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Settlement Agreements and Releasing Latent Defects

When settling construction defect claims and entering in a mutual general release, there are numerous items that contractors must address in order to ensure exposure for future lawsuits with the plaintiff are minimized.  One such item is what is known as a latent defect, which is typically defined as a defect that is hidden or concealed, and which is not discoverable by reasonable inspection.   Specifically, general releases have been held to be completely enforceable and act as a complete bar to all claims, known or unknown at the time of release.  Brooklands, Inc., v. Sweeney, 2015 WL 1930239  (S.D. Fla. 2015) citing  Belasco v. Wells, 234 Cal. App. 4th 409 (Cal. Ct. App. 2015).

Ensuring that a plaintiff releases latent defects can be critical.  As such, the release of latent defects is the focus of a significant amount of litigation; however, Florida courts have continued to hold that such agreements are enforceable under Florida Law.  In fact, Florida courts have held such releases to be enforceable despite fervid protest by a plaintiff that they did not intend to release certain types of claims.

However, in order to maximize the likelihood that a court will enforce a provision to release latent defects, is it crucial to ensure that the release of latent defects is entirely clear unambiguous.  Making such an agreement express in the language of a general release provides distinct evidence to the court that the release of latent defects was the direct result of the negotiations that took place leading up to the execution of the release document.  Finally, it is also important to include a “non-reliance” clause to show the court that the parties are solely relying upon the express terms of the general release.  Generally speaking, these clauses state that the parties have not relied on any representations other than those set out in the Agreement.

It is not uncommon in any bond lawsuit for a subcontractor, sub-subcontractor, or suppler to sue the relative surety and leave out the prime contractor/ principal on the bond.  However, it is important to keep in mind that prime contractors also may, on occasion, move to intervene in bond lawsuits as the principal of the payment bond at issue.  This may be especially important in Miller Act payment bond lawsuits on Federal lawsuits.  Often times, the principal in such bond claims intervenes in order to assert a counterclaim against the claimant, or alternatively, assert a third-party claim.  These affirmative claims, as opposed to defenses which generally may be asserted by a surety, belong to the prime/principal contractor and not its surety.

Federal courts typically allow the principal to permissively intervene in the lawsuit given its relationship to the bond at issue, especially if the contractor plans to assert an affirmative claim to assist in effecting the resolution and disposition of all claims.  Although the right to intervene is not absolute, the prime contractor has a stronger basis to intervene in the lawsuit as a principal of the payment bond if the principal has critical affirmative claims or if the surety happens to be represented by different counsel.  Depending on the facts of the claim, it is an important consideration to make for a principal whether or not it wants to attempt to get involved in the underlying lawsuit.

In a recent case out of Florida’s Fifth District Court of Appeal, the Court held that attorney’s fees awarded to a Plaintiff in a construction defect action against an insured contractor were covered under a supplementary payment provision in a CGL policy.  Specifically, in Mid-Continent Casualty Company v. James T. Treace, 41 Fla. L. Weekly D60c (Fla. 5th DCA Dec. 31, 2015), homeowners argued that their attorneys’ fees were covered under the subject policy’s supplemental payment provision that provides the insurer will pay “all costs taxed against the insured in the ‘suit.’” The court concurred, holding that “all costs” was substantially similar to “all court costs” analyzed in other court decisions on the supplementary payment provision, and could similarly be read to include attorney’s fees, especially since the insurer did not, but could have, defined the term to exclude attorney’s fees.

Among other cases, the Court relied upon Geico General Insurance Co. v. Hollingsworth, 157 So. 3d 365 (Fla. 5th DCA 2015), and Geico General Insurance Co. v. Rodriguez, 155 So. 3d 1163 (Fla. 3d DCA 2014) in coming to its determination.  In Hollingsworth, the Fifth District concluded that a similar provision provided coverage for attorney’s fees. The relevant provision in Hollingsworth specified in the “Additional Payments” section that the carrier would pay “[a]ll court costs charged to an insured in a covered lawsuit.”  As such, the court reversed this portion of the judgment and remanded for an award granting the homeowners their attorneys’ fees and costs awarded against the contractor in the underlying defect litigation.  Thus, in evaluating potential damages or liability, it is crucial to take note of the policy language at issue. If a policy expressly states that “costs” or “court costs” are covered, then Rodriguez, Hollingsworth, and Treace suggest that attorney’s fees may be covered damages.

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Cotney Construction Law law firm is a proud sponsor of the Black Dagger Military Hunt Club Inc. This organization is a 501(c)(3) non-profit veteran supported organization that provides shooting/hunting opportunities for US military and it’s allies in our AOR and beyond. They co-labor with other veteran’s groups, wounded warrior support orgs and the Veterans Affairs (VA) to support those who give their all for God and Country! They provide peer-to-peer outdoor activities with military and their families.

In Early April, Black Dagger Military Hunt Club hosted an event called Operation Blackbeard. This event was for the children who lost their parent(s) in battle and about helping the resilient teens develop their self-confidence and self-esteem. The event was attended by 16 children from Gold Star Teen Adventures, ranging from 13 – 18 years of age. Our very own Trent Cotney attended this event to show his support not only to the Black Dagger Military Hunt Club, but for the 16 children. For showing such great support, Trent was honored with a signed flag from all the teens at Gold Star Teen Adventures.