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Proposed amendment to ch. 558 would require nonbinding arbitration and allocation of damages to “own work”

During the first week of March, a bill (SB 1246/HB911) to modify the chapter 558 process by adding nonbinding arbitration was filed in the Florida House.  Proposed Sec. 558.045 would require nonbinding arbitration in any construction defect lawsuit, within 180 days after all “proper parties” are joined:

“(2) In any action involving construction defects, the court
shall require that the parties take part in nonbinding
arbitration. Such arbitration must be conducted in accordance
with chapter 682, except as otherwise provided in this section.
The mandatory arbitration must take place once all proper
parties have been joined in the action, but not later than 180
days after the action is brought.”

It would seem the goal here is an early, neutral “ballpark” assessment of defects and damages, before the parties spend substantial amounts on defense.  The critique is that the defendant is necessarily at a disadvantage on this schedule, as developing a realistic defect and repair cost assessment that quickly, with no discovery, is difficult.  Conversely,  the 180 day arbitration deadline could be susceptible to multiple delays, because experience shows even in good faith and with due diligence, it is common to find, serve and join additional “proper parties” years into a multiparty lawsuit.

Section 3, which might be referred to as the “Own Work Exclusion” Proviso, directs the arbitrator to identify damage components which are the defendant’s “own defective work”, as distinct from damage caused by the work.

“3) If the arbitrator finds in favor of a claimant as to
one or more parties on the construction defect claim, the award
must include a detailed description of the nature of the defect
and of the monetary amount awarded against each separate party,
including the monetary amount of the award attributable to each
of the following:
(a) Repairing or replacing the party’s own defective work.
(b) Repairing or replacing other nondefective property damaged by that party’s defective work.
(c) Other damages being awarded against the party.”

The parties may agree in writing to accept the nonbinding arb award as binding and have it reduced to an enforceable judgment.

For those who do not accept the arb award, subsection 6 purports to require the court to provide a verdict form and final judgment which:

“must include a detailed
description of the nature of the defect and of the monetary
amount awarded against each separate party, including the
monetary amount of the award attributable to each of the
following:
(a) Repairing or replacing the party’s own defective work.
(b) Repairing or replacing other nondefective property
damaged by that party’s defective work.”

Given the Florida Supreme Court’s recent reaffirmation in DeLisle v. Crane Co. that it is prepared to strike down statutes which purport to impose requirements on litigants and courts which it deems procedural, it is hard to see how subsection 6 would survive a challenge on appeal.

Even without the constitutional limitation on legislative regulation of court procedure, one wonders how a nonparty to the arbitration or the lawsuit – such as the insurer — is afforded due process in this determination.  As a matter of strategy,  who at the arbitration, or at the trial, will care to offer evidence as to the repair cost of the defendant’s “own work,” which is likely not to be covered by insurance?  Neither the  plaintiff nor the defendant would benefit from such a ruling.

However, subsection 5 contains language which suggests that any finding concerning what is the defendant’s “own work” is not binding on the defendant or its insurer:

(7) This section does not affect the rights and duties of
insureds and insurance carriers under their policies.

Whether this is intended to mean that the “own work” ruling by the arbitrator is not binding in a coverage dispute between the insured, its judgment creditor and the carrier is not crystal clear.  If that is the intent, it seems unclear why the arbitrator is expressly required to do the work make this finding (except perhaps to assist with a neutral advisory opinion).

Another unanswered question is whether this proposed nonbinding arb process is deemed a “court ordered nonbinding arbitration” under Sec. 44.103, Fla. Stat.  That section awards attorneys’ fees to parties who do not accept the arbitral award, and then fail to do at least 25% “better” than the award at trial.  While the bills state that the arb shall take place under ch. 682, the general arbitration practice statute, the process is nevertheless a “court ordered nonbinding arbitration” which would fit within the mandate of Sec. 44.103.

The amendment has its heart in the right place — containing litigation costs — but there are problems with the path it takes to that goal.

The full bill text is at https://www.myfloridahouse.gov/Sections/Documents/loaddoc.aspx?FileName=_s1246__.DOCX&DocumentType=Bill&BillNumber=1246&Session=2019