Diminished capacity - owners' ability to sue for construction defects in Florida.

• Jurisdiction: United States
• Author: McConnell, H. Hugh
• Date: 01 June 1997

Owners' remedies for construction defects, always an area of flux, are emerging from an especially volatile period which has markedly changed the legal environment in which Florida practitioners must litigate their claims. The changes have generally diminished the noncontractual avenues by which owners can seek relief, thereby increasing the importance of negotiating sufficient protection through contract. This article will give a brief summary of the more significant changes and examine the present state of legal theories available to owners to recover for shoddy construction.

The construction industry has unique features to bear in mind when evaluating the rules of law that govern it. First, construction combines the provision of both services and products, making it something of a hybrid in the commercial world. Second, the construction process involves the interaction of numerous separate providers who may or may not contract directly with the owner or with each other. Typically the owner is in privity only with the architect, who provides design services, and with the general contractor, who provides the service of coordinating the various trades involved in constructing the building in accordance with the architect's design. Below the general contractor stretches what is commonly called the "chain of construction," the various subcontractors, sub-subcontractors, and material suppliers who have no direct contractual dealing with the owner. A third feature is that the construction process results in the incorporation of numerous separate, fungible products into a single, complex structure. As a matter of law, those products lose their identity as goods and become real property. Gable v. Silver, 258 So. 2d 11 (Fla. 4th DCA 1972), adopted, 264 So. 2d 418 (Fla. 1972).

Construction defects can be classified into three categories: defective building materials, faulty workmanship, and improper design. Historically, the law has recognized that the various participants in the construction process are liable only for those defects that fall within their respective areas of expertise. For example, a contractor who builds a structure according to the design supplied by the owner generally is not responsible for the adequacy of the design unless the contractor expressly undertakes responsibility for the "performance" of the end product. City of Orlando v. H.L. Coble Construction Co., 282 So. 2d 25 (Fla. 4th DCA 1973), cert. denied, 288 So. 2d 505 (Fla. 1973). Therefore, if the problems encountered by the owner are design-related, the owner must look to the design professional for recovery. In analyzing possible remedies practitioners must determine the nature of the defect and the respective responsibilities of the project participants as allocated by contract. See, e.g., Florida Board of Regents v. Mycon Corp., 651 So. 2d 149 (Fla. 1st DCA 1995) (discussing "design" specifications, which keep design responsibility with owners, versus "performance" specifications, which shift design responsibility to contractors).

Defective Building Materials

For owners who do not purchase their materials directly from suppliers, Florida law affords few remedies when building products prove defective. Material suppliers who are in the business of manufacturing or distributing goods are deemed to be merchants who give UCC warranties. See, e.g., United States Fidelity & Guaranty Co. v. North American Steel Corp., 335 So. 2d 18, 21 (Fla. 2d DCA 1976). Unlike other jurisdictions, however, Florida's version of the Uniform Commercial Code does not create warranties that run from manufacturers or sellers to third parties.(1)

The adoption of the economic loss rule in the landmark case of Casa Clara Condominium Association v. Charley Toppino & Sons, Inc., 620 So. 2d 1244 (Fla. 1993), eliminated tort recovery by owners against suppliers where the damage claimed by the owner is only to the building in which materials were installed. While tort recovery is available when a product has damaged "other property,"(2) the legal transmutation of building materials from "goods" into "realty" upon incorporation into a project effectively forestalls the argument that tort law may be invoked because the defective product damaged the other products with which it was installed. In Casa Clara the court reasoned that owners who purchase homes or contract for improvements to property in effect buy a single "product," precluding tort recovery, which is barred "when a product damages itself, causing economic loss, but does not cause personal injury or damage to any property other than itself." Id. at 1246.(3)

In Casa Clara the court also held that material suppliers, who could be located anywhere in the country and distributing products to many localities, are not governed by local building codes and, therefore, cannot be subject to liability under F.S. [sections] 553.84. An action under F.S. [sections] 553.84 for violation of a local building code can be brought "against the person who committed the violation," and is generally available against contractors and possibly design professionals whose activities are directly governed by building codes. Because material suppliers are not governed by local codes, reasoned the court, they logically cannot commit a violation of a building code.

Owners' remedies against contractors for defective materials also are severely limited. In the absence of an express warranty from their contractors, owners may not look to their general contractors when products they install are latently defective. Because contractors are viewed as providers of services and not products, they are not deemed to be "merchants" under the UCC and UCC implied warranties do not pass from contractor to owner. Jackson v. L.A.W. Contracting Corp., 481 So. 2d 1290 (Fla. 5th DCA 1986), review denied, 492 So. 2d 1333 (Fla. 1986); Arvida Corp. v. A.J. Industries, Inc., 370 So. 2d 809 (Fla. 4th DCA 1979). UCC warranties are in effect cut off by the presence of the contractor in the chain of construction.

Also, contractors are not deemed at common law to warrant the quality of their materials. Rather, they are held to an ordinary standard of care in selecting and inspecting materials incorporated into their work. Without an undertaking as to quality, an owner has no remedy against a contractor when the defect in a building product is not discernible by the contractor through the exercise of ordinary care and skill. See Wood-Hopkins Contracting Co. v. Masonry Contractors, Inc., 235 So. 2d 548 (Fla. 1st DCA 1970) (subcontractor not liable for latent defects in bricks not discernible by exercise of care and skill in inspection and present through no fault or knowledge of subcontractor).

Owners, therefore, should ensure that their contractors expressly warrant the quality of the materials installed as well as the workmanship. It is not unusual for standard construction contracts to provide express warranties by contractors that materials will be of good quality, new, and free from defects. See, e.g., AIA Document A107-1987, [sections] 9.4. Even with an express warranty, however, if the contractor is directed by the owner to install a specified building product and does so in accordance with the manufacturer's specifications, the risk of defects in the product may shift from the contractor to the owner. See Charles R. Perry Construction, Inc. v. C. Barry Gibson & Associates, Inc., 523 So. 2d 1221 (Fla. 1st DCA 1988).(4)

One means of protecting owners in advance is to require contractors, as a condition of the contract, to assign to owners all UCC warranty rights from sellers and manufacturers. See Ashley Square, Ltd. v. Contractors Supply of Orlando, Inc., 532 So. 2d 710 (Fla. 5th DCA 1988). Such an assignment, of course, may take place at any time, even after litigation has commenced. Privity problems may thus be cured when owners are able to secure the cooperation of contractors.

Faulty Workmanship

The contractor's province is directing the manner and means in which building materials are installed in order to accomplish the architect's design. Contractors undertake to build in accordance with the plans and specifications. Hawaiian Inn of Daytona Beach, Inc. v. Robert Myers Painting, Inc., 363 So. 2d 125 (Fla. 1st DCA 1978), cert. denied, 370 So. 2d 461 (Fla. 1979). Deviations from the design will constitute a breach. Biscayne Roofing Co. v. Palmetto Fairway Condominium Association, Inc., 418 So. 2d 1109 (Fla. 3d DCA 1982). The contractor's liability, of course, is coextensive with the terms of the contract and is limited by privity.

Owners are prevented from suing contractors in tort by the economic loss rule, the announced purpose of which is to confine parties to the remedies that they negotiate by contract. See, e.g., AFM Corp. v. Southern Bell Telephone & Telegraph Co., 515 So. 2d 180 (Fla. 1987); Sandarac Association, Inc. v. W.R. Frizzell Architects, Inc., 609 So. 2d 1349 (Fla. 2d DCA 1992), review denied, 626 So. 2d 207 (Fla. 1993). This obviously adds great importance to the manner in which owners structure their contractual arrangements. Owners may act as their own general contractors by becoming "owner-builders" and contracting directly with each trade and material supplier necessary to construct improvements to their property. In such a case an owner will be in privity with every participant and be able to negotiate warranty rights and other remedies as proponents of the economic loss rule contemplate.

In the typical case, however, the owner contracts with a single general contractor to manage the project, coordinate the various trades, and assure proper performance of the work. An owner may not sue nonprivity subcontractors on a contract theory and is limited to seeking recovery for breach of warranty/contract against the general contractor. While the general contractor is liable for the adequate performance by both itself and its...