Florida Construction Lawyer Blog

Construction contracts in Florida frequently have indemnity clauses, which are aimed at shifting liability to the wrongdoing party. In the construction setting, a job-site injury could involve a number of potential defendants, including the contractor, subcontractors, engineer, architect, owner, laborers and suppliers. Construction law attorneys at our firm work closely with our clients on indemnity claims by examining the acts or omissions of the parties and the extent to which they gave rise to liability.

Under Florida's common law, indemnification is allowed only where the party against whom indemnity is sought bears the entire fault for the loss. A two-prong test must be satisfied to prevail on a common law indemnity claim. "First, the indemnitee must be faultless and its liability must be solely vicarious for the wrongdoing of another. Second, in order for the faultless party to shift liability to the other, the indemnitor must be at fault. "

In addition to common law indemnity, there can be express contractual indemnity provisions. Contractual indemnity provisions are not concerned with vicarious, derivative or technical liability, but with "the express terms of the agreement to indemnify." In an illustrative case, an engineering firm sought indemnification from the general contractor. The sub-subcontractor's employee received an electrical shock from a crane that was too close to a power line, resulting in permanent brain damage. His guardian sued the engineering firm as well as the general contractor, subcontractor and other parties. The engineer eventually settled the lawsuit for $3.55 million and filed a complaint against the contractor for indemnity.

The contractor argued that the engineer had no right to indemnity under the indemnity clause in their contract because the engineer had been sued for its own negligence, and not the contractor's negligence. The contractor's position was that unless the engineer had been sued on a theory of vicarious liability for the contractor's negligence, both common law and contractual indemnity were not available to the engineer.

The court disagreed. It stated that the indemnity provision "clearly expresses the parties' intent that the engineer may be indemnified by the contractor even if the engineer is sued for its own wrongful conduct." The court observed that the intent of the parties "was to indemnify [the engineer] for any claim arising out of the negligence of [the contractor] even if [the engineer] was also negligent." Thus, the engineer could seek indemnity from the contractor even if some of the fault could be attributed to the engineer. The court concluded that if all or part of the settlement was based on potential liability for negligence that was unrelated to design, then the engineer would be entitled to indemnity for the monies paid to the sub-subcontractor's employee.

In accordance with section 725.06, Florida Statutes (2009), any contract in connection with the construction, alteration, repair or demolition of a building, structure or appliance wherein any party promises to indemnify the other party for liability for damages "caused in whole or in part by any act, omission or default of the indemnitee arising from the contract or its performance, shall be void and unenforceable unless the contract contains 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." Pursuant to the statute, the monetary limitation on the extent of the indemnification "by any party in privity of contract with such owner shall not be less than $1 million per occurrence, unless otherwise agreed by the parties."

The statute further specifies that "such indemnification shall not include claims of, or damages resulting from, gross negligence, or willful, wanton or intentional misconduct of the indemnitee or its officers, directors, agents or employees, or for statutory violation or punitive damages except and to the extent that the statutory violation or punitive damages are caused by or result from the acts or omissions of the indemnitor or any of the indemnitor's contractors, subcontractors, sub-subcontractors, materialmen, or agents of any tier or their respective employees."

The full implications of the recent changes to this statute have not yet been tested. The statute states that a construction contract which allows one party to indemnify the other for the other party's own negligence is unenforceable, unless it contains the monetary limitation and other requirements. Common law indemnity requires that the indemnitee be entirely without fault in order to receive indemnification from the indemnitor. Thus, "there is the potential, under the new statutory language, for the argument that partial or contributory negligence on the part of the indemnitee may prevent any recovery ."

Indemnity provisions in construction contracts should be carefully drafted to incorporate the requirements of section 725.06, Florida Statutes. Considerations include:

(1) whether the contract clearly expresses an intent to indemnify a party against its own negligence,
(2) whether there are particular claims for which the indemnitor must reimburse the indemnitee;
(3) whether there is a monetary limitation on the extent of the indemnification and whether the other statutory requirements are met;
(4) the risks that are being indemnified, such as bodily injury, property damage, economic loss, and attorneys' fees; and
(5) whether there is a duty to defend if the other party is partially at fault.

A poorly worded indemnity provision could lead to the loss of protection or a costly claim. It is imperative for businesses in the construction industry in Florida to work with experienced construction law attorneys for the drafting of any indemnity clause.

Construction contractor foreclosure lawsuits against the owners and developers of major properties have been making headlines during the last several years, especially in markets such as Miami and other parts of South Florida as well as Las Vegas that have experienced some of the most significant downturns in real estate values and sales. One of the most recent cases that is being watched very closely involves the developer of the new PH Towers Westgate timeshare and hotel development in Las Vegas, which is disputing allegations that it owes the general contractor $19.3 million. In fact, the developer says that it is the contractor, Tutor-Saliba Corp., which owes it millions of dollars.

The property involved in this litigation is the massive 52-story, 1,200-room development linked to the Planet Hollywood resort and Miracle Mile Shops mall. The construction contract is from 2007, and it is valued at approximately $495 million.

The construction contractor's lawsuit indicates that Tutor-Saliba filed a lien against the property for the $19.3 million, and it is now entitled to foreclose on the project because its claim is superior to the claims from lenders against the developer. However, Tutor-Saliba's lien is one of at least five active liens filed against the project since November 2009.

The privately-held Westgate Resorts Ltd., which is based in Orlando and has projects there as well as in Miami and other parts of the U.S., has indicated that it will fight the contractor lawsuits and claims of lien. The company's attorneys argue that the specific claims in these lawsuits are totally without merit, and they point to the findings of a third-party construction management firm as independent verification. They say that it is actually Tutor-Saliba which owes Westgate more than $18 million. In addition, they indicate that Tutor-Saliba signed an agreement subordinating its claim to the lenders on the project, which leaves it with no legal recourse, and Westgate will pursue claims against the contractor entailing ". . . overcharges, credits due for unperformed work, liquidated damages for untimely performance, and failure to comply with the plans and specifications of the project," according to a recent statement by the COO of Westgate Resorts.

Tutor-Saliba is owned by Los Angeles-area construction company Tutor Perini Corp., which is also pursuing $500 million for work on MGM Mirage's CityCenter and is in litigation over unpaid invoices and alleged construction defects at the One Queensridge Place condominium project, both of which are also in Las Vegas. The company is also a creditor in the Fontainebleau Las Vegas bankruptcy.

The new PH Towers Westgate, which opened in December, has been described by its owner as the largest single timeshare building in the world and the first timeshare resort to be fully integrated with a major resort and casino. In recent newspaper reports, the developer said that approximately 20 percent of the PH Towers Westgate rooms have been sold as timeshares. The remaining units are being used as hotel rooms for the Planet Hollywood resort.

With so many major real estate developments coping with the recession and the slow pace of economic recovery in the hardest-hit markets, construction disputes and lawsuits such as those involving the PH Towers property are going to continue to unfold in the months and years to come. Our attorneys who focus on construction matters and litigation will continue to work very closely with our clients in the construction industry to protect the value of their work and enforce their contracts.

Lawsuits against construction contractors appear to be more prevalent as a result of the economic recession, and the construction law attorneys who work with contractors at our firm and throughout the country have been working very closely with their clients on cases involving many different types of construction disputes and litigation.

In one such lawsuit involving the Village of Elm Grove in Wisconsin, the case recently concluded with the municipality winning its breach-of-contract lawsuit against the construction contractor that it retained to fix a recurring flooding problem. The lawsuit alleged that Michels Pipeline Construction Inc. walked off the job and created a nine-month delay in a $4.6 million tunneling project in downtown Elm Grove. The project called for installing an underground tunnel through the downtown area to divert floodwater.

A Waukesha County Circuit Court jury recently found in favor of Elm Grove after a seven-day jury trial. It concluded that the village should be awarded more than $315,000, including damages for the delay and additional engineering fees. Michels denied that its workers mishandled and walked off of the job, arguing that tunneling work was halted temporarily because of poor soil conditions that created a risk of tunnel collapse. The company also said that it encountered soil conditions that Elm Grove did not reference in its bidding documents, including boulders as large as six feet by three feet, and the soil conditions cost it at least $2.8 million more for extra labor, equipment and materials.

Lawyers who focus on working with general contractors at our firm and elsewhere are helping their clients to avoid construction disputes and litigation such as the Elm Grove case whenever possible, and they work to bring these disputes to a favorable resolution whenever they arise. Construction contractors, subcontractors and suppliers in South Florida and throughout the country should work exclusively with attorneys who concentrate on construction law matters to help ensure that they receive the most effective possible legal counsel and representation.

Construction law attorneys in Florida and several other states are keeping a close eye on several cases in federal court in Louisiana, where a judge recently awarded $164,000 for the costs of removing Chinese drywall from a home and replacing the wiring, plumbing and appliances that had been ruined by the defective product. This decision sent a clear signal to the manufacturers, suppliers and builders that the courts are going to impose stringent requirements for the remediation of the homes that have been affected.

This ruling comes weeks after a $2.6-million judgment for seven Virginia families - more than $370,000 per homeowner - against a different drywall manufacturer from China that refused to participate in the trial.

It appears that KPT, the Germany-based company that manufactured the drywall in China that was involved in the Louisiana case, is now considering the possibilities of appealing the ruling and attempting to settle with some of the builders that used its defective drywall. For the builders, settlement offers from this or other manufacturers could be enticing, as the funds would be paid upfront before the remediation work is performed. However, it appears that the repairs for each affected home are going to be costly, and relocation costs for the residents will also add significant sums.

Some construction industry experts have estimated that as many as 100,000 U.S. homes have the defective Chinese drywall, the majority of which are located in Florida and Louisiana. As the legal process continues to unfold with new trials starting in June, construction industry lawyers in Florida from our law firm and others will work with their clients to help them to address their legal issues and responsibilities stemming from their use of this inferior and potentially dangerous product.