Measure of Damages for Breach of Construction Contract

What is the Measure of Damages for Breach of Construction Contract?

The measure of damages for breach of a construction contract is the reasonable cost of construction and completion in accordance with the contract. Magnum Constr. Mgmt. Corp. v. City of Miami Beach, No. 3D15-2239, 2016 WL 7232268, at *4 (Fla. 3d Dist. Ct. App. Dec. 14, 2016). Damages cannot be based upon speculation or guesswork, but must have some reasonable basis in fact.

In Magnum Constr. Mgmt. Corp. v. City of Miami Beach, Magnum Construction Management (“MCM”) appealed from a trial court ruling in favor of the City of Miami Beach, Florida (“City”).  MCM contracted with the City to construct a new park (“the Project”).  After completion, the City found several defects in the soil compaction and landscaping of the Project.

In fixing the landscaping issues, the City fundamentally changed the landscaping.  The City sought 3 million dollars in damages against MCM, which was the cost of the new construction.  The trial court found that the new construction constituted “betterments” or upgrades to the original plans.  The trial court awarded the City $1,290,037, stating that the difference between its total award and the amount sought by the city constituted a betterment.

On appeal, the Third District Court of Appeal of Florida reversed the award of damages holding that the measure of damages was the reasonable cost of construction and completion in accordance with the contract.  Where an owner elects to adopt a more expensive design in making the repairs, the owner is limited to recovery of what would have been the reasonable cost of repairs according to the original design.  The trial court was correct to exclude betterments from its award, but the City did not cite any evidence as to the value of the betterments, or what it would have costed the City to restore the playground to the condition it would have been in if the contract had been performed.  The trial court could not speculate as the value of betterments.  Damages cannot be based upon speculation or guesswork, but must have some reasonable basis in fact.

Accordingly, when a non-breaching party corrects the defects of a contractor, the party must keep in mind that any improvements or betterments that radically differ from the original design of the project will not be recoverable in court.

Contractor Right to Repair Defective Construction Work

Contractor Right to Repair Defective Construction Work

Does a contractor have the right to cure defective construction work?

Where a contract requires notice of a defect and an opportunity to cure, an owner must give a contractor proper notice of their defective work and an opportunity to repair that defective work.

In Underwater Engineering Services, Inc. v. Utility Bd. of City of Key West 194 So. 3d 437, 441 (Fla. Dist. Ct. App. 2016), the Utility Board of Key West contracted Underwater Engineering Services, Inc. to perform maintenance on 57 pillars of the seven-mile bridge in the Florida Keys.  The contract between the Utility Board and Underwater had a defect assessment provision, which required the Utility Board to give notice of any defects to Underwater and to give them an opportunity to cure.  After completion of the project, the Utility Board discovered defects in the concrete coating of the pillars.  Without notifying Underwater, the Utility Board hired a contractor to repair Underwater’s defects, then sued Underwater for failing to properly pour eight concrete collars according to the project specifications.  Underwater raised a defense that the Utility Board was required to give them notice of the defect and an opportunity to cure the defect before engaging someone else to repair the collars.

The trial court held that Underwater was liable for the defects.  On appeal, the Florida Third District Court of Appeal reversed, holding that where the contract requires notice and an opportunity to cure, Underwater must have been afforded the opportunity to repair any of the work that was not conforming to specified requirements.  As a result, the Utility Board could not recover for the cost incurred to fix Underwater’s defective work.

Therefore, it is very important for an owner to provide a contractor with notice and an opportunity to cure its defective work where the contract provides for this right.  If an owner subsequently repairs the defect without giving the contractor notice and an opportunity to repair, the owner may not be able to recover the amount expended for the repairs from the contractor.


Indemnification Between Contractor and Surety

Indemnification Between Contractor and Surety

Does Florida’s limitation on Indemnification in Construction Contracts apply to the general agreement of indemnity between a surety and principal on a bond?

No, Florida’s limitation on Indemnification in Construction Contracts (section 725.06, Florida Statutes) does not apply to the general agreement of indemnity between a surety and a principal on a bond.

This question was recently answered in the case of Great Am. Ins. Co. v. Brewer, No. 6:16-CV-63-ORL-37KRS, 2016 WL 3640395, at 2 (M.D. Fla. July 8, 2016).  The court held that section 725.06 does not apply to this relationship because a surety is not an owner of real property, or an architect, engineer, general contractor, subcontractor or material supplier.  Accordingly Florida statue §725.06 does not apply to indemnity agreements between a surety and a principal on a bond.

The Court in Brewer analyzed this question as follows:  Florida statue §725.06 renders contracts void and unenforceable under the following circumstances: (1) the contract concerns or guarantees “any construction, alteration, repair, or demolition of a building, structure, appurtenance, or appliance, including moving and excavating associated therewith” (“Construction Contract”); (2) the parties to the Construction Contract include “an owner of real property and an architect, engineer, general contractor, subcontractor, sub-subcontractor, or materialman or any combination thereof” (“Contracting Party Requirement”); (3) one of the parties to the Construction Contract promises “to indemnify or hold harmless” the other party “for damages to persons or property caused in whole or in part by any act, omission, or default of the indemnitee arising from” the Construction Contract or performance of the Construction Contract; and (4) the Construction Contract does not contain “a monetary limitation on the extent of the indemnification that bears a reasonable commercial relationship to the contract and is part of the project specifications or bid documents, if any.”

In Great Am. Ins. Co. v. Brewer, Brewer argued that, because Brewer Paving & Development, Inc. (principal) is a contractor, Florida statue §725.06 applies to the agreement, making it void. Great American Insurance Company (surety) argued that BPD being a contractor is irrelevant, and Florida statue §725.06 does not apply to the agreement.

The United States District Court agreed with the surety, ruling that, as long as the surety is not an owner of real property, or an architect, engineer, general contractor, subcontractor or materialman, then Florida statue §725.06 does not apply to indemnity agreements between a surety and a principal on a bond.

Statute of Limitations for Breach of a Construction Contract

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.

Is This Construction Contract’s Venue Provision Enforceable?

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?

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.

General Contractor’s Insurance Claim

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

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

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.

Enforcement of Arbitration Provisions in Construction Contracts

When will a court enforce arbitration provisions in construction contracts?

A court will enforce arbitration provisions in construction contracts only when the provision is mandatory and not permissive.

In Advance Industrial Coating, LLC v. Westfield Insurance Company, the Middle District of Florida, answered the above question on Westfield’s motion to stay pending arbitration.  2015 WL 1822510 (M.D. Fla. Apr. 16, 2015).  Advance Industrial sued Westfield Insurance to recover on a 255.05 public construction bond relating to a construction project.  Westfield was the surety for the project’s general contractor, RTD Construction.  The Westfield bond secured all of RTD Construction’s required payments to its subcontractors and suppliers on the project.

RTD Construction entered into a subcontract with Advance Industrial to provide surface preparation work on the project.  Advance Industrial finished its work and RTD Construction breached the subcontract by failing to make payment.  Advance Industrial sued Westfield, and Westfield moved to stay the case pending the resolution of arbitration.

The court looked to Florida law to determine whether the arbitration agreement was valid.  The following three questions must be answered: (1) whether a valid written agreement to arbitrate exists; (2) whether an arbitrable issue exists; and (3) whether the right to arbitration has been waived.

Westfield argues that the subcontract between Advance Industrial and RTD Construction contained an arbitration provision.  Westfield states that since determination of its liability to Advance Industrial is dependent on whether RTD Construction is liable to Advance Industrial, any arbitration award as to this issue will resolve the claims against Westfield.  Advance Industrial argues that Westfield, as surety, is not a party to the subcontract and cannot invoke the arbitration provision.

The court reviewed the subcontract, which stated that “[a]ny controversy of dispute arising out of this Contract, or the breach thereof, may be decided by arbitration…”  The court held that this is a permissive arbitration provision and not a mandatory provision.  Since arbitration was not required by RTD Construction and Advance Industrial, Westfield is not entitled to a stay of the case.