Can unlicensed contractors defend against homeowner’s claims?
Yes, an unlicensed contractor can defend claims according to the Fifth District Court of Appeal in Brock v. Garner Window & Door Sales, Inc., 187 So. 3d 294 (Fla. 5th DCA 2016).
In Brock, the homeowners sued a window installation contractor alleging that the contractor defectively installed windows which caused water intrusion. Garner Windows, the contractor, was not licensed. Garner Windows raised the statute of limitations defense.
The homeowners argued that Garner Windows could not rely on the statute of limitations because the four year statute of limitations in section 95.11(3)(c), Florida Statutes, states that the limitations period begins to run on the date of completion or termination of the contract between the . . . licensed contractor and his employer. In this case, since Garner Windows was not licensed, the homeowner argued that the 4 year statute of limitations did not apply.
The Fifth District disagreed with the homeowner finding that the 4 year statute of limitations did apply even though the contractor was not licensed. The court reasoned that the term “licensed contractor” was only referring to wen the statute starts to run and not the type of actions to which it applies. The court held that although section 489.128, Florida Statutes, prohibits an unlicensed contractor from enforcing its contract, it does not preclude an unlicensed contractor from defending against an action to enforce a contract by the owner.
What is the Statute of Limitations for Breach of a Construction Contract?
In Florida, section 95.11(3)(c), Florida Statutes, requires actions brought within four years if it is “founded on the design, planning, or construction of an improvement to real property, with the time running from the date of actual possession by the owner, the date of the issuance of a certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer, whichever date is latest . . . “
There is also also a discovery rule which extends this limitations period for latent defects.
In the recent case of Brock v. Garner Window & Door Sales, Inc., 2016 WL 830452 (Fla. 5thd CA March 4, 2016), Brock hired Garner Window to install windows in their home. The home sustained water intrusion and Brock sued Garner Window. The lawsuit was filed more than 4 years after discovery of the latent defect, but less than 5 years. Garner argued that the general five year statute of limitations for actions founded on written contracts applied. The basis of this argument was that Garner Window was not a licensed contractor.
The Fourth District Court of Appeal rejected this argument and held that the statute of limitations is still four years, and that an unlicensed contractor can raise this defense.
What are a property owner’s damages for defective construction?
In Gray v. Mark Hall Homes, Inc. Florida’s Second District Court of Appeal held that the proper measure of damages for a defective construction contract is “all unavoidable harm that the builder had reason to foresee when the contract was made, less such part of the contract price that has not been paid and is not still payable.” 2016 WL 459436 (Fla. 2d DCA 2016).
A property owner can recover the following for defective or unfinished construction:
- the reasonable cost of construction and completion in accordance with the contract, if possible and does not involve unreasonable economic waste; or
- the difference between the value that the product contracted for would have had and the value of the performance that has been received by the owner, if construction and completion would involve unreasonable economic waste.
In Gray, the owner and contractor entered into a contract to build a new home. The home was completed. When Gray moved into the home she found many defects — including lack of flashing which caused damage throughout the house due to water intrusion. Gray sued the contractor. The jury awarded the owner damages totaling the contract value between the owner and the contractor to build the house. Witnesses testified that the house was worthless and that salvaging the house may not be economically feasible, and that Gray might be better off demolishing it and rebuilding. Accordingly, the jury could reasonably find the house valueless and could support the jury’s award to the homeowner.
Is this construction contract’s venue provision enforceable?
It is important to review your venue provisions in your construction contracts to make sure they are enforceable. Pursuant to section 47.025, Florida Statutes, “[a]ny venue provision in a contract for improvement to real property which requires legal action involving a resident contractor, subcontractor, sub-subcontractor, or materialman, . . .to be brought outside [of Florida] is void.” Where the provision is void, venue shall be brought where the property is located, where the defendant resides, or where the cause of action accrues.
So here is what the statutes says:
- If one party to a construction contract is a resident of Florida; and
- If the construction contract has a venue provision outside of Florida;
- Then that provision is void.
Does it matter if the contract also has a choice of law provision – applying the law of another state?
No. In Kerr Construction, Inc. v. Peters Contracting, Inc., 767 So. 2d 610 (Fla. 5th DCA 2000), the Fifth District Court of Appeal held that section 47.025 is procedural and not substantive. When a law is procedural the court applies the law of the forum rather than the law selected by the parties. Therefore, for purposes of applying section 47.025, it is irrelevant as to whether the parties have a choice of law provision in their construction contract. So, if a Florida resident contractor enters into a Florida construction project, and there is a provision in the contract which applies the law of a different state and requires venue in another state, that provision is void and litigation can proceed in Florida.
When are construction contractors considered joint ventures?
In A&A Electric Services, Inc. v. Jurado, the Second District Court of Appeal held that a joint venture is created when two or more persons combine their property and/or their time to conduct a particular line or trade or business deal. 2015 WL 5023126 (Fla. 2d DCA Aug. 26, 2015). The party alleging the existence of a joint venture must prove: (1) a community of interest in the performance of the common purpose; (2) joint control or right of control; (3) a joint proprietary interest in the subject matter; (4) a right to share in the profits; and (5) a duty to share in any losses.
In A&A Electric, Jurado was the owner of an electrical contractor named Electric Machinery Enterprises (“EME”) and DeLaParte owned A&A Electric. EME and A&A Electric had a working relationship where EME would obtain work and A&A Electric would assist EME in obtaining bonds for the jobs. A&A Electric would hold the contracts and obtain the bonds and EME would prepare the bids and perform the work.
In 2006, the City of Cape Coral was soliciting bids for electrical work for two water treatment plants. EME couldn’t obtain the required bond and did not have unionized workers so it could not perform the work for Cape Coral. EME assisted A&A Electric in the bidding process and was paid $193,000.00.
When work began on the Cape coral Project, Jurado sent DeLaParte a letter stating: “This is to acknowledge receipt of $200,000 from Jaime Jurado for his 49% share of the Cape Coral jobs. This letter was sent from Jurado’s personal letterhead to the home of DeLaParte. DeLaParte signed his name under the word “Accepted”. A&A Electric paid Jurado back the $200,000 but refused to share any profits from the Cape Coral jobs. Jurado sued A&A Electric.
Using the analysis on joint ventures listed above, the Second District held that there was no joint venture between Jurado and A&A Electric. The court held that Jurado’s letter was with DeLaParte individually and not with A&A Electric. Additionally, Jurado had no “joint control or right of control” over the projects because he had no authority to bind A&A Electric in any of its work, and A&A Electric had no authority to bind Jurado or EME. Finally, Jurado had not duty to share in any losses sustained by the alleged joint venture. Since Jurado could not prove every element required in finding of a joint venture, his claim failed and judgment was entered in favor of A&A Electric.
Construction contractors should pay careful attention to their relationships and prepare written documents demonstrating their intentions when working together. If the parties intend to create a joint venture or to ensure that no joint venture is created, a written agreement should be used to clearly define the intended relationship. This helps to avoid confusion and reduces the likelihood of future litigation when the parties are in dispute as to their legal rights.
What kind of claims are subject to venue selection provisions in construction contracts?
In Fairbank Contracting and Remodeling v. Hopcroft, the Fourth District Court of Appeal, held that all claims that have “a significant relationship and clear nexus with the contract” are subject to a venue selection provision. 40 Fla. L. Weekly D1637a (Fla. 4th DCA July 15, 2015).
In this case, Fairbanks Contracting entered into a construction contract with Hopcroft to remodel a bathroom. The construction contract stated that Marion County would serve as the venue for “any proceeding relating to the contract”. Hopcroft sued Fairbanks for violation of the Florida Deceptive and Unfair Trade Practices Act (FDUTPA), and not for breach of contract. Hopcroft alleged that through conduct, Fairbanks violated FDUTPA in its work on the project.
The trial court denied Fairbanks motion to dismiss or transfer venue pursuant to the venue selection provision in the construction contract. On Appeal, the Fourth District reversed holding that there was a significant and obvious nexus between the claim and the construction contract. The court held that whether the venue selection provision will apply to a FDUTPA claim depends on the violations alleged and the language in the venue selection provision. The Fourth District in this case found such a nexus and transferred the case to Marion County.
Contractor’s Notice of Defect – Does it Trigger Insurance Coverage?
One court in Florida has said “No”.
In Florida, Chapter 558 of the Florida Statutes provides pre-suit procedures for a property owner to assert construction defect claims against a contractor. The statutes provide a mechanism giving notice to the contractor and providing the contractor with an opportunity to cure the alleged defects prior to litigation.
In Altman Contractors, Inc. v. Crum & Forster Specialty Insurance Company, the Sapphire Condominium Association sent Altman Contractors, the general contractor, a Notice of Claim pursuant to Chapter 558, Florida Statutes, alleging defective construction of the condominium. 2015 WL 3539755 (S.D. Fla. June 4, 2015). Altman Contractor’s sent this notice to its insurance company, Crum & Forster. Crum & Forster denied that it had a duty to defend Altman Contractors because the case was “not in suit”.
Altman Contractors sued Crum & Forster seeking a declaration determining that Crum & Forster owes a duty to defend and indemnify it relative to the 558 Notice; and for breach of contract for Crum & Forster’s refusal to defend Altman Contractors. The court held that Chapter 558 is a “mechanism” and not a “proceeding”. Since the 558 process is not a “civil proceeding” or a “suit” under the policy, Crum & Forster had no obligation to defend or indemnify Altman Contractors in the 558 process.
When is a General Contractor’s Insurance Claim Against Subcontractor’s Insurance Ripe?
In Core Construction Services Southeast, Inc. v. Crum & Forster Specialty Insurance Company, Core sued Crum for breaches of commercial general liability (CGL) insurance policies and seeking a declaration as to whether the insurers must defend and indemnify Core under the terms of the contracts. 2015 WL 3929696 (M.D. Fla. June 25, 2015). Core was the general contractor of a condominium. After the condominium was built, construction defect litigation was commenced. Core required its subcontractors to name it as an additional insured under their CGL policies.
Core filed the above-referenced lawsuit seeking coverage on the subcontractor insurance policies. The Insurer argues that the matter is not ripe for adjudication because the construction defect litigation has not concluded. The United States District Court, Middle District of Florida held that the case was ripe. An insurer’s duty to defend arises out of allegations in the underlying complaint and the terms of the insurance policy. While the duty to indemnify is not ripe until the underlying litigation has concluded, the duty to defend is ripe.
Contractor’s Right to Insurance Benefits of Homeowner
Does a remediation or restoration contractor have the right to sue a homeowner’s insurance company for nonpayment for construction work performed?
Yes. In the case of United Water Restoration Group, Inc. v. State Farm Florida Insurance Company, a homeowner, Mr. Walker, experienced water damage to his home. 2015 WL 4111662 (July 8, 2015). Mr. Walker hired United Water to repair the damage. In connection with the construction contract, Mr. Walker executed a written assignment of ‘any and all insurance rights, benefits, and proceeds’ from his State Farm Policy to United Water.
State Farm refused to pay United Water’s bill and United Water sued State Farm for breach of the insurance contract as assignee of Mr. Walker’s rights and benefits. State Farm moved to dismiss the case on the basis that it had inspected the home which showed that the damage was consistent with a policy exclusion — “repeated leakage and seepage”. The trial court granted State Farm’s motion holding that only the insured (Mr. Walker) can challenge the issue of coverage.
On appeal, the First District Court of Appeal reversed, holding that “an assignee of post-loss insurance benefits can sue for breach of such benefits.” The assignee stands in the shoes of the assignor and is able to maintain suit in its own name as the real party in interest. Therefore, United Water could bring suit seeking recovery under the State Farm policy.
When is a Contractor Unlicensed in Florida?
Section 489.128, Florida Statutes, states that any contracts entered into by an unlicensed contractor are unenforceable in law or in equity by the unlicensed contractor. A contractor is considered unlicensed only if the contractor was unlicensed on the effective date of the original contract for the work, if stated. If no date is stated, the court will look at whether the contractor was licensed on the first date upon which the contractor provided labor, services, or materials under the contract.
In Taylor Morrison Services, Inc. v. Ecos, the First District Court of Appeal analyzed whether a contractor is unlicensed where its qualifying agent does not obtain the permit or supervise the construction under the contract. 2015 WL 3407929 (Fla. 1st DCA 2015). In Taylor Morrison, Ecos hired Taylor Morrison to construct a home. After closing on the home, Ecos discovered defects and sued Taylor Morrison for negligence by an unlicensed contractor.
On the effective date of the contract with Ecos, Taylor Morrison had four qualifying agents. One such agent was Lisa Marie Steiner – who had recently resigned her employment with Taylor Morrison prior to the Ecos contract. Taylor Morrison pulled the construction permit in the name of Steiner without her authorization. Additionally, Steiner did not supervise the construction and no licensed contractor ever supervised the construction. The trial court held that Taylor Morrison was unlicensed due to these facts.
On appeal, the First District reversed, holding that Taylor Morrison did have a qualifying agent concerning the scope of work to be performed under the contract as of the effective date of the Ecos contract. There were other qualifying agents besides Steiner on this effective date. Since Taylor Morrison possessed this license on the effective date, it was not “unlicensed”. It was irrelevant whether the qualifying agent obtained the permit or supervised the construction. Accordingly, Ecos could not support a claim for unlicensed contracting against Taylor Morrison.