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Los Angeles Unified Sch. Dist. v. Great Am. Ins. Co., 163 Cal. App. 4th 944 (2008)

In this case, the District had contracted with a construction company to build a new elementary school for approximately $10.1 million.  Unsatisfied with the work, the District adopted a declaration of emergency under Public Contract Code § 20113, allowing the District to enter into a completion contract without inviting bids.  Defendant Hayward Construction Company was awarded the contract and Great American Insurance Company issued a performance bond for $4.5 million.  In the completion agreement, Hayward guaranteed that the maximum amount payable by the District for the cost of the work plus the contractor’s fee would not exceed $4.5 million.  Hayward’s scope of work included items listed on two “pre-punch lists,” identifying the remaining work to be completed or corrected.

Hayward subsequently informed the District that unforeseen circumstances concerning work that was not included in either of the pre-punch lists required an increase of the contract price beyond the contract maximum.  Payment was made to Hayward under a separate agreement preserving the District’s right to recover the money from all responsible parties, including Hayward and its surety.  When Hayward and its surety refused the District’s demand for return of more than $1 million, the District filed a complaint for breach of contract, breach of performance bond and declaratory relief.  Hayward cross-claimed for breach of contract, rescission and declaratory relief. Read More

Great American Ins. Co. v. Gen. Contractors & Constr. Management, Inc., 2008 WL 2245986 (S.D. Fla. May 29, 2008)

In this case, a surety company sought indemnification from a contractor under a payment bond.  The surety had paid claimants under the bond and argued that it was contractually entitled to reimbursement.  The contractor argued that the surety failed to bear its alleged initial burden of proving that the surety paid the claims in good faith.  The Court held that the surety’s initial burden was satisfied by evidence that the surety had indeed paid claims under the bond.  Thereafter, it was then the contractor’s burden to provide contradictory evidence or evidence that the surety paid the claims in “bad faith.”

It is well settled in Florida that a surety’s bad faith is the only defense to a surety’s indemnity claim.  Therefore, Florida courts will uphold a surety’s contractual right to indemnification so long as the surety acted on a good faith belief that it was required to act or pay, regardless of whether any liability existed.  To establish a surety’s bad faith, the contractor must demonstrate that the surety acted “with deliberate malfeasance”—meaning that that surety intentionally and wrongfully acted without legal right.  A lack of due diligence or negligence is not the equivalent of bad faith and even “gross negligence” is not the same as bad faith.

Baker County Med. Svcs., Inc. v. Summit Smith, 2008 WL 2245587, Case 3:05-cv-541-J-33HTS (M.D. Fla. May 29, 2008)

In this case, an owner sued a contractor under a design-build contract, alleging that the contractor breached the contract by failing to fulfill its implied duty to perform according to established industry and professional standards.  While Florida law permits such “professional negligence” actions to be pled as a breach of contract or a tort, such an action must be brought under the more specific two year professional malpractice statute of limitation, not the general four year limitation for actions based on “design, planning, or construction of an improvement to real property.”

Niehaus v. Big Ben’s Tree Svc., Inc., 982 So. 2d 1253 (Fla. Dist. Ct. App. 2008)

In this case, the court held that a contractor’s lien under Section 713.05 never attached because the parties never had a meeting of the minds as to a material term of their contract.  The owner had contacted a contractor to cut down and “remove” a tree.  The owner believed that “remove” meant that the tree would be taken from her property, but the contractor intended for remove to have its technical meaning in the tree industry, which is to simply move the tree.  The owner refused to pay the contractor when he would not take the tree from her property, resulting in the contractor recording a mechanic’s lien under Section 713.05.

A mechanic’s lien can only attach when a valid contract exists, and parties’ must agree as to material terms for there to be a valid contract.  The court found that “removal” was a material term of the parties’ contract in this case, and that they had different understandings as to the term’s meaning.  Therefore, the contractor’s lien never attached, and the owner was entitled to attorney’s fees under Section 713.29 for her successful defense against the lien.

Fisher Island Holdings, LLC v. Cohen, 983 So. 2d 1203 (Fla. Dist. Ct. App. 2008)

In this residential construction case, an owner entered into a short-term lease because of substantial delays in the completion of his single family home.  The owner sued the contractor for delay, and the jury awarded the owner both delay damages and damages for alternative living arrangements.  The appellate court held that this was not a double recovery.  The jury permissibly awarded delay damages (measured by the rental value of the building under construction during the delay period) for the period of the contractor’s delay up to the commencement date of the owner’s nine month lease.  The jury then awarded alternative living damages for the duration of the lease.