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FMG Law Blog Line

Archive for December, 2017

Pre-Suit is the New Lawsuit: Florida Supreme Court holds Insurance Carrier Had Duty to Defend Policy Holder during Pre-Suit Proceedings

Posted on: December 22nd, 2017

By: Jake Carroll

Given the pace of construction in Florida over the past three decades, it should come as no surprise that the Sunshine State has a robust statutory scheme for construction defect claims. Indeed, Florida’s Construction Defects Statute, Chapter 558, Florida Statutes (“FCDS”), outlines a complex pre-suit procedure requiring owners to send a “notice of claim” to contractors while identifying any alleged construction and/or design defects in “reasonable detail” before a lawsuit for such defects can be brought. The FCDS also details procedures for building inspection, destructive testing, obtaining construction documents and maintenance records, and utilizing consultants. Under the FCDS, contractors are required to provide a written response to the notice, to accept or dispute each reported defect, and may include offers to repair, partial payment, or partial settlement.

Contractors may represent themselves during the notice process, but do so at their own peril. Instead, contractors are encouraged to retain legal counsel as soon as possible following receipt of a 558 Notice.

However, in the case of Altman Contractors, Inc. (Altman) v. Crum & Forster Specialty Insurance Company (C&F), 42 Fla. L. Weekly S960b, Altman forwarded the notices to its carrier (C&F), seeking coverage and defense under its CGL policy. C&F initially denied Altman’s request on the basis that the Chapter 558 process did not trigger the duty to defend.

The Florida Supreme Court disagreed with C&F, holding that the insurance carrier’s duty to defend may be triggered when a contractor receives a construction defect notice, depending on the language of the policy and the allegations in the notice. The ruling impacts all stakeholders in the construction industry, including owners, condominium associations, developers, contractors, and insurers.

The decision encourages insurer participation in the pre-suit process for resolving defect disputes and may result in more out-of-court resolutions—avoiding complex and expensive litigation that burdens litigants and the court system.

Insurance trade groups warn the decision could drive up premiums for some CGL policies within the construction industry, while other industry professionals note the potential for bad faith claims if carriers refuse to participate in Chapter 558 proceedings where a construction defect claimant is seeking covered damages from the policyholder.

At the very least, contractors should review their CGL policies, comply with the terms of the policies, and forward any FCDS notices to their carriers before issuing a response. Depending on the specific policy language, costs incurred during the Chapter 558 process may be the insurance carrier’s responsibility.

It is also worth noting that parties may choose to opt out of FCDS, if agreed to in writing beforehand. Such provisions are commonly included in construction contracts.

Jake Carroll represents owners, contractors, and design professionals in all construction matters including contract negotiations, payment disputes, and claims resulting from delays, contract terminations, and defective work. Mr. Carroll is licensed to practice in both Georgia and Florida. If you have any questions or would like more information, please contact Mr. Carroll at [email protected].

UPS Orders Tesla Electric Big Rigs – One Step Closer to Driverless Semis

Posted on: December 22nd, 2017

By: Wayne S. Melnick

Last month, Tesla Motors announced that it was taking its electronic vehicle technology one step further with the unveiling of the Electric Semi Truck .  If the numbers are to be believed, the Tesla Semi not only achieves 0-60 in five seconds (unloaded) by also reduces the cost of shipping from $1.51/mile to $1.26/mile.

Earlier this week, United Parcel Service announced it was going all-in on the Tesla Semi ordering 125 of the new units.   At an estimated cost between $150,000-$200,000/unit, that order could be worth as much as $25M.  (Yes, 25 Million Dollars).  If you’ve been following this story, this is not the end of the line, but rather, just the beginning. With that big an investment, it is clear that UPS and Tesla have their eyes on the future.  Electronic Trucks are just the first steps towards what is expected to the ultimate goal: Driverless Semis.

We will continue to keep watch of developments of this technology.  Needless to say, the idea of Driverless Semis raises all sorts of legal and insurance questions.  As such, it is important to stay on top of developments and FMG will continue to keep you informed as they occur.

If you have any questions or would like further information, please contact Wayne Melnick at [email protected].

Are E-mails HOA Property?

Posted on: December 21st, 2017

By: Michael Kouskoutis

Despite the ubiquitous use of e-mail, Florida law provides no clear answer on the extent to which HOA members can access e-mail communications of the association’s board members.  While Florida Statutes permit broad access to “official records of the association,” including “all written records . . . which are related to the operation of the association,” an arbitrator in Humphrey v. Carriage Park Condominium Association, Inc., Case No. 2008-04-0230, ruled that electronic communications existing on the personal computers of individual directors are not official records of the association, even if they relate to the operation of the association.

In its rationale, the arbitrator emphasized that the property of a director does not become association property merely because of his or her office on the board.  Notably, the arbitrator stated that it may have reached a different conclusion “if the association owns a computer on which management conducts business, including e-mails.”

If ownership is central to the classification of “official records,” then how will courts approach the more frequent occurrence where e-mails are exchanged on personal computers using association-owned e-mail domains?

An arbitrator’s opinion is not binding authority, but it should be viewed by a court as persuasive when this issue inevitably finds its way into a courtroom.  On the other hand, a court may decide to depart from Humphrey entirely.  However and until then, HOAs who wish to clearly draw the line between official and non-official association records should designate computers for association business or adopt policies to transfer association related communications to the association.

If you have any questions or would like more information, please contact Michael Kouskoutis at [email protected].


Enforcing the Rules: Are HOA Fines Too Heavy, Too Light or Just Right

Posted on: December 21st, 2017

By: David G. Molinari

Nearly one quarter of Californians live in a community governed by an HOA.  Associations use fines to curb violations of governing documents.  Some associations use fines excessively, while others only rarely.  How should fines be used as an enforcement tool in the management of the HOA’s affairs.

Monetary penalties serve two purposes: enforcement and deterrence.  Without a system of penalties, a Board is handicapped carrying out its duty to enforce the governing documents.  Board members are under a fiduciary duty to enforce the governing documents.  How may the Board reconcile these two purposes?  The imposition of a fine on an owner who violated the CC&R’s fulfills the Board’s enforcement duty; and the severity and extent of the fine should discourage future violations.

The authority for an HOA to impose fines is found in the association’s governing documents.  CC&Rs or bylaws give the Board authority either directly or through the power to adopt rules relating to management of the development to impose penalties on members.  The authority must be exercised through a schedule of monetary penalties adopted and distributed to members. California Civil Code Section 5855, part of the Davis-Sterling Common Interest Development Act requires a schedule of penalties and fines be distributed to the homeowners before fines may be imposed.  This schedule is considered an operating rule which requires minimal due process requirements such as distribution to members for comments at least 30 days before adoption.  The procedure for imposing a fine requires: 1) A hearing before the Board or Enforcement Committee; and 2) at least 10-day notice to the owner of the date and time of the hearing along with an explanation of the nature of the violation.

Some Associations find a step-up type process helpful before handing down fines.  Use of courtesy warning letters for first violations followed by the imposition of monetary penalties provides members with a sense of “fairness and consistency” that avoids a claim that any individual member was being singled out or disciplinary measures were carried out in a discriminatory fashion.

What amount of fine is necessary to enforce compliance?  Fines must be reasonable.  A fine cannot be arbitrary or discriminatory and must be imposed in good faith and geared toward the best interests of the association.  Two common factors in setting amount are the economic status of the community and the seriousness of the violation.  In some associations, a minimal fine of under $100.00 is sufficient to ensure compliance where in a community of multimillion dollar homes, the same fine to enforce landscaping requirements may be meaningless.  Actions that create a safety hazard or that threaten common areas may justify a higher fine than actions that have only an esthetic impact.  The bottom line: the fine must be reasonable, get the owner’s attention and be enforceable.

A related hurdle is the collection of fines. As of 2012 enforcement fines cannot be turned into a lien against the property. California Civil Code Section 7525(b) states that a monetary penalty imposed by an association as a disciplinary measure may not be characterized or treated as an assessment that becomes a lien against the member’s interests enforceable by sale.  That leaves the HOA with a choice of a small claims action as a fast and inexpensive avenue of resolution that avoids additional cost and difficulty of involving attorneys.  Alternatively, depending on the nature and amount of the violation, a Superior Court action may be brought.  Most governing documents have an attorney’s fees provision allowing for the recovery of counsel fees and enforcement costs.  However, in California such provisions are deemed reciprocal.  An unsuccessful case could result in the member avoiding the penalty and having the HOA pay their attorney’s fees.

The HOA must use a rule of reason. Violations must be treated in the same manner.  Reasonable and consistent enforcement will result in the HOA achieving the “just right” balance.

If you have any questions or would like more information, please contact David Molinari at [email protected].

Say Goodbye to Arbitration; Say Goodbye to Confidentiality?

Posted on: December 20th, 2017

By: Christopher M. Curci

On December 4, 2017, New Jersey state Senator Loretta Weinberg introduced Senate Bill S-3581. The bill aims to (1) eliminate arbitration provisions in employment agreements related to discrimination, retaliation, and harassment claims, and (2) eliminate confidentiality clauses that are commonly found in employment settlement agreements for those claims.  The bill would bring significant change in the handling of employment litigation in New Jersey.

A recent study by the Economic Policy Institute found that 54% of non-union employers have mandatory arbitration procedures for employment related disputes. In 1992, that number was a mere 2%.  The meteoric rise in arbitration agreements is because employers consider arbitration less costly than federal or state court litigation, and because arbitration eliminates the risk of “runaway jury” awards to plaintiff-employees.  Conversely, opponents of mandatory arbitration assert that such agreements prohibit employees from having access to their full legal rights under federal and state employment laws.

Regarding confidentiality clauses, such clauses are almost always found in settlement agreements between employers and employees. However, the recent explosion of high-profile allegations of sexual harassment and the #MeToo social media movement has started a dialogue regarding whether confidentiality clauses should be made unlawful.  It is within this backdrop that Senator Weinberg has proposed Senate Bill 3581.

If passed, the bill would eliminate the use of arbitration for discrimination, retaliation, and harassment claims, and make it unlawful to have “confidential” settlements of such disputes. Employers should keep an eye on this bill and prepare to make necessary changes to their employment contracts and employee handbooks if the bill becomes law.  Employers should also consider the bill’s potential impact on any current or expected litigation.  Christopher M. Curci represents employers in litigation and advises his clients on all aspects of employment law.  If you need help with this or any other employment issues, he can be reached at [email protected].