Are General Contractors Liable For Their Subcontractors’ Actions Or Inactions?

Kristina Vaquera | Jackson Lewis | June 26, 2019

A general contractor in Southern California found itself on the hook for its subcontractor’s failure to pay wages to its workers, even though the general contractor had no knowledge of it. The case illustrates an important reminder for general contractors. The general contractor was fined close to $600,000 under a 2017 California law, A.B. 1701, which holds general contractors liable for their subcontractor’s failure to pay wages owed to workers.

Holding a general contractor responsible is not new or limited to state law. Under most federal employment laws, a general contractor could be found to be a joint employer with its subcontractor, or a temporary staffing agency, when certain conditions are met. In determining if the general contractor is jointly employing workers with its subcontractors, courts will look at the level of control exercised by the general contractor over these workers, as well as intermingling of operations, common ownership, supervision of work, pooling of employees, sharing of clients or customers, and agreements between the companies.

Unexpected and significant consequences for a general contractor may result from its subcontractor’s noncompliance with the law. For example, under the Fair Labor Standards Act, a general contractor found to be a joint employer could be liable for a subcontractor’s failing to pay wages or overtime and misclassifying a worker as exempt or as an independent contractor, among other things.

In addition, more and more courts are looking at whether general contractors should be held accountable for a subcontractor’s alleged harassing or discriminatory conduct under Title VII of the Civil Rights Act.

State and federal agencies and workers may go after a general contractor for joint-employment liability when the subcontractor cannot cover the liability on its own or it is no longer operating, and the general contractor has deeper pockets.

Accordingly, to reduce risk, general contractors should consider carefully who they choose to do business with and take steps to ensure that their business partners are compliant with federal and state laws.

Illinois Considers Following Trend Toward Making General Contractors Liable for Wages of Subcontractors

James Rohlfing | Construction Industry Counselor | April 23, 2019

A bill pending in the Illinois legislature (HB2838) exemplifies a nationwide trend in the construction industry to hold a contractor who has a direct contract with an owner (“Direct Contractor”) liable for the unpaid wage and fringe benefit obligations of its subcontractors on a private project. Direct Contractors already have liability for employee wages owed by their subcontractors on public projects covered by the Davis Bacon Act, and the same responsibility is owed under the prevailing wage acts of many states. Direct Contractors may also have liability for subcontractors’ wages on private projects pursuant to some states mechanics lien acts, as well as obligations contained in union collective bargaining agreements to which a Direct Contractor may be signatory.

The effort to expand the obligation of Direct Contractors to guarantee payment of subcontractor employees on private projects received a kick start last year when California and Maryland enacted laws making Direct Contractors responsible for the unpaid wages and fringe benefits of all workers in the construction chain. A review of the California and Maryland laws, as well as the bill pending in Illinois, suggests states should be cautious in enacting such laws while they weigh the benefits against the difficulties that might result.   

In California, a Direct Contractor contracting for the construction of a private building project as of January 1, 2018 is liable for any debt owed to a wage claimant, or a third party on the wage claimant’s behalf, incurred by a subcontractor at any tier acting in furtherance of the Direct Contractor’s contract with the owner. The Direct Contractor’s liability includes unpaid wages, and fringe benefits, such as health and welfare contributions, plus interest and attorneys’ fees, but not penalties. Interestingly, under the California law, employees may not bring an action to enforce the law. Instead, a complaint may be brought by: 1) the California Labor Commissioner; 2) a labor-management cooperation committee; or 3) a labor union to collect unpaid fringe contributions. The property of a Direct Contractor may be attached to satisfy a judgment entered against it. Direct Contractors have the right to request payroll records from their subcontractors and to withhold payment if the request is not fulfilled.

A Maryland law which became effective October 1, 2018 also provides that Direct Contractors are liable for the wage obligations of subcontractors at any tier. The Maryland law permits an action to be brought at any time within three years after wages are due, while the limitations period in California is one year. In addition to liability for interest and attorneys’ fees, as provided by the California law, a Maryland Direct Contractor must pay a penalty of three times the unpaid wage. Though Maryland’s law requires a subcontractor to indemnify a Direct Contractor for liability under the law, that is little conciliation for the Maryland Direct Contractor. The subcontractor has already failed to pay its own workers, and in any event, a right to indemnification likely is available under common law. Finally, Maryland’s law does not expressly require a subcontractor to furnish payroll records to a Direct Contractor, though that right could be established by contract.

The bill pending in the Illinois legislature closely resembles the California law. It would impose liability on Direct Contractors for wage claimants of subcontractors at any level on private projects, and a claim could not be brought directly by a wage claimant. Also, as in California, Illinois would charge a Direct Contractor interest and attorneys’ fees but not penalties, and an action would have to be brought within one year from when payment was due.   

Illinois might be well served to first study the effect of recent enactments in other states before launching a similar law. Specifically, the Illinois proposal leaves the following questions unanswered:

  • Would Direct Contractors require all subcontractors to furnish payment bonds to guarantee wages are paid?
  • Would smaller and newer subcontractors who cannot provide bonds be unable to compete on most private commercial projects?
  • How much additional administrative work would be required to track whether subcontractors were paying all employees?
  • Would the payment process be slowed for all subcontractors, while proof of payment by lower tiers is gathered, putting further pressure on cash flow?
  • What role would politics play in whether a labor management cooperation committee would bring suit against one of its large contractor members?
  • Does the word “subcontractors” include material suppliers, as it does under the Illinois Mechanics Lien Act, or does it only include subcontractors covered by the prevailing wage act?
  • Are jobs paid for by public funds on private property or projects on public property using private funds included as “private” projects?
  • If attorneys’ fees are awarded to a prevailing wage claimant, should they also be available to a successful Direct Contractor?
  • Does the provision permitting the attachment of a Direct Contractor’s property to collect a judgment differ from existing law and if so, in what way? 

For hundreds of years, American jurisprudence has recognized the distinction between independent contractor and agency law. Illinois and other states interested in following the examples of California and Maryland should examine the experiences in other states with such laws to help grapple with those questions.

A Behind-the-Scenes Look at Substitution Hearings Under California’s Listing Law

Garret Murai | California Construction Law Blog | February 11, 2019

The next case, JMS Air Conditioning and Appliance Service, Inc. v. Santa Monica Community College District, 2nd District Court of Appeal, Case No. B284068 (December 17, 2018), provides an interesting behind-the-scenes look at substitution hearings under the Subletting and Subcontracting Fair Practices Act.

The Subletting and Subcontracting Fair Practices Act

The Subletting and Subcontracting Fair Practices Act (Public Contract Code Section 4100 et seq.), also commonly referred to as the “Listing Law,” requires that prime contractors on state and local public works projects “list” the following subcontractors in their bids:

  1. Subcontractors who are anticipated to perform work with a value in excess of 0.5% of the prime contractor’s total bid; and
  2. Subcontractors, on street, highway and bridge projects, who are anticipated to perform work with a value in excess of the greater of: (a) 0.5% of the prime contractor’s total bid; or (b) in excess of $10,000.

“Listing” a subcontractor requires that the prime contractor identify the name, business address, contractor’s license number, and public works registration number of the subcontractor.

The purpose of the Listing Law is to prevent “bid shopping” and “bid  peddling.” Bid shopping is where a prime contractor uses a low bid received from a subcontractor to pressure other subcontractors to submit even lower bids. Bid peddling is where a subcontractor uses a low bid received by a prime contractor from a subcontractor to submit an even lower bid. In enacting the Listing Law, the California State Legislature found that bid shopping and bid peddling result in “poor quality of material and workmanship to the detriment of the public, deprive the public of the full benefits of fair competition among prime contractors and subcontractors, and lead to insolvencies, loss of wages to employees, and other evils.”

To prevent these “evils,” the Listing Law prohibits prime contractors from substituting another subcontractor with a “listed” subcontractor unless consent is given by the public agency overseeing the public works project. Consent by a public agency is limited to nine circumstances:

  1. Failure to Execute Subcontract: When the listed subcontractor fails or refuses to execute a written subcontract at the price stated in the subcontractor’s bid;
  2. Insolvency or Bankruptcy: When the listed subcontractor becomes insolvent or files for bankruptcy;
  3. Failure to Perform: When the listed subcontractor fails or refuses to perform under its subcontract;
  4. Failure to Furnish Bonds When Required: When the listed subcontractor fails or refuses to furnish a payment and/or performance bond under its subcontract;
  5. Inadvertent Clerical Error: When the prime contractor demonstrates that the listed subcontractor was listed as a result of an inadvertent clerical error;
  6. Not Properly Licensed: When the listed subcontractor is not properly licensed under the Contractors’ Licensing Law;
  7. Unsatisfactory Performance: When the public agency determines that the work performed by the listed subcontractor is substantially unsatisfactory and not in substantial accordance with the plans or specifications or that the listed subcontractor is substantially delaying or disrupting the project;
  8. Labor Violations: When the listed subcontractor is ineligible to perform work as a result of labor violations under Labor Code Sections 1777.1 or 1777.7;
  9. Non Responsible: When the public agency determines that the listed subcontractor is not a responsible contractor.

A prime contractor seeking to substitute a listed subcontractor with another subcontractor is required to provide notice of the prime contractor’s intent to substitute with the public agency. The public agency is then required to give notice by certified or registered mail to the listed subcontractor of the prime contractor’s request for substitution and the basis for the prime contractor’s request. The listed subcontractor then has five (5) working days to submit written objections to the public agency. If the listed subcontractor submits written objections, the public agency then has five (5) working days to give notice to the listed subcontractor of a hearing by the awarding agency.

JMS Air Conditioning and Appliance Service, Inc. v. Santa Monica Community College District

In JMS Air Conditioning, subcontractor JMS Air Conditioning and Appliance Service, Inc. (JMS) performed work in excess of 0.5% of the bid of prime contractor Bernards Bros, Inc. (Bernards) on a project owned by the Santa Monica Community College District (District).  JMS’ work consisted of the installation of the heating, ventilation and air conditioning at the project and JMS held a C-20 warm-air heating, ventilating and air-condition license.

In March 2016, Bernards submitted a request to the District to substitute JMS. The reasons stated by Bernards for its request was because JMS had “failed or refused to perform its subcontract obligations and may not be properly licensed for portions of its work pursuant to the Contractors’ License Law. Within five (5) working days of receiving notice from the District of Bernard’s substitution request, JMS filed an objection.

On May 6, 2016, the District held a hearing to consider Bernard’s substitution request and JMS’ objection and appointed its facility manager Greg Brown as the “hearing officer.” Prior to the hearing, Brown informed the parties that: (1) the hearing would be limited to two hours; (2) that the technical rules of evidence would not apply; (3) that neither party would have a right to cross-examine witnesses; and (4) that should the parties wish they could submit written statements and that there was no page limitation on such statements.

Both Bernards and JMS submitted written statements. In its written statement, JMS assumed that Bernards’ “lack of proper licensure” claim related to hydronic plumbing work listed in the specifications, and argued that its C-20 HVAC license covered such plumbing work as “incidental and supplemental” or “essential” to its work under Business and Professions Code Section 7059, which permits specialty subcontractors to perform work that is “incidental and supplemental to the performance of the work in the craft for which the specialty contractor is licensed,” and under the Section 831 of the of the California Code of Regulations which defines “incidental and supplemental” as “essential to accomplish the work in which the contractor is classified.”

Bernards’ written statement argued that JMS was not properly licensed because its C-20 HVAC license did not permit it to perform the “hydronic boiler” work and “hydronic plumbing” work listed in the specifications. Bernard’s written statement also included a 250-page “Exhibit Book” that identified twenty-one “[p]erformance [d]efficienc[ies]” of JMS and included a written statement by Robert B. Berrigan, a lawyer and former licensing deputy of the Contractors State License Board, in which he opined that JMS’ C-20 license did not permit it to perform hydroponic boiler work but which also stated that he “ha[d] not formed an opinion” as to whether JMS required a C-36 plumbing license to perform the hydronic plumbing work.

At the hearing, Brown allowed each side 40 minutes to present its case, a 10 minute right to reply and brief closing arguments. Bernards presented two of its employees as witnesses, Michael Toepfer, a senior project manager, and Dave Inman, a superintendent, who testified concerning the quality and timeliness of JMS’ work. JMS presented its president, Joe Messica, as its sole witness. Messica testified that his company had completed other similar projects and that the hydronic boiler and hydronic plumbing work performed by JMS on the project was “essential to the HVAC system . . . installed by JMS.” None of the witnesses testified under oath.

On May 10, 2016, Brown sent a letter to the parties informing them of the District’s approval of Bernards’ substitution request finding that JMS had “failed to perform” its subcontractor “in the most sound, workmanlike and substantial manner” required by the subcontract, and finding that JMS was not properly licensed to perform the work, holding that JMS had performed over $3 million worth of boiler and piping work” and that such a substantial amount of work could not be “incidental and supplemental.”

In response, JMS filed a petition for writ of administrative mandamus which was rejected by the superior court. JMS appealed.

The Court of Appeal Decision

On appeal, JMS raised several arguments, all of which, were rejected by the Court of Appeal. The rationale of the court is less important than its holding, so I’ll be brief:

  • JMS’ Argument That Only the District, Not a “Hearing Officer” (i.e., Brown), Could Conduct the Substitution Hearing Under the Listing Law

JMS’ first argument was that, under the Listing Law, Brown lacked jurisdiction to conduct the substitution hearing, because under the Listing Law only the “awarding agency” may conduct a substitution hearing not a “hearing officer” designated by the awarding agency.

The Court of Appeal disagreed, explaining that the Listing Law was intended to prevent bid shopping and bid peddling, and nothing in the “[legislative] record, nor the [Listing Law’s] history, nor its overall structure suggests that preventing an awarding authority’s agent from conducting a substitution hearing might help combat bid shopping or bid peddling.”

  • JMS’ Argument That it Was Denied Due Process Because the Hearing Was Too Short, it Did Not Have the Right to Cross-Examine Witnesses, and Did Not Receive Sufficient Notice of Bernards’ Basis for its Substitution Request

JMS’ second argument was that it was denied due process under the Listing Law because: (1) the hearing was too short given the complexity of the issues involved; (2) it was not afforded the right to cross-examine witnesses; and (3) it did not receive sufficient notice prior to the hearing of the basis for the substitution request.

Again, the Court of Appeal disagreed, explaining that nothing in the Listing Law “requires a hearing of a particular length or the opportunity to cross-examine witnesses.” Furthermore, explained the court, so long as parties have “a reasonable opportunity to be heard, taking into account the ‘specific factual context,’” the conduct of proceedings will be upheld. And, here, explained the court, although Bernard’s substitution request stated that JMS might not be properly licensed to perform “some portions” of the work, JMS correctly concluded that Bernards’ request was premised in part on its contention that JMS needed a C-36 plumbing license to install the hydronic plumbing, and while JMS was not aware that Bernards’ request was also promised on its claim that JMS could install the hydronic boiler, “JMS failed to request a continuance to prepare additional evidence and argument to defend against Bernards’ boiler licensure argument.”

  • JMS’ Argument That There was Insufficient Evidence for the District to Grant Bernards’ Substitution Request

Finally, JMS argued that, while Brown testified that JMS’ C-20 HVAC license was not sufficient for it to install the hydronic boiler, because its president Messica testified that the boiler work was “incidental and supplemental” or “essential” to JMS’ HVAC work, that there was insufficient evidence for the District to grant Bernards’ substitution request.

The Court of Appeal disagreed, holding that the substantial evidence standard of review applies, rather than the broader independent judgment standard of review, and that under the substantial evidence standard of review, court’s “resolv[e] all conflicts in the evidence and draw[ ] all inferences in support of [the administrative findings].” And, here, explained the court, the credibility of witnesses and weight given to conflicting testimony is left to the discretion of the public agency unless “a reasonable person could not reach the conclusion reached by the agency.”

As to the hydronic boiler installation, the Court of Appeal held that it would not “second-guess[ ] Brown’s decision to believe Berrigan’s testimony over Messica’s. However, as to the hydronic plumbing installation, the Court of Appeal held that, because Berrigan expressly disclaimed offering an opinion on whether  JMS was properly licensed to perform the hydronic plumbing installation, substantial evidence did not support the District’s finding that JMS was not properly licensed to perform the hydronic plumbing installation.

Conclusion

JMS Air Conditioning provides an interesting behind-the-scenes look at substitution hearings under the Listing Laws, the primary take-aways being that: (1) the governing body of a public agency does not need to conduct substitution hearings itself, and can designate a hearing officer instead; (2) public agencies have broad discretion in how such hearings are conducted so long as the parties have a reasonable opportunity to be heard given the “specific factual context;” and (3) that substitution hearings are reviewed on appeal under a substantial evidence standard of review, whereby, appellate courts will resolve conflicts in the evidence and draw all inferences in support of the administrative findings.

Subcontracting In The Construction Industry And Who Is Responsible For The Injured Employee?

Ryan M. Hathcock | Drew Eckl & Farnham, LLP | December 5, 2018

The current trend in the construction industry involves the acquisition of specialized laborers and contractors to perform the various tasks required to complete each aspect of a given project. General contractors obtain the services of subcontractors as a common business practice to help construction projects become completed more efficiently. Often, these subcontractors are more capable of performing the specialized work, and in many ways, the construction industry is a subcontractor-driven industry.

The addition of subcontractors to a construction project brings additional workers hired by each subcontractor. In the event a subcontractor’s employee is injured in the performance of the work at the construction site, a question arises of who may be held responsible for payment of workers’ compensation benefits for those injuries.

Statutory Employment

A “statutory employer” is an entity that may be held liable for workers’ compensation benefits for injuries to a subcontractor’s employees. O.C.G.A. § 34-9-8(a) specifically lists the entities that may be considered statutory employers under the Workers’ Compensation Act and may liable for workers’ compensation benefits to an injured employee. That list includes principle contractors, intermediate contractors, and subcontractors. After identification of the appropriate immediate and statutory employers that may be held liable, the next question is determining which party is responsible for payment of any workers’ compensation benefits.

Under O.C.G.A. § 34-9-8(c), the immediate employer remains primarily liable for compensation, and the statutory employer is secondarily liable. In order to obtain workers’ compensation benefits from the statutory employer, a claim for benefits must first be brought against the immediate employer. If the immediate employer is uninsured or insolvent, the injured employee may then seek benefits from the statutory employer. In those situations where the statutory employer is held liable, the Georgia Workers’ Compensation Act allows the liable statutory employer to recoup their losses “from any person who, independently of this Code section, would have been liable to pay compensation to the injured employee or from any intermediate contractor.” O.C.G.A. § 34-9-8(b). Although there is an avenue for recovery for the statutory employer to recoup its losses, it may be impossible to recoup any losses from an insolvent immediate employer.

Employer/Employee Relationship Requirement

The Workers’ Compensation Act requires most employers with three or more employees to carry valid workers’ compensation insurance. Too often, one or more subcontractor fails to obtain and carry workers’ compensation insurance. Even if a subcontractor does not have three or more employees and does not obtain workers’ compensation insurance, the general contractor can be held liable for workers’ compensation benefits as a statutory employer. In those circumstances, the general contractor assumes liability for workers’ compensation coverage for the subcontractor’s employees injured on a general contractor’s project.

The polarity of that is O.C.G.A § 34-9-8 will only apply if the injured individual is an employee of his actual employer. While it has been determined that O.C.G.A. § 34-9-8(c) allows an employee to recover workers’ compensation benefits from the statutory employer if he is unable to recover those benefits from his direct employer, the injured individual cannot recover those benefits if he is not an actual employee. Thus, an injured individual will be unable to recover benefits from the statutory employer if he was working for his direct employer as an independent contractor.

Statutory Employer Tort Immunity

The Georgia Workers’ Compensation Act allows for medical treatment and lost wages to an injured employee without the need to prove fault of the employer (who may not be at fault at all). As a result, the injured employee gives up the right to sue his immediate employer and all other statutory employers for the injuries sustained on the job.

The obligation to pay workers’ compensation benefits provides immunity from tort claims arising from the same accident to all entities upward in the contractual chain between the principal contractor and the immediate employer. With that said, immunity does not extend to employees of the principal contractor. Immunity protection to a statutory employer is prompted by the statutory employer’s potential liability for workers’ compensation benefits even if the statutory employer (i.e. principal contractor) does not ultimately have to pay any benefits in connection with the workers’ compensation claim.

Third-Party Property Owner Liability

A property owner is not ordinarily a “statutory employer” under the Workers’ Compensation Act. However, an owner or an entity in control of the premises where an employee is injured may be subject to workers’ compensation liability as a statutory employer, “in the isolated situation where the party also serves as a contractor for yet another entity and hires another contractor to perform the work on the premises.” Creeden v. Fuentes, 296 Ga.App. 98(1), 673 S.E.2d 611 (2009) (citation and punctuation omitted). In other words, an owner or entity in control of property may be subject to statutory employer liability if that entity also functions as a contractor for another entity and hires a subcontractor to perform work on the premises. The corollary of this is that where the owner is potentially liable as a statutory employer, the owner is also entitled to tort immunity due to the exclusive remedy doctrine.

Practical Considerations for General Contractors

The Georgia Workers’ Compensation Act provisions regarding contractor-subcontractor relationships are designed to create a safety net for any injured worker to assure benefits will be paid by someone. General contractors are responsible for providing workers’ compensation coverage to their own employees, but they may also have additional exposure in instances where their subcontractors have not obtained coverage for the subcontractor’s employees. For a general contractor (i.e. statutory employer) to avoid being held financially responsible for another entity’s employees, it is essential that the general contractor protect itself by requiring every lower tier contractor to carry workers’ compensation coverage. In addition to statutory requirements, workers’ compensation coverage can also be contractually required. This verification process often fails through the life of a construction project as numerous subcontractors come and go. However, the cost to upstream contractors in the event of a workplace injury can be substantial.

The Nation Council on Compensation Insurance (NCCI) maintains an active list that allows for verification of workers’ compensation coverage for any company. General contractors are often not aware of the service provided by NCCI that could greatly limit their exposure in workers’ compensation matters. Aside from regularly checking the NCCI database, general contractors could ensure compliance by contractual language requiring for verification of coverage by providing valid certificates of insurance at each subcontractor pay request. Certificates of insurance should not be consider absolute verification of valid insurance, given that inaccurate or fraudulent certificates of insurance may be prepared. Checking directly with the insurance carrier to confirm proper insurance is held is always the best practice.

Work injuries in the construction industry are more common than in any other industry. Requiring all subcontractors down the contractual chain to obtain valid workers’ compensation insurance will prevent situations in which the general contract will be forced to accept responsibility for claims and reduce the number of instances in which they will tap their own insurance for coverage. In theory, a contractual requirement for subcontractors to present workers’ compensation coverage seems simple. In complex construction projects with numerous subcontractors and an ever approaching deadline, the need for skilled and efficient labor sometimes overrides a thorough examination of a subcontractor’s insurance coverage. Unfortunately, that mistake can become extremely costly as general contractors will assume liability for workers’ compensation benefits for injuries to an employee it did not directly hire.

Timing is Everything: Defending Subcontractors Against Breach of Construction Contract Claims

Andrew T. Marshall | Butler Weihmuller Katz Craig | October 31, 2018

Transfer of risk and liability are common occurrences in the field of construction. National builders often employ a single licensed general contractor to oversee the totality of its construction projects throughout the state of Florida. While this use of a “qualifier” technically complies with Florida law, it leaves unlicensed superintendents with the lion share of day-to-day responsibility for the quality of a project’s overall construction. In order to shift the responsibility of quality construction away from the builder, subcontract agreements are often drafted in such a manner that requires every subcontractor to agree to comply with all applicable plans, specifications, building codes, ASTM and industry standards. Additionally, to ensure risk transfer is accomplished, builders mandate, through its subcontract agreements, the placement of the builder as an additional insured on the subcontractors commercial general liability (“CGL”) policy.

Residents who begin to experience damage to their property as a result of construction defects  often file suit against the builder directly. The builder in turn initiates suit against its subcontractors to effectively transfer its potential liability exposure. While builders often assert a multitude of claims against each subcontractor, it is almost guaranteed that a breach of contract claim will be one of the claims asserted. Two of the more common breach of contract allegations proclaim that pursuant to the contract, the subcontractor was obligated but failed: 1) to construct the project in accordance with the plans and specifications, applicable building codes, and industry standards, and 2) to name the builder as an additional insured on the subcontractors CGL policy.

Because builders often assert these claims several years after original construction, it is important to consider and evaluate the statute of limitations for every such claim. Generally, the applicable statute of limitations period for a breach of contract action is five (5) years. 95.11(2). However, an action founded on the design, planning, or construction of an improvement to real property must be brought within (4) years.  95.11(3)(c).  When two statutes ostensibly conflict, the more specific statute controls, even when the more specific statute provides for a shorter limitation period. Therefore, a claim for breach of a construction contract has a four (4) year limitations period.[1]

As with any statute of limitations analysis, the date of accrual is the most important factor involved.  As such, practitioners would be wise to also remember that accrual of a breach of contract claim begins at the date of breach.[2] Any breach of the contract based upon the subcontractor’s failure to construct in accordance with the plans must begin to accrue no later than the date the subcontractor’s work on the project was completed. If the subcontractor completed its work on the project over four (4) years prior to the filing of the lawsuit by the general contractor, a motion for summary judgment based upon statute of limitations should be filed.

Likewise, a similar analysis should occur when defending a subcontractor from a breach of contract claim based upon the failure to add the builder as an additional insured. Unless specified within the contract, the accrual date for this type of claim is more fluid as it is subject to when the subcontractor was required to add the builder to its CGL policy. The accrual date should be confirmed through requests for admissions, interrogatories or deposition testimony provided by the builder’s corporate representative.[3] Armed with a confirmed accrual date, a practitioner can determine whether suit was filed within the four (4) year limitations period and possibly secure dismissal through the filing of a dispositive motion.

[1] Suntrust Bank of Florida, Inc. v. Don Wood, Inc., 693 So. 2d 99 (Fla. 5th DCA 1997)“General rule that more specific statute controls when two statutes ostensibly conflict applies to construction of statutes of limitations, even when more specific statute provides for shorter limitation period.”

[2] Hartford First Ins. Co., 995 So. 2d 576 “We hold that in the context of a subcontract, where a contractor accepted the work of the subcontractor and paid in full for that work, the action accrued when the subcontractor finished its work.” See also Access Ins. Planners, Inc. v. Gee, 175 So. 3d 921 (Fla. 4th DCA 2015)(“For purposes of the statute of limitations, a cause of action for breach of contract accrues at the time of the breach”); State Farm Mut. Auto. Ins. Co. v. Lee, 678 So.2d 818, 820 (Fla.1996); Med. Jet, S.A. v. Signature Flight Support–Palm Beach, Inc., 941 So.2d 576, 578 (Fla. 4th DCA 2006) (“Florida has followed this general rule that a cause of action for breach of contract accrues at the time of the breach, ‘not from the time when consequential damages result or become ascertained.’ ”) (quoting Fradley v. Cnty. of Dade, 187 So.2d 48, 49 (Fla. 3d DCA 1966)).

[3] Make certain that the corporate representative deposition is properly noticed and that you have identified the subcontract and the requirement of additional insured placement as a topic of inquiry within the Notice of Taking Deposition.