause for filing the complaint or cross-complaint;
  2. The attorney was unable to obtain a consultation before the running of the statute of limitations, in which event, a certificate of merit shall be filed within sixty (60) days after filing the complaint; or
  3. The attorney was unable to obtain a consultation following three (3) good faith attempts to obtain an opinion from three (3) separate architects, professional engineers, or land surveyors.

An attorney is not required to disclose the identity of architect(s), professional engineer(s), or land surveyor(s) consulted unless the attorney files a certificate of merit stating that it was unable to obtain a consultation, in which event, the identities of the architects, professional engineers, or land surveyors from whom a consultation was sought may be required to be disclosed by the court.

However, if, at the conclusion of litigation, the licensed architect, registered engineer, or licensed surveyor prevails, the licensed architect, registered engineer, or licensed surveyor may file a motion with the court requiring the attorney to disclose the names, addresses, and telephone numbers of the persons consulted. If the court finds that the consulting requirements were not met, the court may order a party, a party’s attorney, or both, to pay reasonable expenses, including attorney’s fees, to the licensed architect, registered engineer, or licensed surveyor.

In Curtis Engineering Corporation v. Superior Court of San Diego, Case No. D072046 (October 23, 2017), the California Court of Appeals addressed the impact of the relation-back doctrine – a doctrine that generally provides that a later-filed pleading “relates back” to the date of an earlier-filed pleading for statute of limitations purposes – on the certificate of merit law.

Curtis Engineering Corporation v. Superior Court of San Diego

In Curtis Engineering, George Sutherland, a crane operator, was injured when his crane tipped over on May 5, 2014. Nearly two years later, on May 3, 2016, he filed suit in the San Diego Superior Court. His complaint included a negligence cause of action against Curtis Engineering Corporation.

Sutherland’s original complaint, however, did not include a certificate of merit. On December 1, 2016, Sutherland filed an amended complaint that included a certificate of merit.

In response, Curtis Engineering filed a demurrer arguing that Sutherland had failed to file the required certificate of merit within the two-year statute of limitations period applicable to a negligence cause of action. The trial court, however, denied the motion concluding that the first amended complaint “related-back”to the date the original complaint was filed

Curtis Engineering appealed.

The Court of Appeal Decision

On appeal, Curtis Engineering argued that the two-year statute of limitations for negligence expired on May 5, 2016, that the certificate of merit was not filed until December 1, 2016 (nearly seven months after expiration of the statute of limitations), and that the sixty (60) day grace period under Business and Professions Code section 411.35 had expired on July 2, 2016.

Discussing the relation-back doctrine, the Court of Appeals explained that under the doctrine a later-filed pleading will be deemed to have been filed at the time of an earlier complaint if the amended complaint is based on the same general set of facts. However, held the Court, based on the language of the certificate of merit statute, the relation-back doctrine does not apply to later-filed pleadings alleging the professional negligence of a licensed architect, professional engineer, or licensed surveyor for two reasons.

First, held the Court of Appeals, Business and Professions Code section 411.35 states that a certificate of merit “shall” be signed and filed by an attorney “on or before the date of service.” This requirement, explained the Court, would be rendered meaningless if the relation-back doctrine permitted an attorney to file a certificate of merit later in time in order to avoid a statute of limitations deadline.

Second, held the Court of Appeals, Business and Professions Code section 411.35 provides a sixty (60) day grace period applicable in situations where an attorney is unable to file a certificate of merit before a statute of limitations deadline. “[A]pplying the relation-back doctrine in this situation,” explained the Court, “would mean a plaintiff has virtually an unlimited amount of time to obtain the necessary consultation as long as the plaintiff files the certificate of merit with an amended complaint that relates back to the original complaint. This cannot be what the Legislature intended.”


Curtis Engineering provides further assurances to licensed architects, registered engineers and licensed surveyors that the intent of the certificate of merit law is preserved, by requiring attorneys to obtain a certificate of merit “on or before” service of a complaint or cross-complaint, or if a certificate of merit cannot be filed by the time a statute of limitations deadline expires, by requiring that a certificate of merit be filed within sixty (60) days after the filing of a complaint or cross-complaint.

Out-of-State Contractors and Design Professionals Beware: The Georgia Removal Statute Does Not Apply to You

William R. Wildman, Jesse W. Lincoln and Matthew J. Bowness | Eversheds Sutherland | November 30, 2017

Out-of-state contractors and design professionals working on projects in Georgia should consider including venue selection clauses in their contracts. Under O.C.G.A. § 14-2-510(b)(4), venue for tort actions lies “in the county where the cause of action originated,” i.e., generally in the county where the project is located. Thus, even if a contractor’s primary Georgia office is located in Atlanta’s Fulton or DeKalb counties, the contractor is subject to being sued in the project’s county.

An in-state contractor that is sued in an unfavorable venue has the statutory right to remove the suit to its home county—the county in which it maintains its “principal place of business.” The Supreme Court of Georgia, however, has made it clear that out-of-state contractors do not have this right.

In Kingdom Retail Grp. v. Pandora Franchising, 334 Ga. App. 812, 816 (2015) (aff’d Pandora Franchising v. Kingdom Retail Grp., 299 Ga. 723 (2016)), the plaintiff sued the defendant in the Superior Court of Thomas County. Id. at 812. The defendant filed a notice of removal of venue, arguing that it had the right to remove the action to the Superior Court of Gwinnett County, where it “maintain[ed] its registered office as its principal place of business in the State of Georgia.” Id. at 813. It attached with its motion an affidavit attesting to the fact that it did “not have any other principal office or principal place of business in the State of Georgia.” Id.at 813 (emphasis added).

The Superior Court conducted a hearing on the matter and then ordered that venue be removed to the Superior Court of Gwinnett County. Id. at 812. The plaintiff immediately appealed.

On appeal, the court held that the term “principal place of business” referred to a single place in the world meeting a certain standard, not to a place within Georgia meeting that standard. Id. at 816. The court further held that the venue removal statute “allows a transfer only if a defendant’s principal place of business, as defined above, is located in Georgia.” Id. at 817. Because the defendant’s principal place of business was in Columbia, Maryland, the court held that the Superior Court had erred by ordering removal to Gwinnett County. Id. at 817. It thus remanded the case to the Superior Court of Gwinnett County with instruction to remand the case back to the Superior Court of Thomas County. Id. at 817.

The defendant subsequently appealed to the Supreme Court of Georgia. Pandora Franchising v. Kingdom Retail Group, 299 Ga. 723 (2016). The Supreme Court unanimously affirmed, holding that “the language of subsection (b)(4) confers the right of a company to remove an action in which venue is based upon this subsection only to the county in Georgia where the defendant maintains its worldwide principal place of business.” Id. at 727 (emphasis added). The court further held that “[i]f that place is not located in a Georgia county, then no right to remove is granted.” Id. at 727.

Thus, under Kingdom Retail, out-of-state corporations cannot avail themselves of Georgia’s venue removal statute if they find themselves embroiled in litigation in an unfriendly county. Accordingly, out-of-state contractors and design professionals working on projects in Georgia should take care to include strong venue selection clauses in their contracts to avoid being sued in plaintiff-friendly counties. Such clauses should apply to all claims arising out of or relating to the contract and should specify that such claims must be brought in the contractor’s preferred venue.

Montana Supreme Court Holds that a Waiver of Consequential Damages and a Partial Limitation of Liability in a Design Contract are not Contrary to Montana Law

Emily D. Anderson | Constructlaw | November 30, 2017

Zirkelbach Constr., Inc. v. DOWL, LLC, 2017 Mont. Lexis 591 (Mont., Sept. 26, 2017)

In interpreting a state statute which makes contractual limitations on a party’s liability unenforceable in certain instances, the Supreme Court of Montana recently upheld the validity of a contract provision in a professional services agreement between a general contractor and a designer in which the parties waived consequential damages against each other and limited the liability of the designer to $50,000.00.

Zirkelbach Constr., Inc. (“Zirkelbach”) and DOWL, LLC (“DOWL”) entered into a professional services agreement (the “Agreement”), whereby DOWL agreed to provide design work to Zirkelbach, a general contractor, for the construction of a FedEx Ground facility in Billings, Montana.  The original contract price was $122,967, but was adjusted to approximately $665,000 after the parties made several addenda to the Agreement to account for additional services.

The Agreement contained a provision (the “limitation of liability clause”) – which the parties did not renegotiate when they modified the Agreement through addenda – in which the parties agreed to waive against each other “any and all claims for or entitlement to special, incidental, indirect, or consequential damages arising out of, or resulting from, or in any way related to the Project,” and also agreed that DOWL’s total liability to Zirkelbach under the Agreement “shall be limited to $50,000.”

After Zirkelbach brought suit against DOWL asserting claims of negligence and breach of contract in the amount of $1,218,197.93 for problems allegedly caused directly by DOWL’s design plans, DOWL filed a motion for partial summary judgment arguing that DOWL could not be liable to Zirkelbach in any amount exceeding $50,000 due to the limitation of liability clause. The District Court granted DOWL’s motion and Zirkelbach appealed.

On appeal, Zirkelbach argued that the limitation of liability clause was unenforceable as against public policy under Section 28-2-702, MCA, which provides:

All contracts that have for their object, directly or indirectly, to exempt anyone from responsibility for the person’s own fraud, for willful injury to the person or property of another, or for violation of law, whether willful or negligent, are against the policy of the law.

The Supreme Court disagreed.  In holding that the limitation of liability clause was valid under § 28-2-702, the Supreme Court emphasized the importance of the freedom of parties to mutually agree to the terms governing their private conduct, provided those terms do not conflict with public laws, and emphasized that Zirkelbach and DOWL were two experienced, sophisticated business entities with equal bargaining power.  The Court relied on case law in both Montana and California, which has an identical statute, in concluding that “it would be difficult to imagine a situation where a contract between relatively equal business entitles would be able to meet the required characteristics of a transaction that implicated public interest.”

Additionally, the Court noted that the limitation of liability clause only capped damages and did not exempt DOWL from all liability under the Agreement, as the Court had previously held that § 28-2-702, is not violated when business entities contractually limit liability, but do not eliminate liability entirely, or when a limitation of liability applies only to a narrow type of damages, but not all damages.  DOWL remained exposed to liability on the negligence claim asserted by Zirkelbach and for $50,000 under the Agreement.

Finally, the Court rejected Zirkelbach’s argument that the $50,000 limitation of liability indirectly exculpated DOWL from liability because it was a nominal amount compared to DOWL’s total adjusted fee.  The Court pointed out that the limitation was a much larger percentage of DOWL’s fee before the parties modified the Agreement to add additional services by addenda, and stressed that it would not “allow Zirkelbach to avoid a term of the contract simply because it [had] become more burdensome due to its own failure to renegotiate.”  Each time the Agreement was modified, Zirkelbach had an opportunity to renegotiate the cap on liability, but did not.

Accordingly, the Supreme Court affirmed the grant of summary judgment in DOWL’s favor.