Consequences for Exceeding the Limit…Maybe…

I’Ashea Myles-Dihigo | Leitner, Williams, Dooley & Napolitan | August 3, 2018

Sometimes I speed…okay, most times I speed.  Not anything dangerous, but I do keep up with the flow of traffic on the interstate.  Don’t judge.  With a daily commute into the office that is always over an hour, any bit of time savings is justified in my opinion.  
While I may be able to justify exceeding the speed limit as I travel down the interstate, the Tennessee Court of Appeals has recently clarified the effects of exceeding the monetary limits of your general contractor’s license in its holding in Pickens v.  Underwood.  In that case, timing was everything.  General contractor, Pickens, entered into a contract to construct a house for the Underwoods. Pickens v. Underwood, No. E2017-02120-COA-R3-CV, 2018 Tenn. App. LEXIS 322, at *2-3 (Ct. App. June 12, 2018).  The parties entered into their contract on June 2, 2008. Id.   The dispute over final payment arose on May 9, 2009.  Id. at *3.  At the time the parties entered into the contract, Pickens’ limit on his contractor’s license was $350,000, yet at the time the project was complete, the final bill was over $670,000.  Id. When the Underwoods failed to pay for the work, Pickens filed suit for breach of contract, unjust enrichment, promissory fraud and mechanics’ and materialmen’s lien. Id.
The Underwoods counter sued for fraud, cost overruns, violations of the Tennessee Consumer Protection Act and for entering into a contract in excess of the contractor’s license limit. Id. The complaint in this matter was filed on July 21, 2009. Id. at *32. Counsel for Pickens agreed to stipulate that he was an unlicensed contractor and thereby agreed to limit his damages to actual documented expenses.  Id. at *3.  The trial court disagreed with the stipulation and confirmed that Pickens, though over the monetary limit of his contractor’s license, was licensed for purposes of Tennessee Code Annotated §§ 62-6-101, et seq. Id. at *4.  The Underwoods appealed.
The Court of Appeals affirmed. They reasoned that just prior to the filing of the parties’ complaint, the Legislature made a substantive change to Tennessee Code Annotated § 62-6-103 which governed the monetary limits on contractors’ licenses. Id. at *32.  The effect of the amendment expanded the limitation of actual documented expenses to any contractor required to be licensed under the statute and rules whereas before the limitation only applied to unlicensed contractors. Id.
The Court held that the date the parties entered into the contract was controlling regarding which statute should apply in the case. Id. When Pickens entered into the contract and performed the work, he was not subject to the limitation because he was properly licensed under the old Tenn. Code. Ann. § 62-6-103.  The Court declined to apply the new code changes retroactively to the pre-existing contract.  Therefore, his recovery would not be limited to actual documented expenses as reflected in the new schematic. Id. at *33.
While it is never a good idea to exceed the monetary limits of your contractor’s license, if you happen to find yourself in that position, you may still be able to recover the full contractual price as damages.  Based on the holding in Pickens, the Court will look to the law in effect at the time of the contract to determine whether or not your recovery is limited.

Tennessee Court of Appeals Holds Defendant Has the Burden of Offering Alternative Measure of Damages to Prove that Plaintiff’s Measure of Damages is Unreasonable

Gus Sara | The Subrogation Strategist | July 5, 2018

In Durkin v. MTown Construction, LLC, 2018 Tenn. App. LEXIS 128, the Court of Appeals of Tennessee considered whether the lower court properly took judicial notice of an alternative measure of damages to the measure of damages advanced by the plaintiff. The Court of Appeals held that the defendant has the burden of offering evidence of alternative measures of damages if it seeks to argue that the plaintiff’s measure of the damages is unreasonable. The Court of Appeals found that the lower court erred in taking judicial notice of alternative measures of damage when the defendant failed to meet its burden of proof. The court’s holding establishes that, if the defendant does not offer evidence of alternative measures of damage, then the measure of damages introduced by the plaintiff will apply.  

In Durkin, the plaintiff hired defendant MTown Construction (MTown) in 2016 to replace the roof of his residence. After removing the original roof, MTown placed tarps over the structure to prevent water intrusion until the new roof was installed. Subsequently, the interior of the home incurred significant water damage during a rain event. Mr. Durkin sued MTown for the water damage, alleging that MTown inadequately protected the structure from water intrusion. At trial, the plaintiff introduced evidence of the cost to repair the structure, which totaled $118,926.12. MTown did not offer any evidence of alternative measures of damage. The trial court found MTown liable for the damage, but decided that the appropriate measure of damages was the diminution of the market value of the property. The judge took judicial notice of certain aspects of witness testimony[1] to conclude that the diminution in the market value of the home before and after the loss was $144,000, which was the full value of the home as per the plaintiff’s testimony. The judge then subtracted the assessed annual tax of $25,500 and awarded the plaintiff $118,500 for the dwelling. The defendant appealed, arguing that the judge improperly took judicial notice of unsubstantiated and disputed facts to determine the diminished value of the home.

The Court of Appeals acknowledged that, in Tennessee, the proper measure of damages for injury to real property is the lesser of either: (1) the cost of repairing the injury, or (2) the difference in the value of the premises immediately prior to and immediately after the injury (also referred to as the diminution of property value). Generally, the measure of damages will be the cost of repairs unless the repairs are not feasible or the cost of repairs is disproportionate to the diminution in the value of the property. However, the court held that the burden was on the defendant to show that the cost of repairs was disproportionate to the diminution value. While recognizing that a property owner can testify as to the value of his home, the Court of Appeals found that the evidence regarding the post-loss value of the home was insufficient and unreliable. The Court of Appeals further held that the defendant had the burden of proving an alternative measure of damages. Since the defendant failed to carry its burden of proving the diminution of value measure of damages, the Court of Appeals ruled that the lower court should have calculated the damages based on the cost of repairs rather than seek out additional valuation evidence or take judicial notice of certain facts to reach a diminution value. The court remanded the case for further proceedings on the damages issue.

The Durnik case establishes that, in Tennessee, the defendant has the burden of introducing evidence of an alternative measure of damages to challenge the measure of damages presented by the plaintiff and that it is improper for the trial court to take judicial notice of an alternative measure of damages on its own. This case also reminds us of the importance of understanding the measures of damage potentially applicable to a case, and being prepared to offer sufficient evidence in support of the measure of damages that you wish to advance. This case also sheds light on the importance of knowing the value of your claim under each applicable measure of damages, as well as recognizing which measure of damages is likely to apply in your respective jurisdiction.

[1] During cross-examination, plaintiff vaguely testified that he believed that the value of the home on the day before the loss was $144,000, and that on the day after the loss the County Tax Assessor told him that the value was still $144,000. However, plaintiff produced a microbial remediation expert who testified that, because the water in the house remained untreated for over 72 hours, the home required more extensive remediation. Based on the expert’s testimony, the judge disregarded the plaintiff’s testimony about the post-loss value of the home and concluded that the value after the loss was zero because no one would buy the house in such condition. As such, the judge found that the diminished value was $144,000 (the full value of the home).

“Was Not” versus “Is So”: Court Clarifies Whether Exceeding Monetary License Limit Affects Contractor’s Recovery

Matthew DeVries | Burr & Forman LLP | June 18, 2018

After a great extended weekend on the beaches of Florida, we embarked upon the drive back to Nashville with six kids. Despite the clearly defined travel rules, the antagonizing kid was putting his feet on the emotional kid. The creative kid was writing on the seat with markers, while the perfect kid screamed foul. The lazy teenagers slept. Mom and dad were triggered for eight hours.

Many Tennessee contractor’s have felt the same way with the changes in the licensing laws over the past few years. The rule relating to the effect of a contractor who exceeds its licensing limit is now clear based upon the decision in Clayton Pickens v. John R. Underwood (Tenn. Ct. App. June 12, 2018). In that case, the dispute was whether the “old law” or the “new law” applied. Here’s how it went down:

  • On June 2, 2008, contractor entered into an agreement with owner to construct house for $572,000, but at the time the contract was signed the contractor’s license limit was $350,000.
  • Under the prior version of Tennessee Code Section 62-6-103, an “unlicensed contractor” was limited to recover only the actual documented expenses that could be shown by clear and convincing evidence.
  • The question that often came up was whether a contractor who exceeds its monetary limit was “unlicensed” for purposes of this rule on damages.
  • The Legislature amended Tennessee Code Section 62-6-103(b) effective June 23, 2009, which clarified that: “[a]ny contractor required to be licensed under this part who is in violation of this part or the rules and regulations promulgated by the board shall not be permitted to recover any damages in any court other than actual documented expenses that can be shown by clear and convincing proof.”
  • In Anchor Pipe Company, Inc. v. Sweeney-Bronze Development, LLC (Tenn. Ct. App. Aug. 2, 2012), the court held that a licensed contractor who contracts above his or her monetary limit still is considered “licensed” for application of the rule on damages above. The Anchor Pipe court was interpreting and applying the prior version of Section 103.

In Clayton Pickens, the evidence showed that the parties signed the contract in 2008, which was one year before the statute changed, but filed the lawsuit one month after the statute was amended. The court held the old law applied:

We believe the date of the contract to be more significant here than the date of the filing of the complaint. By the time Pickens filed his complaint, all the operative, underlying events of this case had transpired. The amendment to Tenn. Code Ann. § 62-6-103 was substantive in nature. The effect of the amendment was to expand the limitation of actual documented expenses to any contractor required to be licensed under the statute and rules, whereas before this limitation applied only to unlicensed contractors. When Pickens signed the contract and performed the work for the Underwoods, he was not subject to that limitation as he was not unlicensed. Pickens is not limited retroactively by the provisions of the amended statute.

It appears that all of the loops have been closed. Currently, the law states that if you exceed your licensing limit or otherwise violate some provision of the licensing laws, you cannot file a lien and your damages will be limited to actual documented expenses proven by clear and convincing evidence.

Elements of a Bad Faith Cause of Action in Tennessee

Shane Smith – June 21, 2014

If you are a daily reader of our blog, you know that we discuss many of the latest developments in first party bad faith actions from jurisdictions across the nation. Today, I will discuss the requirements for asserting a successful claim for breach of the covenant of good faith and fair dealing in Tennessee.

The Supreme Court of Tennessee, in Johnson v. Tennessee Farmers Mut. Insurance Company,1 explained that “bad faith in the insurance context is defined in part, as an insurer’s disregard or demonstrable indifference toward the interests of its insured.” This indifference may be proved circumstantially by facts that tend to show a willingness on the part of the insurer to gamble with the insured’s money in an attempt to save its own money, or by any intentional disregard of the financial interests of the insured in the hope of escaping full liability imposed upon it by the policy.

There are four essential elements to pleading an insurance bad faith cause of action under Tennessee law:2

The policy of insurance must, by its terms, have become due and payable;

A formal demand for payment must have been made;

The insured must have waited 60 days after making demand before filing suit, unless there was a refusal to pay prior to the expiration of the 60 days; and

The refusal to pay must not have been in good faith.

For the second element above, the demand must inform the insurance company that, if the disputed claim is not paid, the insured intends to assert a bad faith claim.3 The elements for a “formal demand” include:

insurance company has opportunity to investigate insured’s claim of loss;

insurance company is aware or has notice from insured of insured’s intent to assert bad-faith claim, if disputed claim is not paid; and

60 days expires after insured gives such notice before filing suit.4

It is important to note that the statute does not require a written demand, however, it is in the best interest of the policyholder to make the demand in writing because he or she may need to later prove that the formal demand was made 60 days before filing suit.5

1 Johnson v. Tennessee Farmers Mut. Ins. Co., 205 S.W.3d 365, 370 (Tenn. 2006), (citing State Auto Ins. Co. of Columbus, Ohio v. Rowland, 221 Tenn. 421, 427 S.W.2d 30, 33 (1968)).

2 Tenn. Code Ann. § 56-7-105, Bad faith refusal to pay.

3 Forrest Const., Inc. v. Cincinnati Ins. Co., 728 F. Supp. 2d 955 (M.D. Tenn. 2010).

4 Hampton v. Allstate Ins. Co., 48 F. Supp. 2d 739 (M.D. Tenn. 1999).

5 Hampton, supra.

via Elements of a Bad Faith Cause of Action in Tennessee : Property Insurance Coverage Law Blog.

Recent Tennessee Legislation Affecting the Construction Industry

May 20, 2013

Earlier this year, the 108th General Assembly of Tennessee passed several bills of interest to owners, contractors, subcontractors, architects and others in the construction industry. This summarizes some of the notable bills.

Underlicensed Contractors/No Lien Rights/Attachment of Mechanics’ Liens

A bill clarifies that it is unlawful for any person to bid on or contract for any project in Tennessee unless that person has a sufficient monetary limitation on its license for the project. This codifies a requirement previously set forth in an administrative regulation. The same bill amends the licensing and mechanics’ lien statutes to clarify that contractors and subcontractors are not entitled to a lien if they have not complied with the contractor licensing laws, including any monetary limitation. The bill also amends the definition of “visible commencement” (which establishes the date on which a mechanics’ lien attaches to real property) to exclude placement of above-ground utility lines. As originally presented, the bill also would have rendered “pay if paid” provisions unenforceable in Tennessee, but that portion of the bill was removed by amendment. The bill has been sent to the governor for signature. More information about the bill is available here.

Roofing Contractors

Another change in the licensing laws requires all roofing contractors to have a roofer’s contracting license from the Board for Licensing Contractors before bidding upon or beginning roofing work where the roofing portion of the project is $25,000 or more. More information about the amendment is available here.

Workers’ Compensation Reform

A new law completely reforms the workers’ compensation system in Tennessee. Claims by injured workers now will be handled as part of an administrative process in the newly created Court of Workers’ Compensation Claims within the Division of Workers’ Compensation. The law also creates a new ombudsman program within the Division to assist unrepresented employees and employers, narrows the definition of work-related injury and establishes medical treatment guidelines. The changes do not take effect fully until July 1, 2014. More information about the law is available here.

Prevailing Wage Act

A new law repeals the prevailing wage requirements for all state funded, vertical building construction projects in Tennessee. It also eliminates mandatory certified payrolls and other paperwork required to be submitted to the state on those projects. The new law does not affect highway (TDOT) projects. The changes take effect January 1, 2014. More information about the law is available here.

Bonds on Public Works

A new law requires that bonds on public projects by any city, county or state authority be “good and solvent,” and requires building or bidding authorities to reject bonds that do not meet the requirements. A “good and solvent” bond means, among other things, a bond written by a surety or insurance company listed on the U.S. Treasury Department’s list of approved bonding companies. More information about the law is available here.

Project Labor Agreements

A new law prohibits certain practices in public contracting and purchasing, including requiring a bidder, contractor or subcontractor to enter into or comply with an agreement with a labor organization, and creates cause of action to challenge a public works contract in violation of the statute. This prohibits a municipality from implementing a Project Labor Agreement on a construction project.

via Recent Tennessee legislation affecting the construction industry – Lexology.