There are certain things that happen leading up to a lawsuit. You should be aware of what these signs are, how to be prepared with written contracts and documents, what to do once you are served a lawsuit, what you should be careful when you move to file a lien, whether or not insurance will cover some of the lawsuit claims, what a Reservation of Rights (ROR) is, whether you can recover your legal fees, and a few secret tips and tricks.
This blog was taken from a webinar that was presented by SunRay Construction Solutions and Alex Barthet. Alex is a board-certified construction lawyer who serves clients in Florida. In this blog, we will talk about what to do when you have been sued. Hopefully you can avoid it, but if not, this is what you have in store for you.
The following points will also be discussed:
What Leads Up to A Lawsuit?
a. Anyone can sue anyone for anything
The first thing you need to understand is that our legal system for the most part, allows almost anyone to sue anyone else for almost anything. It is probably not a shock to read that, but once you understand that you will understand that you could be sued for lots of things that you think are not your fault, or you had nothing to do with.
b. Be prepared with written contracts and documents
With the above in mind, you need to be prepared, and the best way to be prepared is to document things. And the reason documentation is so critical, is because when in a court setting, if there is a document that happened at or about the time of an incident, it is typically given a lot of weight, and is very credible.
So, if something were to happen and you have an email that describes what happened from your perspective, fast forwards a year, and if there is a lawsuit, that email becomes very important. So, knowing that you could be the victim of a lawsuit. You need to understand that documentation is critical.
You should have your contracts in writing, ideally reviewed by a lawyer, and that includes all of the terms and conditions that you believe to be important and part of the deal. You should email those folks on your projects frequently. You should also take lots of photos of the project and of the surrounding area of things happening on the job because once the project moves forward, the walls are closed up and there won’t be anything you can do to get those pictures again.
c. Try to resolve issues before they turn into lawsuits
Most times you know that the lawsuit is coming. It is not a surprise to you that a dispute is brewing and therefor something may percolate into a lawsuit. With that in mind, you should try to resolve issues as best you can to avoid having them turn into a lawsuit.
Once Served, What Are the Next Steps?
So, once you are served, what are the next steps?
a. You will be served with a lawsuit
You will be served with a lawsuit by the process server or the sheriff. They will typically knock on your door if you have a company, and the company has served, the registered agent is typically the first person to get served. You may not know who your registered agent is, but if you go to sunbiz.org, look up the information for your company, it lists the registered agent.
Sometimes it will have the lawyer or accountant that set up the company. Sometimes it may be you or an officer of the company that is typically the first person that will get notice of the lawsuit.
b. You have 20 days to respond
Once you have the lawsuit served upon you, then you have 20 days from that date to file a response. That response is typically is either one of two things. You can either move to dismiss or you can file an answer and assert defenses.
c. You can either move to dismiss or answer and assert defenses
A motion to dismiss is a document that is filed with the court and says that this case should not be brought because of some technically issues. Typically, motions to dismiss are heard relatively quickly but they are not dispositive of the case, meaning that most times a motion to dismiss may be granted but the other side (the plaintiff) or the person suing you, has the right to amend.
And most times, the judge will allow them to amend several times, meaning you could be served with a complaint move to dismiss, you prevail, they amend, move to dismiss again, you prevail, and they get to amend again. There is no hard and fast rule, but typically it is three strikes, and you are out.
But know that most of these issues are technical in nature and many times even when you are successful on a motion to dismiss. If they amend and say the magic words that the judge wants them to say in their complaint, the case will continue at which point you will have to file an answer and assert your defenses.
The answer may be, “No it is not my fault, and the affirmative defenses may be “I was not there/I was not on the job then/It was not within my scope/Other people delayed me on the job so that is why I was delayed in the work that I did.”
You have to be careful though, because there are some complaints that may be served upon you where you do not have the ability to file a motion to dismiss. You have to file certain other documents. The one that is most common is what is called the 20-day Summons to show cause. This is a lien foreclosure-type action where if you file a lien, the other side may file a 20-Day Summons to show cause.
And that requires you to file your foreclosure action on your lien right away. So just know that in most instances, the next step after getting served with a lawsuit, is to move to dismiss or to assert defenses. But there are exceptions to that rule. Once the lawsuit moves forward because an answer has been filed.
The next step typically is discovery. Those are written questions that are sent to both parties by the lawyers that have to be answered, usually within 230 days. There may be a request for production and those are requests to or from you that have to be responded to within 30 days. And that is to produce the records related to the case.
Then the last significant type of discoveries is what is called “depositions.” Those are subpoenas that are served upon you or you serve on the other side or third-party witnesses. Those people typically come into the lawyer or reporter’s office and provide testimony under oath. Which means they are asked questions verbally, they answer verbally, and their answers are taken down, and used in the case later.
e. Motions for summary judgment
Usually after the discovery is done, some parties might file what are called “motions for summary judgment.” And these are motions that are filed with the court, the judge hears the motion, and determines whether or not, based on everything that happens to that point in the case, including the facts that have been produced in the discovery that has been taken. This is whether or not the judge can rule in favor of one party or the other, either as to the whole case or as to certain limited component parts of the case.
So, maybe someone has sued you for breach of contract, they take some discovery, and then they decide that they have enough facts to go in front of the judge. They say that they want the judge to rule that they won and that you lost on the count of breach of contract.
Summary judgments are usually hard to get because if there is any dispute as to the factual issues in the case, then the judge will deny the motion and the case will continue.
The next step is typically the last step but for an appeal which is the trial. Trials can be either in front of a jury or just in front of a judge. Those trials can be just a few hours long or they can go on for weeks depending on the number of parties and the complexity of the case.
g. Legal system is very slow
You also need to understand that the legal system is very slow. Most cases take between 12 and 18 months and there are cases that will go on for 24 and 36 months. There was even a case that went on for almost 10 years. There is no speedy resolution if you leave the resolution solely within the hands of the legal system.
h. 98 percent of cases settle
Upwards of 98 percent of cases that are filed, settle. This means that they never got to trial - they get filed and they settle at some point before the trial. It could be before discovery is done or right before trial on the courthouse steps.
i. Hire the right lawyer
It is very important that you have the right advocate representing you. So, hiring the right lawyer is important, and we will explain what that means when you have insurance or if you have insurance.
Do I Have Insurance for This?
The answer is, maybe! First you need to understand what insurance covers and what it does not cover. So let us talk about what insurance typically covers, especially in the construction setting.
a. What does insurance cover?
In most instances, your GL carrier will cover claims for damage to other property, not your work itself. You may also have other types of insurance. You may have work comp insurance. This means that an employee that is injured in the course of their employment can make a claim on your work comp policy.
You should also have auto insurance so that if you get in a car accident, or your automobiles or trucks are damaged, you have insurance for that. But in the construction setting, most times attorneys get involved with their clients GL carriers, which is coverage only for damaged property.
For example, if you are a window contractor or a glass and glazing contractor, you install windows in the building, and the claim is that the windows were installed improperly and are leaking, you do not have insurance for the alleged defective installation or the alleged defective windows. What you may have coverage for, is the water damage that damaged other things like drywall or millwork. These things would be covered.
The magic words that need to be included in a complaint when you are sued for those types of things are a specific reference to damage to other property. In many cases when an attorney has a client who is served with a lawsuit that could potentially be covered by insurance, they may call the other lawyer if he/she has not said the magic words.
They will see if they can amend the complaint to say the magic words so that there may be coverage in the complaint. So, the attorney can then tender to the insurance company, and the insurance company will pick up the defense costs.
b. What does insurance not cover?
Now we will talk about what your insurance typically does not cover. It does not cover defective work. So, if there is no damage to other property and it just defective work, your insurance company will not typically provide a defense to the case, meaning hire a lawyer and pay the lawyer on your behalf.
For example, let us say there is a painting contractor on a building and the claim is that the paint is fading sooner or more quickly than it should. There is no damage to other property or claim that the paint was put on improperly such that it caused leaks, or that it was done so sloppily that it got on other things and therefor had to be cleaned. The other side just thinks that it was not applied thick enough.
There is no coverage for that. The client submitted it to their carrier, and the carrier denied the claim. So, the client is paying the defense of that claim, out of his own pocket.
Other types of claims that are not covered by insurance are breach of contract. If someone claims that you breached the contract, maybe that you installed the wrong material, or that you did not deliver on time, all of those issues would be outside of a standard commercial general liability policy. Therefore if you get sued, you will have to pay for defense yourself.
c. Report claims timely
If you do have coverage or have any possibility of having coverage, you need to report the claims to your insurance company and to your agent right away. If you do, you may receive what is called the Reservation of Rights (ROR) letter if they decide to pick up the claim.
d. Reservation of Rights (ROR)
Reservation of Rights is typically referred to by the acronym ROR. It is a statement from your insurance company where they say that they have received your claim and that they understand it. While they investigate the claim, they will provide you a defense (meaning an attorney), to deal with the case. But they do not agree at that point that it is covered. So, the insurance company says that they may decide later to deny coverage and withdraw the defense that they gave you.
So, just be aware that Reservation of Rights letters may be sent to you and that is the meaning of the letter.
Can I Recover My Legal Fees?
In Florida, there are three ways to recover your legal fees in a claim.
a. Written contract
The first way is if you have a written contract and the contract says that the prevailing party is entitled to recover their legal fees. So if you are sued for a breach of contract, your contract is in writing and it says that the prevailing party gets their fees, then the prevailing party will do exactly that.
If you have an oral agreement, nothing in writing, or a proposal and it does not have those terms, then if you get sued, the winner is not likely to recover their fees based on the written contract.
You can also recover your legal fees based on a statute. The two most common statutes that exist in Florida are the lien foreclosure statute and the bond statute. So, if those claims are asserted, then the winner in those cases may get their attorney’s fees.
c. Formal proposal for settlement in the legal case
The last is when in the middle of a case, if you either serve upon the other side or they serve upon you, what is called a formal proposal for settlement. Then to the extent that that offer is not beaten by 25 percent at trial, then court will go back in time from the date that that offer is made, and that party would be considered the prevailing party.
The purpose of this rule is to encourage settlement so that people can make offers in the case that are aggressive. Because if they do not beat the offer by a significant amount, then the other side will get their legal fees. So know that in the middle of the case, even if the first two rules do not apply, there may be ways to transfer the risk of attorney’s fees. This is what is called a formal proposal for settlement.
A Few Secret Tips and Tricks
Now we will go through a few secret tips and tricks.
a. If you have insurance, try to appoint your lawyer to the case
If you have insurance, try to get a lawyer who you know and trust, appointed to the case. Typically, insurance companies have a panel of lawyers, and when you submit a claim to an insurance company, if they decide to provide a defense, will hire a lawyer that they have a relationship with.
That is not necessarily a bad thing, but because the relationship with an attorney is very personal, you may feel more comfortable with an attorney whom you know and have a relationship with. The way to do this is by doing everything you can with your lawyer to get them appointed when the claim is submitted.
The lawyer has to be qualified to handle the case, have the necessary experience in that area of the law, agree to the billing rates of the insurance company (which are typically much lower than the free-market competitive rates of attorneys in the geographic area), and finally, agree to the insurance guidelines that the insurance company has.
They may have certain reporting requirements. Their bills have to be submitted to them in a certain way and in a certain format, typically electronically, and in an approved format. But if your lawyer can satisfy all these requirements, then you have a good chance of having your lawyer appointed and paid for by the insurance company rather than having the insurance company’s lawyer appointed to your case.
b. Even if you have insurance, monitor costs
Even if you do have insurance, you need to monitor the costs of the defense so that they do not hit your loss fronts. Typically, your loss runs are run for the last three years. That is considered in any renewal of your policy. So if you have an upcoming renewal and you may not have lost the case but you may have $100,000 in legal fees that the insurance company has paid to the attorney.
Those fees are going to affect your loss runs and therefore may affect your premium that you will have to pay at renewal. So, do not just assume that since the insurance company has given you a lawyer that you do not need to worry about it. You need to try to monitor what is going on to get the most efficient outcome possible.
c. Be a co-pilot, not a passenger
In that regard, you should think about it like this – you need to be a co-pilot in the case, not a passenger. Because this case is going to have an impact on you presently and in the future. For your lawyer, he/she is doing their job, and when the case is over, they will go on to the next case. So you need to take control, ask lots of questions, and you need to be involved in the decision-making. This is true even if your insurance company is the one that is paying for the defense.
d. A bad settlement is better than a good lawsuit
Always remember that a bad settlement is better than a good lawsuit. Settling cases is the best and most efficient way to resolve a dispute. Sometimes that is not always on the cards and you have to go all the way, but always remember that the outcome of the case, no matter how strongly you may feel, may come out differently than what you expected.
No lawyer is going to be able to guarantee a good outcome. So even if your lawyer says you have a good case, or even a great case, that does not mean it is a slam-dunk. So, if you have the ability to settle the case, you should do that rather than move forward even with a good or great lawsuit.
THE INFORMATION ON THIS WEBPAGE IS NOT THE SAME AS LEGAL ADVICE. SUNRAY CONSTRUCTION SOLUTIONS, LLC IS NOT AN ATTORNEY OR A LAW FIRM. WE RECOMMEND THAT YOU CONSULT WITH AN ATTORNEY.