Florida’s Construction Defect Statute Undergoes Significant Changes in 2015

A look at the legislation that will require an alternative method to resolve construction disputes prior to litigation.

Gary BrownBy Gary Brown, Partner, Arnstein & Lehr

During the 2015 regular legislative session, the Florida Legislature made several key revisions to Chapter 558 – Florida’s Construction Defect Statute. These amendments, which became effective on October 1st, will significantly alter some of the provisions of the statute, which sets forth a procedure and numerous requirements for an alternative method to resolve construction disputes prior to litigation.

Developers, contractors, design professionals and others in the construction industry should welcome the amendments which, among other notable changes, broaden the role of insurers, clarify when the statute applies, increase the notice requirements by building owners pursuing defect claims concerning the nature of the alleged defects and resulting damages, and allow for broader pre-suit discovery of information. On balance, these changes appear to be geared toward broadening the exchange of information and facilitating meaningful settlement discussions concerning the identification, cause and resulting damage from alleged defects which furthers the statute’s stated goal of resolving defect claims outside of litigation.

For example, §558.001 now expressly allows the insurer of the recipient of a claim notice with an opportunity to resolve the claim without litigation, which may involve confidential settlement negotiations. While parties are always free to choose or not chose to designate discussions as “confidential,” it appears the legislature intended by the amendment to allow settlement discussions done through the 558 process, including those involving insurers of parties potentially responsible for alleged defect(s), to be confidential.

With regard to § 558.002(4), the definition of “completion of a building or improvement” — the triggering event, which requires a claimant to follow the procedures of Chapter 558 – now expressly includes a temporary certificate of occupancy that allows for occupancy of the entire building. Typically, construction is not deemed completed unit a final certificate of occupancy has been issued. In some jurisdictions, however, a building owner is permitted by the authority having jurisdiction over the work to occupy the building or designated portions thereof before completion of construction by obtaining a temporary certificate of occupancy. Prior to the change in the statute, it was unclear whether “completion of a building or improvement” triggering the procedures of Chapter 558 occurred prior to issuance of a final certificate of occupancy. The change now clarifies that “completion” of construction under the statute will be deemed to occur when a certificate of occupancy is issued for the entire building, regardless of its designation as temporary.

The changes to §558.004(1) have expanded the obligations of a claimant in identifying the defect(s) and resulting damages. Previously, a claimant was required to only describe the claim in such reasonable detail to allow a determination of the general nature of the alleged defects and provide a description of the resulting damage or loss. Now, a claimant must describe in reasonable detail the nature of each defect, and if known, the damages or loss resulting from the defect. Further, the claimant is now required (through a visual inspection only) to identify the location of each defect sufficient enough to allow the party receiving the notice to locate the defect without undue burden. Clearly, these changes were designed to provide for greater specificity in describing the nature and location of, and damages claimed for, each defect, ostensibly to facilitate inspection and consideration by those receiving a notice.

Regarding § 558.004(4), the primary change expands the required options of a party receiving a down-stream notice so that they exactly parallel those of a party receiving a notice directly from the claimant. Those options, which are set forth in § 558.004(5)(a)-(e), are now expressly made part of this subsection. The prior version of this subsection required the recipient of a down-stream notice to advise the person sending it whether the recipient was willing to make repairs, and if so, describing them and a timetable for doing so, or whether the claim was disputed. While these options loosely tracked those available to a party receiving a notice directly from the claimant, conspicuously absent was the option to make a monetary offer either in full or in combination with an offer to make repairs. This omission was likely an oversight by the legislature. To be sure, parties sending and receiving down-stream notices were not expressly prohibited from making monetary settlements. But the change does clarify that a party receiving a down-stream notice must now respond in kind as the party initially receiving the claimant’s notice, including the option to offer money to address a defect, subject to the same requirements and limitations.

With respect to § 558.004(13), the change appears to reconcile possible discrepancies between the statute and any applicable policies of insurance potentially covering a defect claim concerning whether the receipt of a 558 notice is tantamount to a “claim” under such policies.  The prior version of this subsection, added to the statute in 2004, provided that a claim notice under chapter 558 did not constitute a claim for insurance purposes. The legislature has amended this subsection – presumably to address potential contrary claim reporting requirements of applicable policies – to provide that a 558 notice may constitute a claim for insurance purposes if the terms of the policy so provide.

Finally, regarding § 558.004(15), the changes center on discoverable information, which must be exchanged pursuant to the statute. In addition to deleting some redundant language the amendments extensively expand discovery, allowing a party to request maintenance records and any other documents related to the discovery, investigation, causation and extent of the alleged defect(s) and any resulting damages. Notwithstanding the broadening of discovery, the amendments also clarify that a party may withhold any documents, which might otherwise be found under chapter 558 on the basis of any recognized privilege under Florida law. Under the prior version of this subsection, exchange of available expert reports was mandatory, though such reports could not be used in subsequent litigation for any purpose unless the expert testified or the report was used in the litigation. Now, a party may shield such reports, along with any other requested documents, on the basis of any applicable privileges. It should be noted, however, that the legislature left intact existing language in the statute providing that the withholding of such documents may subject a party to discovery sanctions by the court in the event of subsequent litigation.

In summary, along with minor stylistic changes and clarifications, the 2015 amendments to chapter 558 have been significant in terms of expanding the claim disclosure requirements of those asserting defect claims and the information, which must be exchanged pursuant to the statute upon request, subject to any applicable privileges. The changes have also expanded the required content for down-stream notice responses, as well as the role of insurers in the 558 process, including the possible effect of a claim notice for insurance purposes. Overall, these changes should facilitate the resolution of claims prior to litigation by broadening the exchange of required information and options available among parties receiving a defect notice.

Gary Brown is a partner in the Fort Lauderdale office of Arnstein & Lehr LLP. He is a member of the firm’s Construction Practice Group and Board Certified by The Florida Bar in Construction Law.

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