VOLUME XXI, NUMBER 6
June, 2009

FLORIDA SURPLUS LINES LAW - UPDATE

On June 11, 2009 Florida Governor Charlie Crist signed into law Florida's Surplus Lines Law which clarifies the application of Florida Statutes to surplus lines insurers in the state. For a more detailed description of the provisions of the new bill, please see our May, 2009 issue of Briefly Speaking or feel free to contact the office for a copy of the new statutory provisions.

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PARTIES CANNOT 'CONTRACT AWAY' THE ECONOMIC WASTE DOCTRINE ABSENT EXPLICIT LANGUAGE STATING THEIR DESIRE TO DO SO

In Heine v. Parent Construction, Inc. 13 Fla. L. Weekly, D634 (4th DCA, March 25, 2009), the Fourth District Court of Appeals was faced with the issues of whether the application of the Economic Waste Doctrine would be precluded due to (1) provisions of a standard form contract that required a contractor to correct his work whether substantially completed or not, or (2) a contractor's intentional breach of contract.

In Heine, the plaintiffs contracted to have an $840,000 home built on John's Island. According to the contract, the defendant contractor was to have built the house at an elevation of 8.5 feet. However, the elevation of the completed structure was actually 7.5 feet. The plaintiffs insisted the house be torn down and rebuilt at a cost of $930,000. In response, the contractor asserted that the proper measure of damages, in accord with the Economic Waste Doctrine, was diminution of value. At trial, an expert testified that the elevation concerns with property owners on John's Island were (1) the view from the home, (2) the home's flood history, and (3) the home's insurability. The plaintiffs admitted that the home did not suffer floods during the 2004 and 2005 hurricane seasons, and they had no difficulty obtaining insurance. Indeed, plaintiffs' own expert opined that the lowered elevation resulted only in 'nuisance diminution,' that he valued at $25,000. The trial court held that the application of the Economic Waste Doctrine was proper, and the plaintiffs were awarded $25,000.

The Heine court limited its written opinion to the specific issues raised by the parties with respect to the Economic Waste Doctrine. The court first reviewed the Florida Supreme Court's decision in Grossman Holdings Ltd V. Hourhian, 404 So. 2d 1037 (Fla. 1982). In Grossman, the court held that the Economic Waste Doctrine was applicable to residential construction, and adopted Section 346(1)(a) of the Restatement (First) of Contracts (1932) as the method to measure damages in a breach of construction contract claim. Section 346(1)(a) provides, in relevant part, that a party can get a judgment for defective or unfinished construction for either (1) the reasonable cost of construction/completion in accord with the contract "if this is possible and does not involve unreasonable economic waste" or (2) the difference between the value that the property would have had if constructed properly and the actual value of the constructed property. The court recognized that although full performance may necessitate tearing down and rebuilding structures, "the law does not require damage to be measured by a method requiring such "economic waste".

With these points in mind, the Heine court first considered the plaintiffs contention that the Economic Waste Doctrine was not applicable in situations where a contractor intentionally breached the construction contract. The court rejected this argument, without deciding upon it, because the record contained sufficient evidence that showed that the contractor did not intentionally breach the contract.

The plaintiffs next asserted that the Economic Waste Doctrine should be precluded because the contract stated that the "Contractor shall promptly correct Work . . . failing to conform to the requirements of the Contract Documents, whether observed before or after Substantial Completion, and whether or not fabricated, installed or completed" and that the "Contractor shall bear costs of correcting such rejected Work." Thus, the plaintiffs argued, the parties agreed to a cost to repair the damages in the contract, and thus the application of the Economic Waste Doctrine was precluded. The court recognized, however, the need to reasonably interpret the language of that standard construction contract, and further noted that it was not persuaded that the contractual provision requiring the contractor to 'correct' his work should result in a cost that would exceed the original contract. The court affirmed the trial Court's award, and held that parties cannot "contract away" the Economic Waste Doctrine absent explicit and specific contractual provisions.

 Robert C. James

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CLEAR AND UNAMBIGUOUS CONTRACT CANNOT BE INTERPRETED BY RESORT TO CUSTOMARY INDUSTRY PRACTICE

In Peach State Roofing Inc. v 2224 South Trail Corp., 34 Fla. L. Weekly 514 (Fla. 2nd DCA, March 6, 2009), Florida's Second District Court of Appeal recently held that an industry custom or practice could not be an implied contractual term where the contract is clear and unambiguous. The District Court of Appeal also held that damages for breach of contract should be measured as of the date of the breach.

In August 2001. Peach State Roofing Inc. contracted with 2224 South Trail Corporation to put a new roof on a 26,500 square foot commercial building. The contract required Peach State to "remove and discard existing roof system." and "furnish and install Carlisle Single Ply membrane roof system" for $63,500.00. The parties also agreed that Peach State would be compensated for any required repairs to the metal decking that supports the roof system at $3.50 per square foot. The parties agreed that this provision did not require Peach State to replace the metal deck. The work was completed in December 2001, with no charges having been made for metal deck repair.

Approximately three (3) years after the work was completed, in September 2004, South Trail sued Peach State for breach of contract because it did not "properly remove and replace the roof" and alleged that South Trail suffered damages including repair costs and costs incurred as a result of water damage from the improper repair/replacement of the roof.

The roof was inspected approximately five (5) years after the installation of the roof in May 2006, by South Trail's expert witness. He testified that he observed corrosion in the metal decking. He also testified that, in is opinion, it was the industry practice for the roofing contractor to notify the owner of the existence of corrosion. He admitted that he had no way to know the condition of the roof in 2001, when the contract was completed.

The trial court specifically held that the contract did not require Peach State to remove and replace the existing metal decking. However, the trial court also found that there was an "implied term in the contract based on custom and usage which required Peach State to notify the owner if the deck underlying the roof system is in a deteriorated condition" and that Peach State had breached the contract by failing to notify the owner that the metal decking was deteriorated, thereby allowing South Trail to decide whether to replace it. The trial court awarded $364,000.00 in damages to South Trail to replace both the metal deck, and the roof system. There was no finding that the Carlisle roof system was improperly installed. There was no finding that the deteriorated metal deck caused any leaks.

The Second District Court of Appeal reversed the trial court holding that "where a contract is clear and unambiguous, the express terms may not be varied by resort to extrinsic evidence, including that related to the UCC obligation of good faith or custom and usage." The District Court of Appeal noted that the trial court found no ambiguity in the language of the contract as a predicate to support its holding that the contract contained an implied term.

The Second District Court of Appeal explained that before a trial court, in interpreting a contract, can consider extrinsic evidence such as the industry's customary practice that a roofer would inform the owner of the corroded metal deck, "the words of the contract must be unclear such that an ambiguity exists on the face of the contract." The District Court of Appeal noted that "florida courts have consistently declined to allow introduction of extrinsic evidence to construe such an ambiguity because to do so would allow a trial court to rewrite a contract with respect to a matter the parties clearly contemplated when they drew the agreement." The court went on to note that it is "well settled that courts may not rewrite a contract or interfere with the freedom of contract or substitute their judgment for that of the parties thereto in order to relieve one of the parties from the apparent hardship of an improvident bargain."

Finally, the court addressed damages and noted that damages are measured on the claimed date of the breach of contract, which South Trail's counsel acknowledged was the date the work was completed by Peach State. Thus, the District Court of Appeal held that the trial court erred in awarding damages measured as the cost to repair five years after the breach (in 2006 when the expert inspected the roof) since damages should reflect the cost to repair on the date of the breach in 2001.

Gary D. O'Nolan

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COURT REQUIRES APPORTIONMENT AMONG MULTIPLE PARTIES IN ALL PROPOSALS FOR SETTLEMENT

In Cano v. Hyundai Motor America, Inc. 34 Fla. L. Weekly D592 (Fla. 4th DCA, March 18th 2009), the Fourth District Court of Appeal ruled that a Proposal for Settlement offered to multiple parties must without exception apportion the amount attributable to each party.

Daila and Guillermo Cano ("The Canos") purchased a 2000 Hyundai Accent from Hyundai Motor America, Inc. ("Hyundai"). The Canos discovered defects with the vehicle, and brought a claim against Hyundai for breach of warranty and revocation of acceptance. During the proceedings, Hyundai offered the Canos a joint Proposal for Settlement. The Proposal for Settlement did not set forth the amounts or terms attributable to each party.

Neither Daila nor Guillermo Cano accepted the Proposal for Settlement. At trial, Guillermo Cano was dropped from the suit, and the jury ruled in favor of Hyundai. Hyundai's subsequently made its motion for attorney's fees, which the trial court granted pursuant to the unaccepted Proposal for Settlement. Daila Cano moved for rehearing and reconsideration of this award, arguing that the Proposal for Settlement was invalid and unenforceable. The trial court denied the motion. Specifically, the trial court found that although the Proposal for Settlement failed to set forth the specific amounts and terms attributable to each party, it was valid and enforceable because the parties' claims were indistinguishable.

The Fourth District Court of Appeal held that although the parties' claims were one and the same, a joint Proposal for Settlement must state with specificity the terms and amount attributable to each party. The Fourth District Court of Appeal noted that at the time the Proposal for Settlement was made, there were multiple parties, namely Daila and Guillermo Cano. Given that at the time it was offered, the Proposal for Settlement was made to multiple parties, and that it failed to specify the terms and amount attributable to each party, the Fourth District Court of Appeal reversed the trial Court's order and ruled that the Proposal for Settlement was invalid and unenforceable.

Meghan A. Wilson